Pertinent Insolvency advice for Directors.

This might be as welcome a subject to read up on as your future funeral arrangements but as ever, the ICAEW website offers very useful guidelines in a very accessible manner. It is recommended reading not just for Directors concerned in these difficult times but those associated or engaging with businesses where there could be issues. Sadly that will encompass a wide spectrum over the coming months

I would also add a little extra advice which the accountancy body would no doubt endorse but would be careful to express publicly.

When dealing with Insolvency Practitioners or “turnaround” consultants, be extremely careful who you recommend. I know some very decent IPs but sadly its a sector with some less than ethical practitioners. Remember also that IPs are not necessarily seeking to build relationships with you or your contacts so the grasping of fees will the priority for some. It does however backfire. A IP that persuaded a past client of mine to enter into an expensive and unnecessary administration rather than a simple liquidation has not received a single referral from me since and will never do so. Also word gets round and it certainly did…

Turnaround is unregulated and has an awful reputation with some notorious disgusting practices. That is real pity because there are certainly good decent professionals in the sphere but the worst referral I ever made was to a “turnaround” specialist who frankly treated myself and the client disgracefully through his desperation for fees. I do not name names here but details can be on request

Lets hope you don’t have to use these services or take this advice but its certainly worth knowing the parameters

Recession in Europe. Who is exposed?

Here is a a very good summary of the prospects for the major European economies over the next year. Not surprisingly it doesn’t make for comfortable reading but it does once again highlight the sheer stupidity of the German policy of hitching their energy requirements to an insecure nasty paranoid state.

There is a substantial green lobby in Germany which has mitigated against the use of nuclear power. There is probably a fair size green lobby in France too but in a very French manner the authorities ignored them and look where they are now?

This isn’t a polemic against green policies which are clearly essential but the hostility to nuclear power, which was understandable after Chernobyl, has backfired badly. Sadly the world is still too dependent on two vile states (Saudi and Russia) for their needs and it wasn’t necessary

When even Amazon cant read the market?

The news that Amazon have halted their expansion of their Fresh stores is not a surprise. There is a store opposite where im seated now and no one would claim that is overcrowded

Amazon clearly are not at risk from this area of the business failing but there may well be a couple of age old lessons to be reminded of here

Firstly, surely market research would have indicated that this is a very crowded and competitive market space where small scale supermarkets have expanded enormously in recent years? Following that, what advantages can be offered to get a foothold? The only two that I can see are the instant checkouts and the fact that you can return Amazon parcels easily. Both nice enough but not exactly going to break familiar shopping habits in the numbers required.

Also the range of food doesn’t stand out in any way. It doesn’t have the excellent cache of M & S or Wholefoods. Its simply Tescos or Sainsburys all over again and they are almost invariably just a few feet away.

There is a long established business mantra which states “stick to what you know”. There is a lot to be said for this and the difficulty is that entrepreneurs or entrepreneurial enterprises have a tendency to get a little bored with sticking with what they know. The temptation to dabble in new areas can become overwhelming and in fairness it can be successful on a certain. level. As much as many have misgivings about Branson, the has had some success although on the other hand the Easy brand hasn’t really expanded much beyond the airline despite many efforts

Should Zombies be exterminated?

Many of you will be familiar with the term “Zombie Business”, which is effectively a enterprise kept on life support by what would be deemed artificially low interest rates. This is something that adherents to the economist Schumpeter are naturally opposed to given his belief in “creative destruction” which in effect is the regular churn of enterprises which would then be assumed to best allocate resources. A fair theory but one which doesn’t take into account the natural human desire for some degree of continuity and security and also the simple allocation of resources to continually having to reinvent and kick start your business. Hardly conducive to a firm wishing to develop a long term hi tech project or a reliable brand, with of which are fundamental to the future economy of course

The Times today carries a column criticising the use of low interest rates and government support (specifically Covid related) for businesses which were supposedly effectively bankrupt. Thats all very well if you do not happen to be employed by or own such a business. Also the assessment of what is “bankrupt” and what isn’t is very subjective. A “zombie” business is one which is said to be simply maintaining is indebitness rather than. growing or paying down debt but that can be countered by the a quick “so what?”. Maybe the owners and employees earn a living and a great deal of satisfaction and pleasure working for such an enterprise? I have worked with businesses that are close to being vocational in outlook. Not something that many columnists from “think tanks” or economists would understand.

The argument in the column is that by maintaining these “zombie” businesses the UK’s productivity is “poor”. Yes our productivity stats are relatively poor but aside from this being a controversial measure of economic success, the key word here is relatively and this is where the argument quickly unravels.

Peer economies have also had “covid support” and low interest rates. In addition, the insolvency laws in most western economies are far tougher than in the UK with our somewhat notorious Administration process. The props for “creative destruction” are far stronger in the uk than in say France or Germany both of which have stronger productivity statistics.

There is a solid case for higher interest rates to counter a number of economic pressures but the wilful destruction of businesses is not one of them

A poor column with arguments simply not thought through but such is the way of ideologues

Online vendettas. Who wins?

Currently on linkedin there is an extraordinary range of attacks being launched against a respected contact of mine. The nature of these surround my contact’s business model but how and why that triggers the attacker into this virtual abuse is hard to fathom

Previous comments have resulted in an ongoing legal action and my contact is rightly diligently refusing to be baited online. Deal with the lawyers is the rightful message and its fair to say that further comments this week have surely crossed the line to an even greater extent which is only to going to weaken the attackers position

I am not going to add fuel to the fire by linking and drawing attention to the attention seeker (in his pink bow tie) but you have to feel pity for someone who is clearly unaware of the damage to his image. Ive had robust debates myself on linkedin too, most notably with two ex bankers who seemed to believe that currency dealing was more productive to the economy than asset finance, but you do not drag these discussions into personal vendettas, even despite my belief that these bankers were 24 carat idiots

The key is that we are here to be seen as approachable and reasonable to engage with. At the same time, no one wants to engage a timid yes man/woman without well developed opinions of their own.

Rough time for SMEs?

No one would ever describe 2022 as a vintage year for the world and its economies. Going through the negatives once again is nothing more than a downbeat exercise in what we know already but to my mind the most disturbing factor is the increased polarisation of political opinions with seemingly little desire to face realities and show some self awareness.

This blog steers clear of strong political opinions but its hard to hold back when the likely next Prime minister trots out absurd projections (see my previous post) and policies to “combat the cost of living crisis” whilst on the hard left, the leader of the RMT backs Putin’s invasion of Ukraine whilst complaining about rising prices, caused by Putins invasion of Ukraine. And that is before we get to his vile lack of morality.

One of the problems is that we have becoming too immersed in a world of simple minded slogans and partisanship driven any the worst aspects of social media. Understanding slightly complex issues takes a little more time but the desire to do so has seemingly become alien to too many people

Amongst it all there is journalism which does inform and educate with a commendable balance

Water companies have recently been a strong focus of attention and this really excellent article in the Spectator is (surprisingly) without political bias but strongly nails down the present issues ( it has also appeared in the Times).

And on the issue of the difficulties facing SMEs, the FT comes up with a worrying but well presented piece

Stock Finance. Is it possible?

Every now and then im approached to find and source financing of stock. Its fair to say that it isn’t the easiest lead to complete

Have I ever done so? Once I came close but the rates were eyewatering and on couple of occasions I recall stock as being included as part of the assessment for an all asset balance sheet lend. There was one specialist lender in this sector a few years back but the fact that they collapsed probably tells its own story

The difficulty is the sheer nature of stock. It doesn’t sit still and that clearly makes recovery by the lender in the case of default, extremely difficult. It can be managed by the lender having control over the movement of the stock (bonded warehouse maybe) or if the stock is continual and fundamental to the business but the scale here has to be significant simply because the admin is fairly demanding

The nature of the stock is vital. A few months ago someone approached me seeking to finance stock within a jewellery business to effect an MBI. I had to calmly explain this was impossible because of all stock items, jewellery for sale is surely the hardest to manage and most open to abuse. A £1m worth of jewellery can easily be moved in a carrier bag of course.

Commercial Mortgages. Are they feasible?

Perhaps not on the above property but the photo does serve to illustrate a point which ill come to

I do sometimes receive requests for commercial mortgages and being an area that in frequent occasionally, I will often engage a specialist to find a solution. Yes they can work

But it isn’t always easy. Too often overlooked by those seeking the lending is that the Loans to Values are much smaller than for residential property. The vey best you can achieve is 75% and more usually it will be less depending on the nature of the property. I rarely criticise my clients but sometimes its a little frustrating to have to point out that that will mean that the remaining (minimum) 25% will have to raised from other sources and no the seller will not agree to defer.

Would you sell your house with a promise from the buyer to pay the balance in a years times?

Property is often included in business sales and this is frankly somewhat hopeful by the seller. It clearly raises the premium and sets a demanding initial consideration which naturally restricts the market considerably. That nagging 25% is going to not go away and who has 25% of say £500k in ready liquidity?

There is also the issue of the valuation of the property and the condition. Commercial properties are not generally built to last quite as long as residential

The key solution with business sales is for the property to be either sold separately or simply leased back.

Commercial mortgages are available but they are not as easy to obtain as many assume

Will the “extended” RLS scheme take off?

It has been announced that the RLS scheme is to be extended for two more years but you wouldn’t be aware of this from most lenders websites. One significant (and not widely liked) lender was making quite a song and dance about the scheme previously but is very clearly stating that the “scheme has ended” with no hint of renewal. Seen very similar from a couple of other Fintechs and perhaps more significantly, a medium size conventional lender has signalled to me their exit from the scheme. In truth they were not particularly active but it is could herald a trend

Why is this? Maybe the feeling that the lending is exhausted now or perhaps the simple administration with the British Business Bank, which as come in for a lot of criticism.

The momentum has seemingly been lost and understandably lenders are more inclined to concentrate on their own less labour intensive products

I will update as I know more