SOLVING
Page 29
If you've noticed an error in this article please click here to report it so we can fix it.
INSOLVENCY
Wondering where to go for help when a business collapses is one problem operators can do without. Commercial Motor offers expert advice. • The Government may not be admitting that the UK is in the clutches of recession — but those closer to the grass roots of the economy have felt its grip tightening for months. The number of casualties is growing: the Financial Times now runs its "businesses for sale" advertisements three times a week instead of two.
Often hauliers who find themselves in financial trouble try to soldier on and hope the worst will never happen. But this can do more damage, says insolvency expert Richard Turton, who heads Touche Ross's corporate special services division.
"You've got a better chance of survival if you go for help early. Don't ever believe it won't happen to you," he warns.
ACCOUNTANT
When problems strike the first person an operator should contact is his accountant. Although an accountant is not allowed to handle his own clients insolvency, he will quickly assess whether or not the business can be saved, and if necessary will put the operator irr touch with a local insolvency practitioner. Insolvency practitioners are Government-licensed and they can be lawyers, accountants or specialists in insolvency.
If the operator cannot see the accountant because of an unpaid bill, he should go direct to another professional.
A haulier will not have to pay anything to the practitioner until he receives a formal letter of engagement, which should explain the charges. If the business has gone bust, the practitioner recoups his fee from the liquidation.
If the business is insolvent, the action taken depends on the type of liability. In the case of personal bankruptcy, a petition is made to the court by a creditor or debtor. lithe trader is bankrupt for the first time he would usually be banned from setting up a new business without the court's approval for three years or so. Individual voluntary arrangements for operators in financial difficulty also exist: these are complicated but in some cases they allow the operator to set up a new business, or to continue to trade.
In the case of corporate insolvency, and where the directors have limited liability status, there are three options:
El Members' voluntary liquidation, where creditors are paid in full, plus interest. 0 Creditors' voluntary liquidation, where the directors go before a creditors' meeting to explain the situation and a liquidator is appointed. CI Compulsory liquidation, when the creditors petition the court to wind up the company.
Directors who are tempted to keep trading even when they know the company is insolvent should note that they can be banned from acting as a director for up to 15 years under the Company Directors Disqualification Act. They can also be made to pay large sums if a liquidator makes a successful application to court, alleging wrongful trading.
This can happen if the court believes that the operator should have known that the company was bound to finish up in insolvent liquidation.
The 1986 Act also introduced the concept of administration, which can give a bit more time to companies in trouble. The company or creditors petition the court for an administration order, which if granted, can mean an administrator gets into the company in a few hours.
The administration procedure has to be contrasted with the role of an administrative receiver, which is the new name for a receiver and manager. They have similar powers to an administrator.
The purpose of the administrator is: O to preserve the whole or part of the company as a going concern; O to give the company time to work out a voluntary arrangement; O to get a better price for the assets than going through a liquidation.
The administrative receiver has farreaching executive powers, including hiring or firing of board members, and deciding whether or not the company should continue trading. A liquidator or trustee in bankruptcy may also keep the company trading. but only to get the best realisation of the assets. Turton offers some advice to keep insolvency at bay: "Don't forget a sale isn't a sale until it's paid for. Businesses don't always control cash to ensure it comes in quickly enough."
Taking professional &him at regular intervals is vital, as is keeping the bank well-informed. "Give them too much
information rather than too little," says Turton. And margins should be carefully watched, he says, even half-loads can be made profitable if the margins are right. Finally, keep a sharp eye on the bottom line — turnover has far less bearing on a company's well-being than profit. LI by Gill Harvey