The latest Insolvency Index from Experian, the global information services company, has revealed that mid-sized and large businesses performed better in June this year.

Businesses employing 51-100 employees saw failure rates drop from 0.23% in June 2010 to 0.19% last month. The rate of failure amongst firms with 101-500 employees more than halved year-on-year, falling from 0.17% to 0.08% of the population this June.

The East Midlands was the most improved region in June 2011, with the rate dropping from 0.11% in June 2010 to 0.09%.  The South West had the lowest rate of failures, with just 0.07% of the business population becoming insolvent last month.  In contrast, businesses in the North West and Scotland both experienced an increase against last year.

As a whole, the failure rate for all UK businesses remained stabled at 0.09%, although the financial strength score of UK businesses as a whole fell from 80.83 to 80.06 in June this year.

The Building materials industry had the highest rate of failure, 0.27%, followed by Building and Construction, with a rate of 0.18%.

Max Firth, Managing Director for Business Information Services at Experian, said: “June’s data indicates that the UK’s business community as a whole is generally stable, however it also points to a change in circumstances for different sized businesses. The largest companies have experienced a turnaround in fortunes and now the larger mid-sized businesses are following suit with a significant improvement since last year. Our analysis also shows that businesses in the north seem to be faring slightly worse than their southern counterparts.

“Although the data shows improvements in some regions and sectors, individual organisations are impacted in different ways. It is vital for businesses to understand and monitor the circumstances of those they are doing business with and the risks they could expose them to.”

Contributed by www.Experian.com

Tony Lomas, joint administrator and partner at PwC said: “Very significant progress has been made over the past six months. A further £2.1bn of client assets have been returned to their owners, making a total of almost £13bn to date, and another £1.6bn of house assets have been realised, bringing total realisations to £10.7bn. Some major litigation also took place in the period, in respect of which a number of important legal appeals will be heard over the course of the rest of the year. The outcome of these proceedings will materially influence the value of the eventual recovery for ordinary unsecured creditors.

“Some of the most substantial issues that need to be resolved relate to claims being made between a small number of Lehman group companies, with the outcomes materially benefitting creditors in one estate, to the cost of creditors in another. This situation arises from the huge volumes and value of transactions that were traded between affiliates before the group collapsed, combined with the immense complexity of the contractual arrangements.

“We continue to work very hard on the agreement of creditor claims, the tracing of proprietary rights and the identification of Client Money entitlements, whilst the various related legal actions continue, in order to expedite the payment of a first interim distribution to unsecured creditors.”

Key achievements to date

• A Consensual Approach for the agreement of unsecured claims has been launched and we are close to having issued the first 100 Claims Determination Deeds to creditors with an aggregate claims value of approximately £1.1bn. Some £0.4bn of claims have now been formally agreed in respect of this
• We have concluded a major change programme to achieve full independence of the IT and infrastructure service provisions from Nomura and BarCap. The related terms of service agreements have been concluded ahead of schedule resulting in an annual cost saving of some £15m
• Our legal action to confirm ownership of various assets held by LBIE but claimed by affiliates (The ‘RASCALS’ litigation) was found in favour of LBIE at first instance. Appeals have been lodged and will be heard in October 2011
• The appeal hearing in the UK Supreme Court of the Appeal Court judgement in relation to pre-administration Client Money is scheduled for October 2011. The administrators have also filed a UK court directions application in respect of the legal principles to be applied in order to identify and trace pre-admin client money in LBIE house accounts in advance of the appeal hearing which will be heard at the beginning of 2012.

“On top of the good progress being made on the administration, we are also operating a fully functioning workforce at Lehman Brothers in administration.”

Jane Woolcott, joint COO of LBIE and PwC partner explains: “People may be surprised to learn that we continue to employ nearly 500 Lehman employees and contractors who are crucial to the administrators’ efforts to wind the business down and return money to creditors.

“Most of the staff working at Lehmans have been with us since the beginning of the administration and continue to enjoy the benefits of working for a fully functioning investment bank. They have full access to learning and development and we continue to run competitive development schemes with all the reward and promotional opportunities and benefits you would find in any other company in Canary Wharf. In the last six months alone, we have recruited 45 staff and look to replace PwC staff with experienced external hires wherever possible. We also currently have eight employees on maternity leave and fully expect them to rejoin us when their maternity leave is completed.”

Article contributed by PricewaterhouseCoopers

Transparency welcome but route for rescue should not be hindered

Ann Condick, Director of Insolvency at ICAS, said: “Measures that help provide greater confidence and transparency into the pre-pack process are welcome. In our experience, insolvency practitioners already liaise with key creditors before a pre-pack sale is concluded and are in favour of open, two-way communication with all creditors. The Government’s announcement will enhance the current process. However, what must be ensured is that the flexibility and speedy route for rescue that a pre-pack currently offers is not lost through the Government’s proposal to introduce a three day notice period for pre-pack sales to connected parties.

“The primary reason that a pre-pack is used in many cases is that the business is likely to quickly decrease in value post-appointment, with little or no funds to trade or market the business for sale. Three days is a long time in business, and a company could risk losing the sale or key staff and customers.

“Businesses are operating in an economic environment where it is harder to access finance. Viable businesses that may not have run into problems before are now experiencing difficulties. In this environment, a pre-pack is sometimes the only way in which a business and jobs can be saved, particularly in a company where employees are the key asset.”

The results of an ICAS survey, of 14 leading insolvency practitioner member firms which handle administration appointments, show that for the period 2007 to 2010, these firms had handled 728 administration appointments. Of this number, 43 were cases in which the businesses had been sold through pre-packs. Out of a total of 7043 jobs saved, 3012 were as a result of pre-packs, representing 42% of the total number of jobs saved.

Commenting on the Insolvency Service’s report on insolvency practitioner compliance with (SIP 16) reporting on pre-packs, Condick said: “ICAS deals stringently with any breaches of guidance through our regulatory function, which includes lay involvement at all stages of our processes. In 2010, ICAS received two referrals on one practitioner in relation to SIP16 guidance, both referrals were fully investigated but required no disciplinary proceedings. There is a clear understanding amongst ICAS regulated IPs of the guidance relating to pre-packs and the level of compliance provides evidence of this.”

Article contributed by ICAS, The Institute of Chartered Accountants of Scotland

Image copyright: Flickr

Almost 600 professionals from across the industry took their seats in the Westbourne Suite of the Lancaster hotel, London, where individuals, teams and companies took home awards for outstanding achievement in 20 categories.

Finalists and guests enjoyed a champagne reception and three course meal before being entertained by the brilliantly talented comic Rufus Hound, star and winner of the BBC’s Let’s Dance for Sport Relief.

In the third year of the awards scheme the judges were flooded with a record number of entries which were whittled down to a shortlist of 72, comprising 50 different companies.

Credit Today would like to thank all the shortlisted companies, Capa for providing their overall sponsorship, and all the other sponsors.

Here is the full list of winners:

Insolvency Practitioner of the Year – Personal
Sponsored by iva.co.uk
Mark Sands, national head of bankruptcy, RSM Tenon
Insolvency Practitioner of the Year – Corporate
Sponsored by Robert Pearce Associates

David Chubb, partner, PricewaterhouseCoopers

Turnaround Practitioner of the Year
Sponsored by 11 Stone Buildings

Alan Tilley, principal, Bryan Mansell & Tilley

Insolvency Manager of the Year
Sponsored by Vincent Bond & Co

Stephanie Taylor, manager, business recovery services,
PricewaterhouseCoopers

Barrister of the Year
Sponsored by Mazars

Raquel Agnello QC, barrister, 11 Stone Buildings

Rising Star Award
Sponsored by BPP Professional Development

Sam Tao, manager, PricewaterhouseCoopers

Banking Restructuring Team of the Year
Sponsored by BTG Restructuring

Lloyds Banking Group, Business Support Unit

Insolvency Support Team of the Year
Sponsored by Insolvency Practitioners Association

Compliance On Call

Corporate Recovery Firm of the Year – Small firms (up to 3 licensed IPs)
Sponsored by Smooth Financial

MLM CPS

Corporate Recovery Firm of the Year – Mid-Sized firms (3-20 licensed IPs)
Sponsored by Edward Symmons

MCR

Corporate Recovery Firm of the Year – Large firms (over 21 licensed IPs)
Sponsored by Gener8 Finance

PricewaterhouseCoopers

Business Rescue of the Year – under £20m
Sponsored by Insolvencynews

Privet Capital / Lombok

Business Rescue of the Year – £21m-£50m
Sponsored by King Sturge LLP

Privet Capital / Silver Spring

Business Rescue of the Year – £51m plus
Sponsored by Privet Capital

KPMG / Blacks Leisure Group

Debt Management Provider of the Year
Sponsored by Sawfish Software

Paymex Group

Insolvency Litigation Firm of the Year
Sponsored by Jardine Lloyd Thompson

Nabarro

Business Rescue Funder of the Year – Asset Based Lender
Sponsored by Hilco

Lloyds TSB Commercial Finance

Business Rescue Funder of the Year – Broker / Equity
Sponsored by Moon Beever

Beer & Young

Asset Valuer / Auctioneer of the Year
Sponsored by Bridge Business Recovery

Edward Symmons

The Sabin Award for Outstanding Contribution to the UK Rescue Culture
Sponsored by BNP Paribas Real Estate

Peter Joyce

Insolvency and Rescue Awards results contributed by Credit Today

The Insolvency Group will provide members with a range of services including thought leadership, representation, and regulatory and technical support.

Members who join the group will gain access to a wide range of opportunities designed specifically to help them remain at the forefront of their field.

They will receive an email newsletter with regulatory updates, links to help sheets and news and views on issues affecting the insolvency profession.

In addition, they will have the opportunity to attend free seminars and other events to meet and exchange ideas, extend and refresh technical knowledge and hear from leading experts in insolvency.

The group will be chaired by Neville Kahn, global head of reorganisation services at Deloitte.

Speaking about his appointment, Neville Kahn said, “As the UK’s largest regulator of insolvency practitioners, ICAEW has the ability to act as a powerful advocate on issues affecting insolvency practitioners. I am delighted to lead this new group which will support and represent members in this field. Drawing on their collective experience, we will be able to shape the debate on issues affecting the sector to better support the next generation of insolvency practitioners.”

The new group will provide opportunities for information-sharing and will act as a focal point for the views of members. Members of the group will also have access to ICAEW’s online insolvency community, Talk Insolvency.

Michael Izza, chief executive of ICAEW, commented on the launch, “One of our strategic aims is to support members throughout their careers. As a provider of insolvency qualifications – through the new ICAEW Certificate in Insolvency – and a regulator of insolvency practitioners, we are well placed to support members at every stage in their career. The new Insolvency Group will provide an excellent platform to engage practitioners and deliver important services to those working in this area.”

The Insolvency Group is open to ICAEW members and non-members who are interested in insolvency. ICAEW insolvency licence holders will automatically become members at no extra cost. Members will be able to sign up for the group as part of their annual subscription renewal, or via the Insolvency Group’s website – icaew.com/insolvencygroup.

The latest Insolvency Index from Experian, the global information services company, has revealed a year-on-year fall in business insolvencies in the UK during April.

The total number of insolvencies fell by 20.1 per cent during April compared to the same month last year (from 2,274 in April 2009 to 1,818 in April 2010).  As a result, this brought the year-on-year insolvency rate down from 0.11 per cent to 0.10 per cent in April.

The overall financial strength score of UK businesses also improved, from 80.02 in April 2009 to 80.76 in April this year.   (The financial strength score predicts the likelihood of a business failing in the next 12 months, with 100 being the least likely to default and 1 being the most likely).

Mid sized businesses suffered the most in April. Companies with 26-50, 51-100 and 101-500 employees experienced the highest rate of insolvencies in April 2010 at 0.22, 0.26 and 0.24 per cent respectively.

Rolf Hickmann, Managing Director of pH, an Experian company, said: Our analysis shows that it continues to be vital for businesses to understand the circumstances of those they are doing business with and the risks they could expose their company to.

It is easier for the smallest businesses, with just one or two employees, to make adjustments to their operations and pull in the reins when times are challenging.  For the largest business, there is the flexibility that comes with economies of scale, so insolvency rates among these businesses are also low.  Mid-sized businesses do not typically have the luxury of either of these benefits and can face the most pressure.

Other key highlights include:

• The North East region saw the highest rate of insolvencies for the third consecutive month and was joined in April  by Yorkshire and the West Midlands, all with a rate of 0.13 per cent
• The East Midlands was the region to see the highest improvement, from an insolvency rate of 0.11 per cent in April 2010 compared to 0.15 per cent in April 2009..
• Scotland remained the region with the lowest rate of insolvency, although did see a slight increase on last year’s figure up to 0.07 per cent from 0.05 per cent in April 2009
• The Greater London region continued to be the region where businesses had the lowest financial strength score compared to other regions.  However, it was also, along with Yorkshire, one of the regions that saw the biggest year-on-year improvement from 78.45 in April 2009 to 79.59 in April 2010.
• Although they are among the companies with the highest insolvency rate, companies with 11-25 employees saw the greatest improvement year-on-year in the insolvency rate (from 0.32 per cent in April 2009 to 0.22 per cent).
• The smallest businesses (with 1 to 2 employees) saw the most improvement in their financial strength scores from 80.33 in April 2009 to 81.95 in April 2010.
• The financial strength of businesses in the IT industry rose from 81.46 in April 2009 to 83.25 the biggest improvement compared to other sectors.
• Businesses in the oil industry held the highest financial strength score during April 85.61.

About Experian
Experian is the leading global information services company, providing data and analytical tools to clients in more than 65 countries. The company helps businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. Experian also helps individuals to check their credit report and credit score, and protect against identity theft.

Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. Total revenue for the year ended 31 March 2009 was $3.9 billion. Experian employs approximately 15,000 people in 40 countries and has its corporate headquarters in Dublin, Ireland, with operational headquarters in Nottingham, UK; Costa Mesa, California; and So Paulo, Brazil.

For more information, visit www.experianplc.com

Image copyright: Flickr

Peter Sargent, president of R3, said: “It is irresponsible reporting by the Insolvency Service to claim that over a third of cases were judged to be non-compliant when as few as seven per cent were considered suitable for potential disciplinary action.

“Why didn’t they refer a third of the cases to the regulators? The insolvency profession is unlikely to ‘build confidence’ in pre-packs when a key part of the insolvency industry is engaging in scaremongering.”

He added that R3 appreciates that there is no room for complacency. Sargent urged the Insolvency Service to assist insolvency practitioners by providing greater clarity on what they expect from a Statement of Insolvency Practice 16 report. These reports help to regulate how pre-packs are arranged.

He added: “Despite numerous requests from practitioners there are still no ‘pro-forma’ examples of SIP 16 reports for insolvency practitioners to follow.

“Moving forward, the Insolvency Service should report with greater transparency on compliance rates and avoid misleading language that reinforces negative preconceptions.”

R3 said the Insolvency Service’s report states there have been ‘significant improvements’ in the quality and timeliness of information, which is not reflected in their press release.

Reproduced with kind permission of Credit Today  http://www.credittoday.co.uk

As the leasing industry has cottoned on to the need to spot clients in distress as early as possible, companies specialising in business recovery and restructuring have begun offering their services as an “early warning” service for lessors.

Turnaround lender Gordon Brothers (GB) is known to be in talks with a lender about such a programme, while advisory firm and intermediary Vantis has seen a big increase in the number of funders looking to have portfolios reviewed for possible trouble ahead.

One of the major problems faced by asset financiers in the wake of recession has been the perception of lenders as being out of touch with their customers’ financial problems up until the point of missed payments, or worse, bankruptcy.

Mark O’Neil, joint managing director of Vantis’ Commercial and Asset Finance division (VCAF), thinks this is a result of a historical tendency for many lenders, when thinking of clients in distress, to only consider asset value realisation in the event of a liquidation.

He thinks that as client insolvencies have increased, lessors have begun to think “less transactionally”, looking at all the issues surrounding a business holding financed assets, and the revenue generated by those assets as part of a going concern, rather than as a disposals prospect.

In essence, this means that leasing companies have become more concerned with ensuring the survival of clients – a trend that has aligned their interests with those of turnaround lenders such as Gordon Brothers.

Alex Brick, GB’s European CEO, explains how it works in the case of a leasing client that has been identified as distressed: “Our aim is to support a restructuring with additional liquidity, and then provide management support (or in some circumstances replace management) to help the restructuring of the business.”

Presuming the client is then returned to profitability, GB can convert remaining debt into equity and go on to enjoy the gains on the share value of the newly successful business. Meanwhile, the leasing company is ensured continuing payments as a result of GB’s short term fund offering, and avoids a potentially messy insolvency.

However, while Brick feels that a successful restructuring can take place “very late in the day”, it is crucial to act as early as possible. “If your customer is already missing payments, it’s probably too late – you need to restructure long before the client is in danger of insolvency.”

GB’s knowledge of this timescale is what has caused it to be recently approached to provide an early warning system for a large lender, something that many international firms have gone to great expense to build for themselves.

Barclays Asset & Sales Finance, for example, was quick in diverting senior sales resources to form such a programme in 2008, while UniCredit Leasing, under risk director Jens Hagen, reorganised vast swathes of staff to spot turbulence in client balance sheets in time to avert disaster.

VCAF, which acts as an intermediary for leasing companies, has taken things one step further by offering funders pre-lend reviews of companies whose funding requests it has interviewed.

Mark O’Neil of VCAF says that such a service highlights important issues in a client’s business from the very start of a contract, and gives lenders an idea of what product will best suit a company’s balance sheet – such as altered payment structures for businesses with seasonal income.

In addition, when VCAF introduces a deal on behalf of a client, it will stay in touch with the lessee at least on a quarterly basis in order to assess its ability to pay lease instalments and offer further assistance as required. “The client can often be afraid to talk to the lender about financial difficulty,” says O’Neil, “and so we will talk on their behalf”.

The kind of skills that Vantis and GB are demonstrating by looking at lessors’ balance sheets for stress points will not be wasted when the current climate of high insolvency risk fades away, however.

VCAF, for example, has recently been asked by a large bank to look over a portfolio -  not one of its own, but that it seeks to buy. With the risk lessons of the recession well learnt, the M&A climate, when it returns to health, will be one much more concerned with the future health of businesses in targeted portfolios.

How soon will that be? “There are more companies in the leasing market than you might think, waiting with their cheque books in hand” says O’Neil. Watch this space.

Article contributed by Fred Crawley – Senior Reporter, Leasing Life & Motor Finance

Every business faces risks that could threaten its very survival. Risk doesn’t discriminate. It doesn’t matter what sector you operate in or what size your organisation is, whether you are doing well or not so well.

The only way to manage risk effectively is, to first of all, understand the risks your business faces and how you are able to mitigate them.  External risks can be financial, such as exchange rate fluctuations, or strategic, such as the loss of a major customer. Internal risks can be operational in the form of accounting controls or employee fraud.

Effective risk management means identifying the worst case scenarios, asking the ‘what if’ questions, and having a clear strategy to deal with these potential eventualities.  These could include:

• If the majority of the business’s turnover is sourced from one customer, then it’s time to consider expanding your customer base.
• If one employee alone is key to a particular function of the business, it’s time to invest in training and/or recruitment.

Having identified the risks and put a plan in place to take appropriate action, next consider minimising costs.  Monitoring of overheads should always be a priority during the good times and the bad. The key areas to consider are not only maximising returns on outgoings, but also reducing these through the potential outsourcing of overhead functions such as, marketing or human resources.

Production and selling costs should also be scrutinised, reducing stock levels, and simplifying supply chains can yield substantial savings.

However, targeted additional spending, for example in IT, if well planned, almost invariably increases efficiency.

Cash really is King in a recession.  Businesses managing cash and working capital effectively have the opportunity to make strategic acquisitions, or build turnover by supplying to the customers of failed competitors.  Even small businesses should prepare cash flow forecasts, to help them prepare for ‘pinch-points’, so a potential problem does not become a disaster. Have a clear credit control procedure and consider insurance against bad debts. And consider alternative sources of funding – in the wake of the banking crisis, this has become increasingly popular, particularly with traditional lenders retrenching for the moment. Products like factoring or invoice discounting, asset and inventory finance can help ease cash flow worries and are increasing in popularity.

Finally, don’t be afraid to ask advice. The fact that 5,483 businesses went into insolvency in the first quarter of 2009 (up 57% on the same period last year), shows not enough people are seeking professional advice at an early enough stage. Make sure you are not one of them come the next quarter.

Managing risk is about identifying what could go wrong, and developing strategies to deal with potential problems. It sounds simple, but in these troubled economic times, an effective risk management policy is vital, and could potentially be the difference between success and failure.

Andrew Duncan, partner with Bridge Business Recovery

Active UK businesses had an average financial strength score of 81.14 per cent in the information services firm’s October Insolvency Index. This is the highest level for 15 months and indicates that UK firms’ chance of failure over the next 12 months is falling.

The business insolvency rate rose from 0.09 to 0.1 per cent in October, with 10 businesses in every 10,000 going under. That is also an improvement year on year as the rate in October 2008 stood at 0.11 per cent.

The average financial strength score of businesses in the IT sector rose from 79.74 to 83.35 per cent year on year. The number of insolvencies in the sector also fell 2.5 per cent year on year to 77.

Rolf Hickman, managing director of pH, an Experian company, said: “Throughout 2008, the average financial strength score had been seeing a downward trend, but 2009 has seen a reversal. The financial solidity of UK businesses has been improving over the year.

“If the financial strength of businesses continues to improve, we could see insolvencies maintain a low level and even start to fall.”

Article contributed by Doug Woodburn, news editor for CRN magazine and its web site, ChannelWeb.co.uk

Article image copyright: Flickr