Happy New Year...spotting the signs


Happy New Year from all at PSB - we hope you had a healthy and happy break over the festive period. Our latest newsletter covers why accountants and other professional advisors are so important in spotting the early signs of financial difficulty for businesses and individuals and what they can do to help.

Happy New Year! 

Why accountants, financial advisors and solicitors are so important in helping their clients spot signs of financial distress  

Happy New Year from all at Parkin S Booth - we hope you had a lovely time over the festive period. The start of January always gives us pause for thought about the year ahead....

A perfect storm of a reduction in Government support with energy costs, a shorter trading period over December and a slow-down in trading in the bleaker months of the start of the year can lead to increased cashflow pressures on many businesses. Equally, individuals realise quite how much they spent over the festive period and often begin the critical analysis of how they might afford their bills as they begin flooding in.

As the New Year begins and, particularly for accountants wading through copious amounts of clients’ information to complete Self-Assessment Tax Returns, it highlights just how important trusted, qualified, advisors are in helping spot signs of financial distress for businesses and individuals. They are often the “voice of reason” or the “wake up call” that a business owner or individual needs when things aren’t looking too good.

Signs of inability to pay Self-Assessment Tax bills, falling sales, problematic cashflow, increasing debts, supply chain issues and slow paying/insolvent customers are only a few of the flags that advisors can spot. Recognising these signs and highlighting them quickly is crucial to the potential rescue of a business. Too often, we meet with individuals who have “buried their heads” for too long, making their own or their business’s financial position worse – sometimes, meaning an insolvency process is inevitable.

Whilst a business owner’s closest advisors may spot these issues early, it is the encouragement to seek specialist insolvency advice promptly that is key. For many, it can seem a scary prospect but obtaining specialist insolvency advice early can often be the difference between an insolvency practitioner being able to assist someone to restructure and rescue a business or their personal financial affairs with a more positive outcome.

Working with the existing advisors is critical to our ethos – an existing trusted advisor has a far better understanding of their client’s history and position. We like to provide technical support and expertise for trusted advisors and their clients to ensure the most positive outcome possible.

Technical reminder
There have been several recent changes to insolvency laws – a summary is covered below and is a reminder of things to look out for whilst working with your clients.

Suspension of termination clauses
Often, once an insolvency process begins, suppliers withdraw immediately and completely, or require crippling terms/payments.

New measures introduced prohibit creditors from enforcing termination clauses in contracts for the supply of goods and services that exist at the time of an insolvency event. Essentially, suppliers must continue to fulfil contracts with the struggling company, even after the commencement of formal insolvency proceedings.

Understandably, there are measures to protect suppliers (allowing them to terminate contracts if the continuation of supply would cause ‘hardship’ on the supplier).
The following changes are important to be aware of but we anticipate will not be widely used, certainly within the small/medium business community. This is due to the likely level of costs and complexities involved in each process.

Restructuring procedure
Certain small groups of creditors often block restructuring proposals, making it impossible for a business to restructure in an aim to survive.

Under the new rules, creditors are divided into separate classes (often by similarity of rights and interests). This division is then approved by the court and each class of creditors (and shareholders, where relevant) vote on the proposed restructuring procedure.

The procedure binds all classes of creditors (and shareholders) if more than 75% of creditors, by total value, in each class vote in favour.

Standalone moratorium
The moratorium essentially provides a company with some “breathing space” from creditors - it has 20 business days free from creditors being able to proceed with enforcement action. It is designed to allow company directors time to obtain advice and, hopefully, enable some form of business rescue.

It seems clear that these new measures aim to support the Government’s agenda of encouraging business rescue and limit job losses and the wider economic impact of business failures. Time will tell how well the measures fulfil this target or whether they will need to be adapted to encourage wider use.

As ever, if you have any queries regarding insolvency matters, please do not hesitate to contact a member of the PSB team.

This note does not constitute specific insolvency, legal or tax advice. Specific advice should be taken before acting on any of the matters covered.