UK Business Distress at Record Low

The latest Business Distress Index from insolvency trade body R3 has revealed that levels of business distress in the UK are at a record low, with only a quarter (24%) of businesses reporting a key indicator of distress.

Every indicator of distress tracked by R3 is apparently at its lowest since the research began. The figures show that 10% of businesses are experiencing decreased profits, 11% are experiencing falling sales volumes, 6% are seeing market share fall, 8% are regularly using their maximum overdraft, and 6% are making redundancies.

“Having stayed constant throughout 2014, UK business distress levels have fallen once more,” commented Phillip Sykes, President of R3. “Many companies will feel they have successfully negotiated the trickier parts of the rapid economic growth we saw last year. As growth slows, businesses are less at risk of over-extending themselves.”

“The flip side of this is that signs of growth may start to become rarer as business growth hits a plateau,” he added.

The news is particularly positive for smaller businesses, which apparently are recording the greatest drop in signs of distress. Only 20% of sole traders are reporting one or more signs of distress, compared to 50% in November 2014.

Business confidence is strong, says R3, with just 4% of businesses expecting their activity to decrease in the next year. Around 47% expect it to increase and 48% think it will stay the same.


Insolvency Profession Helps Rescue Many Insolvent Businesses

The UK’s insolvency profession has played an important part in helping to rescue approximately two-in-five insolvent businesses in 2013-14, according to research by ComRes and R3, the insolvency trade body.

The research found that R3 members helped around 6,700 businesses (41% of formal insolvencies) continue trading in some way after entering insolvency, helping to save around 230,000 jobs.

“There is much more to insolvency than business or personal finance failure,” explained Phillip Sykes, President of R3. “As the economy continues to recover from recession, business recovery and renewal will be an important part of the economic landscape.”

“Insolvency practitioners witness first-hand the human cost of business failure and will make every effort to protect jobs where possible,” he added. “The sooner insolvency practitioners’ advice is sought, the more chance there is of business and job rescue. The insolvency profession is increasingly helping businesses outside of formal insolvency procedures too.”

In total, around 10,400 businesses continued operating after working with the insolvency profession, either benefitting from support in a formal insolvency or working with the profession to avoid insolvency. These businesses employed approximately 540,000 after receiving support.

“The next five years could see key changes to the insolvency landscape,” commented Phillip Sykes. “Household debts are rising again, while the current climate of creditor forbearance, record low inflation, and record low interest rates may not last. Problem debt is a major policy issue for the new Government; the insolvency profession has a unique insight into the effects problem debt has – and, importantly, how it can be tackled.”

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Inaugural roadshow gets under way

After months of preparation the first mlm Accomplish roadshow finally got under way this week. The team delivered "The Business Debt Arrangement Scheme - a Lifeline for Sole Traders and Partnerships?" CPD seminar to over 100 accountants and solicitors across venues in Glasgow, Edinburgh, Dunfermline and Kilmarnock.

Having sat on the Scottish Government's Business DAS working group and recently had the first (and only) Business DAS approved within the seminar, mlm Solutions' Senior Manager, Ian Brown draws upon his practical experience to provide an overview of Business DAS, what we have learned from the first case and what lies ahead in the future. The topic has, so far, evoked a lively debate as delegates take the opportunity to tap into Ian's knowledge and expertise.

There is still time to register for the events taking place in Dundee, Perth, Galashiels, Livingston, Dumfries, Inverness and Aberdeen.

If you are unable to attend any of the events we are pleased to advise that the Glasgow event was recorded and it will be made available as an online learning module in mid-June.

Debt Arrangement Schemes for business an economic win-win

This Comment piece was written by our Senior Manager Ian Brown and published in Business Insider on Friday 13th February 2015. 

Most recent official figures published by the Accountant in Bankruptcy suggest the level of both corporate and personal bankruptcies in Scotland have fallen back to levels last seen before the recession.

The Accountant in Bankruptcy (AiB) figures, covering the three months to December 31, revealed the number of Scottish registered companies becoming insolvent or entering receivership had fallen for the second consecutive quarter – this time down 7.7 per cent – and the total in the three months to December was down almost 16 per cent year on year - a welcome sign of a strengthening Scottish economy.

With corporate insolvencies, it is all too easy to forget the cost is not just measured in pounds and pence; the fallout inevitably leads to long-serving employees losing their jobs, suppliers and creditors being left high and dry and HM Revenue and Customs (HMRC) ultimately losing out on tax revenue.

A client recently reported difficulties with his tax bill which stemmed from an urgent demand issued by HMRC.

The scenario was all too obvious.

They assumed, given the circumstances, the only solution was insolvency, which would have seen 50 people lose their jobs.

What saved them, and the business, was a Debt Arrangement Scheme (DAS), a repayment system which has grown in stature in recent years and has proven, in many cases, highly effective in rescuing businesses struggling with short-term cash flow issues.

DAS was originally for individuals struggling with debt and is not formal insolvency but a voluntary arrangement with creditors.

An increase in consumer debt prompted the Scottish Government to establish the scheme back in 2004 as a way to allow individuals to repay their debts through a Debt Payment Programme and avoid court action.

The Scottish Government recognised the DAS models success in tackling consumer debt could also be applied to help businesses struggling with debt issues.

I represented the Insolvency Practitioners Association in the Scottish Government's Business DAS working group and helped structure what is now a Government-backed, formally recognised debt support tool for a sector which is paramount to the economy and local community.

Business DAS has now been included in legislation under The Debt Arrangement Scheme (Scotland) Amendment Regulations 2014.

Business DAS allows debts, such as VAT and PAYE arrears, as well as debts to other creditors, to be repaid while a business maintains the on-going credit facilities which are often essential for survival.

Once a scheme is approved, creditors must agree to freeze interest and charges and cannot take further action to enforce payment of the debt as long as monthly payments are maintained.

If a creditor objects to a proposal then the fair and reasonable test is applied.

It is carried out by the Accountant in Bankruptcy as DAS Administrator.

If they decide that the case is fair and reasonable they can overturn the objection of the creditor.

This is based on specific criteria, for example; the period over which the DAS will operate, the total amount of the debt, the method and frequency of payments, and the percentage of the debt which the objecting creditor holds, any comments by the money adviser and any other information which the AiB deems relevant.

The criteria for the new scheme was discussed at the Business DAS working group which also had representatives from the AiB and HMRC.

It was agreed that legal persons and other entities could apply.

A legal person means a partnership, a limited partnership within the meaning of The Limited Partnerships Act 1907, or a corporate body other than a company registered under The Companies Act 2006.

It also applies to a Trust, charity or an incorporated body of persons.

Unlike a personal DAS, all cases must be completed within five years and payment breaks while allowed, cannot be added on to the term, but, if taken, would have to be made up by a future increase in payments to ensure completion within five years.

A qualified insolvency practitioner must sign off, based on the information supplied, that the scheme is viable and review it every 12 months.

If they are not happy at any of these intervals then the agreement can be revoked.

This gives the creditors more confidence that it's not all going to fall apart. It also gives the debtor more confidence.

DAS also protects assets, including the family home.

When creditors threaten to raise legal proceedings to secure payment, a business owner has two options: try to save the business while attempting to settle outstanding accounts or allow the business to fail by implementing an exit strategy that minimises the financial consequences.

The Business DAS allows small businesses to fulfil their obligations to creditors and continue to trade: a win-win scenario for the economy.

Insolvency is, in most cases, not the best option for either the tax man, other creditors or the business as the debt is rarely repaid in full.

The more damaging aspect of the insolvency process is the loss of businesses, and many of those lost during what was a lengthy economic recession had been established for many years, and in some family-owned businesses, generations of development was lost.

They know little else but their chosen field, so the loss of their business can also equate as a loss of sector talent.

The latest figures suggest that the number of bankruptcies is in decline and I have no doubt that the Business DAS can help drive that number down further, to the benefit of our economy and the people of Scotland.

mlm Solutions 10 Years on – An Interview with Maureen Leslie

mlm Solutions was born in January 2005 so on the 10th anniversary of the business this blog takes the shape of a Q&A with Director Maureen Leslie.

Why did you decide to set up MLM Solutions?

Back in 2005 Antonia and I felt that the needs of owner managed businesses in Scotland were not being served adequately. There was a lot of innovative work on business turnaround and restructuring taking place in England but these did not translate into cost-effective solutions for Scottish businesses.

At the time, both Antonia and I were part of one of the Top 10 accountancy firms and when an opportunity arose to buy out their insolvency practice, we took it.  

What early challenges did you face and how did you overcome them?

As we started the business before the recession we were able to secure a substantial bank loan to finance the buyout. As a result, we were a highly leveraged business with a lack of working capital and cash flow management was essential. We had to quickly develop and build our client base to ensure we generated an income and then tightly manage our billing. Communication was a critical success factor in managing our cash flow and this relied on our skilled team and excellent relationships with suppliers.

This experience has given us considerable insight into the issues faced by individuals running their own businesses.

What have been the biggest successes to date?

Last year we helped the board of one of the largest steel fabricators in Scotland to agree a company voluntary arrangement (CVA) with its creditors. The CVA, which will see the business repay 65 per cent of its debt over five years, saved the company and its 60 skilled employees. This example shows that a good business, which is operated by dedicated and highly skilled people, but has suffered a difficult period, can be restructured.

I am very proud of the role we have played in the development and launch of the Business Debt Arrangement Scheme in Scotland. For the past two years our team had been adapting the consumer version to help small businesses and this experience led to our invitation to represent the Insolvency Practitioners Association in the Scottish Government’s Business DAS working group. Having played a key role in shaping the new legislation the Business DAS now provides a formally recognised debt support tool for a sector which is paramount to the economy and local community.

It has also been very satisfying to have been recognised as a Finalist and Winner at recent Insolvency & Rescue Awards and the Scottish Accountancy Awards.

How has the market evolved over the last 10 years?

The recession heralded a seismic shift in the market. A common misconception is that insolvency practitioners are busiest during an economic downturn. However when asset values plummet creditors tend to be less inclined to pursue insolvency actions due to poor recoveries. Activity is likely to increase as the economy recovers and individuals and small businesses have more valuable assets.

There has been a commercialisation of the profession with many new organisations emerging to target the mass consumer market. A key focus for these organisations is to actively market and sell consumer debt solutions.  Arguably, there has been a dilution of our traditional professional values as a result of growing commercial pressure.

How does the business look today compared to January 2005?

The business is much more focussed today. During our ten year journey we have recognised that we cannot be all things to all men. We took a strategic decision to exit from the volume personal debt market and have been phasing this work out over the last couple of years. We will still continue to provide personal debt advice to individuals but our focus will be on professionals and small business owners.

Our approach is very much on providing a high quality of service, delivered by high quality staff to high quality clients. Key to this strategy is to continue to develop and maintain strong relationships with intermediaries to ensure we are well placed to advise their clients be they individuals or small businesses.

What are the plans for the future?

We, like most SME’s, have a business imperative to grow. In fact we have set an ambitious target of growing turnover by 150 per cent to £5 million in the next five years.

With interest rates at historic lows many struggling businesses have managed to survive but if, as expected, the Bank of England raises the base rate from 0.5 per cent in the near future the viability of such businesses is threatened. However, with Business DAS advisers required to be qualified Insolvency Practitioners we are ideally positioned to help small Scottish businesses to fulfil their obligations to creditors and continue to trade: a win-win scenario for the economy.

Although we remain absolutely committed to serving the market in Scotland, we have recognised that our more streamlined approach will allow us to take our services to the English market which should help us to accelerate our growth. Charles Turner, a former FRP Advisory LLP partner and previous president of the Insolvency Practitioners Association, has been appointed to lead our corporate restructuring activity in London and beyond. I would expect the team in London to grow in line with the anticipated increase in appointments.

On a personal level I was delighted to be elected deputy vice president of the Insolvency Practitioners Association last year and I am looking forward to becoming the first Scottish woman President in April 2016.

Contact MLM Solutions Scotland

Call mlm solutions: 0845 485 7102. We offer a free, no obligation, 1-hour options review. If you would rather visit us in person at our offices in Glasgow, London, Edinburgh, Livingston or Fife.

Sunday Herald Exclusive - Business DAS already helped save 450 jobs

Following the launch of the formal Business Debt Arrangement Scheme legislation, Fergus Ewing comments on support for this initiative to help save SME's in Scotland, the lifeblood of the economy in business recovery and preserving jobs....

Read his comments below:-

Contact Us

If you require assistance in regards to financial matters contact Ian Brown or our Business and Corporate team online or to book a confidential free review call 08450510210. Contact our Customer Service team up to 11pm weekdays and 8pm at weekends.

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