Oury Clark A new approach to professional services Chartered Accountants, Solicitors, Corporate Finance, Insolvency, Independent Financial Advice, Business Continuity, Recruitment

The new insolvency rules seem to make a few changes to the Insolvency Rules 1986 but I wonder if they really provide value or even will afford creditors the alleged c.£48million in costs savings. I rather think not.

For those practitioners for example who specialise in court work (compulsory liquidations and bankruptcies), costs will rise with having to do annual progress reports which previously were not a requirement.

For example further, Rule 12A.12 is a rule which essentially is unlikely I think to be taken up by many smaller firms in its current construction. This is a pity as a practical construction of such a rule would be hugely beneficial to creditors and save costs.

For those of us who predominantly do court work and wanted to utilise the website to fulfil the new annual reporting requirement that these new rules have introduced for compulsory and bankruptcy cases, the administrative burden introduced has certainly not been eased. This additional administration will increase costs and the same will result in lower, not higher returns for creditors. The need to send out annual notices for every progress report published on a website is a curious idea, given a progress report is unlikely to be many more pages in length to its notice, so why would anyone use the website? 

Whilst it is understood that creditors require protection from disenfranchisement, if it were permitted to issue a single  notice to creditors with a contact name, email address and telephone number it would be unlikley that any creditor with an interest in an insolvency matter, even one without access to electronic communications, would become disenfranchised.  

The new rule in relation to use of email to communicate reports is also somewhat unusual, such that I believe that it will not be widely used perhaps as intended. The requirement for upfront consent directly from creditors before a practitioner can issue reports to them via email, results in this rule I believe being superfluous. With the volume of creditors on cases, it is I believe impractical to get individual formal consent from each creditor before issuing statutory creditor reports by email.

These new rules are something of a dissappointment, having held out some hope that they would modernise the insolvency regime and provide better returns for creditors. I wonder…

It is a widespread belief, that if you are not listed and registered as a Director at Companies House, that you are not a Director of a UK company.

This is simply wrong. In UK law there are essentially three types of director:

1.    Registered Director

2.    Shadow Director

3.    De facto Director

In the Companies Acts “shadow director”, in relation to a company, means a person in accordance with whose directions or instructions the directors of the company are accustomed to act.

A de facto director is someone who holds themselves out as a director without being registered and who undertakes duties that should be undertaken by a person who is a director.

With any type of director, the question often is about whether or not you have a degree of control over a company’s affairs.

The relevance this has is that if a director (registered or not) causes a company to suffer loss, he or she could be liable for the losses suffered. It will be by no means a defence to a claim, that simply because they were not registered as a director they cannot be liable for actions causing loss to a company.

If in any doubt it is best to take advice to enable the position be clarified so that any surprises later on, are rather more welcome than unwelcome!

Well dependent upon the business within which you are engaged it may be the case as certain industries appear to encounter bad debts more than others. However the extent to which bad debts are a fact of your life will depend upon your attitude to extending credit to your customers.

For many of us we suffer bad debts without much thought until the debt really hurts or when we suspect misconduct by the party who has caused our loss.

However, it does seem that many of us trade with people at some point who appear incapable of distinguishing us from a bank. This is of course notwithstanding that very few of us have a banking licence. So why do some of our customers or clients treat us as if we have one?

It boils down to perceptions of what is normal business practice.

The problem arising from this (which can be poor credit management) is that we may get drawn into a cycle of acting like our customers, unless we have the cash flow to support an alternative approach. For many of us if our customers take 60 days instead of 30 to pay us then we may need 60 days to pay our suppliers. If this becomes a significant problem for us then we may get drawn into a cycle that could leave us without supplies to our business in the short term and even lead unintentionally in the longer term to wrongful trading should our business fail for any reason.

The question is - are customers who stretch our terms of credit worthwhile keeping? If you can afford to retain such customers because such trading is profitable then no doubt you may not be overly concerned. However, for many of us it is done because we are concerned to let the customer go elsewhere and lose their business. We sometimes overlook that the cost of a slower payer is not just the cost of the extra banking facility we need to support slow payers but also the time and costs associated with chasing such customers for money.

My message is chose your customers carefully. Spot those warning signs when slow payers first appear on your radar and take the appropriate action for the circumstances immediately not when it is too late.

The credit crunch hit us largely due to casino banking operations, over leveraging and speculation.

In the US, the sub prime property market collapsed due to the extensive lending to those who could not afford to sustain their mortgage payments.

The banks have been involved in the sale and purchase of over valued mortgage securities resulting from the over-valued property markets. This resulted in trading activities whereby banks obtained portfolios whose values were supported in some instances more by speculation rather than substance.

You only have to look back to the last bubble that burst to consider how substance matters far more than speculation in the longer term. The dotcom boom was a drop in the ocean compared to this credit crunch but it demonstrated how speculation is no substitute for substance. So many internet companies went to the wall once the demand for their websites simply was found not to be there and no income stream resulted.

The tragedy in this whole mess is that many of us have suffered due to the actions of a few bankers, whose bonuses packages encouraged short termism and excessive risk taking. In some instances this approach led to the acquisition and the trading of derivatives whose values were not even understood. The risks associated could not really be quantified in some instances.

The structure of banking risk / reward systems needs to change to prevent the re-emergence of casino banking which has not been eradicated notwithstanding the credit crunch and the recession. I believe that letting banks go bust would have been painful but bailing them out will also be and this approach now affords them the luxury of being able to do this again.

Indeed we could now be suffering the after effects for a generation. Had banks gone bust the banking culture would have needed to change rapidly and a return to more traditional banking practices reinstated with the emergence of a gap in the market for new banks to enter and compete.

 Sometimes it is necessary to be cruel to be kind. Bailing out the banks means we have taken the easier option. The pain will be spread far and wide for a very long period. No-one will escape punishment given the bailout. Surely those who caused the mess should be brought to book, stripped of their bonuses and prosecuted where appropriate?