Upcoming issues for SME’s and OMB’s

October 2010

Christopher Brown
Business Recovery & Insolvency Partner

Liquidity is vital. Whilst our banking friends are keen to tell us they have money and want to lend, experience says they don’t want to put money into struggling businesses.

HMRC’s “Time to Pay” initiative, so welcome when introduced 2 years ago, is now accumulating a number of arrangements that are falling into arrears.

The upcoming public sector cuts will inevitably reduce the amount of business available to the private sector, with the very obvious effect that inevitably a reduction in gross contribution will follow a reduction in turn over. If cutbacks and reduced spending are not promptly affected, then the inevitable will follow.

Finally how long will interest rates be held at the all time low rate currently prevailing? As these increase towards a more regular rate of 2-5% the pressure will increase on business in general.

So irrespective of the normal issues facing businesses of changing markets, employment protection legislation, and the human frailties of directors it looks like a tough few years to come.

There are tools and techniques available for the SME and OMB business but as Insolvency Practitioners always plead, come for advice sooner rather than later and more of these tools will be available for the protection of the business.

For those directors who recognise their company has a problem, but can demonstrate that the underlying business is sound; the tool may be a CVA: The Company Voluntary Arrangement. This is essentially a deal, brokered by the IP between the debtor company and the creditors, suppliers, HMRC etc. Carefully prepared, proposed and negotiated this technique can have the effect of injecting funds into the business by ring fencing creditors and paying them over a period – typically 36 – 60 months. I have been involved in a number of recent arrangements where business has been preserved and jobs saved.

Directors may also consider the Administration process. In recent years this has been simplified and made a resolution driven process rather than a court driven process.

Again, this procedure can assist in the survival of the business, and continuing employment but does need available working capital facilities to enable the Administrators to continue trading the business and paying the wages. The alternative is the “pre-pack” Administration where a sale of the business and assets is agreed in advance of the appointment which is affected immediately on appointment thus keeping the business alive and employees retained.

So, finally despite the recession being behind us, SME/OMB’s are facing a difficult time. In the event of difficulties prompt action can preserve something out of the demise.

For a no obligation, confidential consultation please contact Christopher Brown, Business Recovery & Insolvency Partner at Hart Shaw on T: 0114 251 8850 or email: chris.brown@hartshaw.co.uk.