Will the bounce be high enough?

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Explore our insights for help with managing financial pressures and building resilience in your business.

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Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

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Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

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Change in HMRC preferential status

The status of monies owed to HM Revenue & Customs (“HMRC”) in formal insolvencies changes with effect from 1 December 2020.

Changes to the status of monies owed to HM Revenue & Customs in formal insolvencies

In insolvencies, both corporate and personal, from that date HMRC will become a secondary preferential creditor, meaning it will be paid in priority to floating charge creditors, suppliers, pension schemes, customers and before deduction of the prescribed part.

The amounts owed by the insolvent entity in respect of the following taxes will become secondary preferential claims:

  • VAT
  • PAYE deductions
  • Employees’ National Insurance Contributions (but not employers’ NIC)
  • Student loan deductions
  • Construction Industry Scheme deductions

There is no timeline demarcation limiting the value of the preferential claim; if it is owed to HMRC on the date of insolvency and falls into one of the categories above, it will be a preferential claim in the relevant insolvency process.

Stephen Goderski

Director - London

t: 0207 516 2224

e: stephen.goderski@pkfgm.co.uk

Not only therefore will tax payments deferred as a result of the lockdown become preferential, but it is entirely possible that tax payable as a result of an enquiry which has taken, say, five years to conclude will also be treated the same way.

The hierarchy of payments in formal insolvency processes will as a result look like this:

  • Fixed charge holders
  • Preferential creditors (employees for arrears of wages and salary (capped at £800 per employee), employees for holiday pay arrears and contributions to occupational pension schemes (limited to the twelve months leading to the date of insolvency in respect of employers’ contributions and four months for employees’ contributions deducted but not paid over)
  • HMRC secondary preferential claims
  • Floating charge holders
  • Unsecured creditors

It is clear that HMRC are in a unique position, inevitably being an involuntary creditor in virtually all insolvencies, and it is difficult not to feel sympathy for the fact that as businesses are stretched financially, it is not unusual for payments due to HMRC to be given reduced priority. HMRC therefore end up acting as an unofficial and unauthorised overdraft facility and, in that respect, it is probably right that their resulting claim has some element of priority in subsequent insolvency proceedings.

Nonetheless, the introduction of preferential status at this particularly challenging moment in time will undoubtedly have a number of, perhaps unintended, consequences.

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Funders will almost certainly cut facilities as their covenants are breached – and not only will HMRC’s preferential claims rank before their floating charges, there is also the increase in the maximum limit of the prescribed part (rising from £600,000 to £800,000) which will also adversely affect the returnto charge holders. This will reduce funds available to cash-starved  businesses already struggling with the effects of the pandemic.

In addition to existing funders trimming facilities, it will be more difficult to obtain finance from alternative funders as asset cover will be eroded by the change in HMRC’s preferential status. This too will almost certainly drive businesses into insolvency.

Those insolvency processes themselves may be more terminal than would presently be expected. By that we mean that it will be harder to secure approval of Voluntary Arrangements if the return to unsecured creditors is significantly eroded by virtue of HMRC’s preferential status.

Unsecured creditors will not be disposed to agree to an arrangement where they only receive a nominal dividend over a protracted timescale; if that was a significant dividend they would more likely than not support such a proposal, as is presently the case.

It does not seem right that monies owed to HMRC from prior years should be deemed to be preferential immediately that the legislation takes effect. If the Finance Act was modified to state that all tax payable from the financial year commencing on 6 April 2020 was preferential than there would be less scope for complaint. As it stands, HMRC have been given a huge advantage over unsecured creditors at a time when most of those creditors can ill afford the financial loss.

The likely consequences of HMRC’s preferential status will therefore be:

  • Reduced facilities for cash-starved businesses potentially leading to unnecessary insolvencies
  • Less likelihood of obtaining alternative funding from other funders
  • Less likelihood of creditors supporting processes designed to promote survival, such as Voluntary Arrangements, again forcing businesses into more terminal processes
  • Reduced dividends to creditors in all insolvency processes which will probably lead to an increase in the number of overall insolvencies

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To Conclude

There is therefore a very potent argument for the introduction of this legislation to be both deferred until the pandemic has been brought under control and even then to limit the extent of HMRC’s preferential rights.
We are aware that representations have been made and continue to be made to the Treasury and we hope that common sense prevails in the circumstances and that a further breathing space is provided for struggling businesses.

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

HMRC Arrears

Whether it’s VAT, PAYE or NI, when cash is tight, paying employees and suppliers is often prioritised over taxes. But it isn’t a long term solution: HMRC has wide powers to recover money it is owed and, because it doesn’t rely on you for ongoing business like a supplier does, it’s ultimately more likely to take recovery action against you.

Oliver Collinge

Director - Leeds

t: +44(0)1134 267 405

e: oliver.collinge@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Should I continue to trade?

If you’re concerned about your company’s viability, you may need to consider whether continuing to trade is the right thing to do. There are significant potential risks to continuing to trade if the Company’s future is uncertain.

Oliver Collinge

Director Leeds

t: +44(0)1134 267 405

e: oliver.collinge@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Dealing with a Winding Up Petition

Receiving a winding up petition is a very serious matter. If you do not take immediate action to respond it is very likely to be terminal for your business.

James Sleight

Director - Leeds

t: 0113 4267 404

e: james.sleight@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

I’ve received a CCJ that I can’t pay

If your company has received a County Court Judgment (CCJ) because you’ve been unable to pay a debt you should act quickly to prevent matters from escalating.

James Sleight

Director - Leeds

t: 0113 4267 404

e: james.sleight@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

My cash flow is under pressure

Cash flow pressure is a common problem. Most businesses suffer from it at some point, including many very profitable businesses.

Stephen Goderski

Director - London

t: 0207 516 2224

e: stephen.goderski@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Don’t become a victim of coronavirus fraud

The coronavirus (COVID-19) has had an unprecedented effect on many countries around the world – and prompted a wide range of human responses.  We have witnessed some inspirational examples of people coming together to help the most vulnerable and, at the other extreme, we have also seen cybercriminals taking advantage of the pandemic.

Fraud in the UK

In the UK since 1 February 2020, there have been over 100 cases reported to Action Fraud relating to coronavirus fraud, with total losses reaching nearly £1 million. Most reports relate to shopping scams, but other reported frauds include ticket fraud, charity fraud, counterfeiting, and lender fraud. One victim reported losing over £15,000 when they tried to purchase face masks that were never delivered.

There have been hundreds of reports of coronavirus-themed phishing emails. These emails attempt to trick people into opening malicious attachments which can lead to fraudsters stealing people’s personal information, email logins, and banking details.

Oliver Collinge

Director - Leeds

t: +441134267405

e: oliver.collinge@pkfgm.co.uk

Fraud around the world

The trend in fraud-related activity is not just limited to the UK, it has been replicated in other parts of the world too:

  • The US Justice Department announced on 22 March that it was taking action to close down a website falsely claiming to have access to ‘vaccine kits’ supposedly manufactured by the World Health Organization (WHO) to prevent coronavirus;
  • In Italy, a similar online fraud used emails that looked like they were from the WHO to infect computers with a banking trojan called Trickbot;
  • The Hong Kong Police had to issue a scam alert informing the public that the cybercriminals had impersonated Department of Health workers and told their victims that there ‘were some anomalies’ regarding their health, before asking for their bank details in order to steal their money;
  • Fraudsters in South Africa have been claiming to represent the central bank and visiting consumers’ homes (with false central bank identification) telling them to hand over any banknotes in their possession because they have been contaminated with the coronavirus amid reports that it was withdrawing any banknotes and coins from circulation due to the coronavirus.

What should you look out for?

To help members of the public protect themselves from becoming a victim of fraud, Cifas (the UK’s Fraud Prevention Service) advises the following:

  • Be sceptical – if you receive an email, text, or WhatsApp message about coronavirus, never click on any attachments or links unless you are sure of the identity of the sender.  Be particularly wary of unsolicited communication;
  • Do not give money or personal information to websites or people you do not trust 100%. If you are approached, try to verify details and call the sender back via a number obtained from a different source;
  • Avoid emails or advertisements that urge you to ‘act now’. This sense of urgency is meant to pressure people into making irrational decisions;
  • Don’t allow yourself to be pressured into donating money, and never make donations by cash or gift card, or send money through transfer agents;
  • If you wish to donate money to charity organisations, do this by searching for their official websites or phone numbers, and not through advertisements or when approached.

Protect yourself and your family

As well as this general advice, there are also steps you can take to protect yourself and your family in some specific situations that have emerged over the past few months.

Government financial package

We expect that fraudsters will be planning to benefit from the package of measures that the government has introduced to support those affected by the coronavirus outbreak – but not in the way that the Chancellor intended.

Individuals and business owners, who find themselves in desperate need for help at this very difficult time, are likely to be particularly susceptible to scams. We have seen, even prior to the announcement of the new measures, evidence of tax refund and rebate scams using what seem to be authentic HMRC logos. In some cases, the fraudsters tried to spoof a genuine email address or change the ‘display name’ to make it appear genuine.

Remember, HMRC will never send notifications by email about tax rebates or refunds.

Check emails carefully and, if you are suspicious, do not:

  • visit the website;
  • open any attachments; or
  • disclose any personal or payment information.

If you are unsure, forward the email to HMRC and then delete it.

 

Temporary office closures

If you have closed your office temporarily during the outbreak, there are some extra steps that you can take to protect yourself:

  • Test your alarm system before you leave the premises, ensure it is monitored and fully operational;
  • Identify any vulnerable areas and rectify them. Ensure security gates, bollards and fire exit doors have been secured prior to closure of the premises;
  • Ensure service doors are closed and locked when not in use;
  • Make sure you have a list of keyholders who can be contacted in times of emergency. Ensure your contact details for staff are up to date;
  • Consider moving high-value items into secured stockrooms and out of view;
  • Ensure keys to the premises or other venues are not left inside and are instead with dedicated key holders;
  • Consider timer switches or ensure sufficient lighting is left on at the premises/surrounding area;
  • Ensure there are no combustible materials left in the proximity of the building, such as packaging, to reduce the risk of arson;
  • Review your CCTV to confirm it is operational, provides good quality images, and is positioned to cover as much of the business premises as possible. You may wish to consider a mobile phone app that allows connectivity and a vocal capacity to engage with any intruder; and
  • Ensure that no cash is retained on the premises overnight (leave a note on the door stating that no cash or valuables are kept overnight) or store valuables in a security-accredited safe bolted to the floor.

 

Working from home

Many businesses are now encouraging or instructing their staff to work from home to help stop the spread of coronavirus.  However, switching to remote working can create cybersecurity problems for both employers and employees. As more of us are now working from home, the police have already reported seeing an increase in cyber-attacks.

Here are some tips to consider:

  • Consider changing default passwords on your home Wi-Fi router to a more complicated password to prevent hackers from accessing your network;
  • Use strong and unique passwords on every account and device – consider using two-factor authentication (2FA), which requires you to provide a second piece of evidence (such as entering a code that has been sent to you by text message) to prove it is definitely you logging in. A good example of two-factor authentication is the withdrawing of money from an ATM; only the correct combination of a bank card (something the user possesses) and a PIN (something the user knows) allows the transaction to be carried out;
  • Software updates contain vital security patches – keep all devices, apps, and operating systems up to date and make sure you are protected with appropriate anti-virus software;
  • If you are working in a more public place, use a privacy screen and tether from your phone instead of an untrusted Wi-Fi hotspot;
  • Only use software your company would typically use to share files. Refrain from using your personal email or third party services unless reliably informed otherwise;
  • Working from home can present additional risks as some of the checks and balances ordinarily applied in the workplace cannot be undertaken. Think of how additional remote checks can be undertaken, do not be tempted to reduce responsibilities, and ensure proper controls and monitoring procedures are maintained.

Protecting your family

Parents need to be alert to the risks to children from additional online activity.  It is important that parents and carers remain vigilant and alert on behalf of their children. If you want help or advice on the options available to your business during this challenging time, please get in touch.

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

The Financial Assistance Scheme

The Financial Assistance Scheme, operated by the Redundancy Payments Service (part of the Department for Business, Innovation and Skills), can help to mitigate the cash flow burden created by redundancies, thus allowing financially distressed businesses to rationalise their cost base and facilitate a step-change in performance. PKF GM can support you through this process.

Get in touch

Oliver Collinge

Director - Leeds

t: 01134 267 405

e: oliver.collinge@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Unlocking cash from your balance sheet


The uncertainty of the current situation surrounding coronavirus (COVID-19) is affecting businesses in a number of different ways. Despite the support announced by the Chancellor over the last few months, many businesses remain particularly concerned about the impact that the pandemic is going to have on their cash flow into 2021.

Oliver Collinge

Director Leeds

t: +44(0)1134 267 405

e: oliver.collinge@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Contentious insolvency

It is an unfortunate reality that businesses and individuals can suffer often significant losses due to fraud, dishonesty or negligence. Increasingly this activity takes place in a global context facilitated by sophisticated technological connectivity and the ability of perpetrators to conceal assets in overseas jurisdictions.

Get in touch

Stratford Hamilton

Director - London

t: 07736306606

e: mailto:stratford.hamilton@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Aiming for growth


How to grow your business in a structured way.

Get in touch

Oliver Collinge

Director - Leeds

t: 01134 267 405

e: oliver.collinge@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Lonelier than ever at the top


Life as an entrepreneur or company director is lonely at the best of times, and COVID makes it even more so. Managing mental wellbeing and seeking help and advice – personally and professionally – is really important.

Get in touch

Take the first step towards getting business help by contacting James Sleight or Oliver Collinge in complete confidence.

James Sleight

Director - Leeds

t: 0113 426 7404

e: james.sleight@pkfgm.co.uk

Peter Hart

Director - London

t: 0207 516 2221

e: peter.hart@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Insolvent estates


Specialist help with insolvent estates – protecting the Personal Representative.

Get in touch

James Sleight

Director - Leeds

t: 0113 4267 404

e: james.sleight@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Is my company insolvent?


When a company is facing difficulties, the earlier the business owners seek help, the more time they and their advisers have to turn the business around, refinance or sell. This protects management, employees and the company’s key shareholders.

Get in touch

If your business is showing the warning signs, you should get in touch with us and get help to protect your company’s future.

Oliver Collinge

Director - Leeds

t: 01134 267 405

e: oliver.collinge@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Between a rock and a hard place


How the charitable and not-for-profit sector can survive ongoing economic difficulties in these challenging times.

What to do when your organisation is failing or threatening to fail?

When the going gets tough, the tough seek assistance from their professional advisors.  Or at least they should. Stephen Goderski takes a look at options available to Trustees when their organisations are failing or threatening to fail including what steps Trustees should take to demonstrate that they have acted in accordance with their fiduciary duties.

It happens.  Every business cannot succeed, there will always be a number of business failures resulting from misfortune, mismanagement, or a combination of the two.  If it is going to happen to you let’s try to ensure that you are on the misfortune side of the fence – as that means that no one is going to successfully attack your personal assets.

Trustees need to be on top of every aspect of their organisation’s financial performance, including budgeting and attuned to both their particular sector as well as those of their main donors.

Even assuming that these good habits have been followed diligently, organisations can still find themselves in financial difficulties.  So what should you, dear Trustee, do if you find yourself in such a place?

Firstly ascertain the scale of the problem, especially whether the organisation is insolvent.  Insolvency is defined on two bases – the balance sheet test and the section123 Insolvency Act 1986 test.

The balance sheet test is very simple – do liabilities exceed assets?  If they do, the organisation is insolvent. You will need to be realistic with asset values here, making justifiable provisions and obtaining property valuations where appropriate.

The section 123 Insolvency Act 1986 test is pretty straightforward too – can an organisation discharge its liabilities as and when they fall due?  That is when they contractually or statutorily fall due, not when you usually pay them. If the answer is no, the organisation is insolvent.

Insolvency has implications for Trustees.  For one, they need to act to either take the organisation out of its insolvent state (by cost-cutting or introducing additional capital for example) or, if this is not possible, by ensuring that they minimise the loss to creditors.

Get in touch

Stephen Goderski

Director - London

t: 02075 162 224

e: stephen.goderski@pkfgm.co.uk

How Trustees will be judged following a formal insolvency depends very much on their actions on discovering the insolvency and how they deal with it.  There is a test, which is what would a reasonable person do. Although this is necessarily subjective, it is something that the courts place great store upon so Trustees should exercise caution, take proper professional advice, act upon that advice, and (and I cannot stress this enough) document their decisions and the reasons for taking them so that there is a contemporaneous record of why they acted as they did.  You can be certain that without such a record six months down the line no one will be able to remember why a particular decision was taken – just that it was not them that took it!

The reasonable person’s test is actually a misnomer.  If the Trustee is, for example, an accountant, a lawyer, a successful entrepreneur, or someone with a business-related skill set, then the test is actually more stringently applied than it would be to a Trustee without such skills.

 

Focus

There is extremely unlikely to be just one solution that solves an organisation’s problems.  Rather the solution will lie in a suite of remedies which will need to run concurrently and Trustees should ensure that they focus on implementing all of them once they are agreed upon.

If the board is large a trouble-shooting sub-committee might be appropriate and individual members tasked with implementing each separate element of the overall strategy.

Cutting costs

Every piece of expenditure should be scrutinised and unnecessary extravagances, if they exist, are manna from heaven to the cost-cutter (I am thinking pool cars, first-class business travel, staff bonuses, etc).  The reality is more likely to be sub-contractors, salaries, or rent.

Sub-contractors are very much in the cost-cutter’s front line, assuming their role can be carried out by someone else of course.  Salaries are harder to trim as there is often a catch 22 in that an organisation needs to make redundancies but does not have the money to make the redundancy payments.  Some good news if you are in that position; there is a government scheme which provides support to enable certain businesses to manage the cash flow impact of redundancies.

The Financial Assistance Scheme, operated by the Redundancy Payments Service, requires that certain criteria are met, as follows:

  • The organisation lacks the funds to meet statutory redundancy obligations
  • The organisation’s existing funders have declined to fund the redundancies
  • The action will save a significant number of jobs or secure the solvency of the business
  • The organisation will be able to repay the money within an agreed timeframe

Rent may also seem impossible to cut, especially if the organisation has entered into a lease.  My experience, however, is that a growing number of landlords will listen to reason, that reason being that if they do not either reduce the rent or agree to a variation of the terms of the lease (for example to reduce the floor space occupied to a more affordable level) they will lose a tenant.  This does tend to focus minds.

There are other possible options, including Property sharing with another organisation Outsourcing Merging with a similar organisation Convert restricted funding to unrestricted (with the agreement of the funder(s) of course).

There is not enough space here to discuss the pros and cons of these options, suffice to say that the greater warning a Trustee has of financial difficulties ahead, the greater their ability to plan and the larger the number of options they will enjoy.  At the end of the day therefore it all comes back to good governance.

Communication with key stakeholders

This is vitally important, especially if the organisation is insolvent or likely to become so.  People have long memories and any false or misleading statement will inevitably come back to haunt you.   The language you use in your dealings with stakeholders, especially creditors, therefore needs to be carefully considered.  By way of example, which of these two statements would find most favour with you?

“Hi, sorry we haven’t been able to pay your last few months’ invoices.  Our funding has fallen off a cliff and we haven’t been able to pay anyone for ages.  We’re hoping it’s just a blip and that we should be able to start making payments to you again sometime soon – touch wood and all that.  If you could just continue trading with us we’ll let you know in the next month or so when we can pay you something.”

“Hi, I am just calling as we are going to have some difficulty paying your latest invoice on time; it’s due in three weeks but I thought I would call you now to warn you.  We are speaking to our funders and hope to be able to secure sufficient funding to pay you on time but in case we do not we have a contingency which involves cost-cutting and a more focussed purchasing policy to ensure that we do not incur any credit we cannot discharge going forward.  Obviously, we hope that this is just a false alarm but we always plan for the worst so we hope that you will be happy to continue supplying us while we work our problems out.”

No guarantees either way but I suspect I know which language you have decided is more appropriate.

And in message 2 there is a key point about not incurring credit which you cannot discharge. Being open and honest with your suppliers, employees and funders is essential and might even produce some pleasant surprises and support which you may not have thought possible in the circumstances.

In Conclusion

You know this but I will say it anyway, there is no substitute for independent professional advice and no contest between a Trustee facing severe financial difficulties for the first time in their lives against a professional who deals with such matters on a daily basis. It also makes a huge difference to a board to be able to say that they have taken advice and are following it rather than just either burying their heads or making it up as they go along (please refer to the references to mismanagement in the opening paragraphs).

We certainly live in interesting times and the only thing economists agree on is that no one can predict where our economy is heading.  We are sailing into largely uncharted waters and if a little help is required in determining a safe course for your journey you would, I suggest, not be fulfilling your duty as a Trustee if you did not take it.

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

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Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

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Solvent liquidation


Solvent liquidation is done to eliminate risk, so it is worth ensuring it is done properly.

Get in touch

James Sleight

Director - Leeds

t: 0113 426 7404

e: james.sleight@pkfgm.co.uk

Peter Hart

Director - London

t: 0207 516 2221

e: peter.hart@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

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Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

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Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

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Funding your business


What are the types of funding available for your business?

Get in touch

Oliver Collinge

Director - Leeds

t: 01134 267 405

e: oliver.collinge@pkfgm.co.uk

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

How to survive losing a customer


Most businesses will face the daunting prospect of losing a key customer at some point. The pandemic has resulted in many businesses facing extremely tough times and when government life support is withdrawn, it’s anticipated that more businesses will become insolvent.

Plan to adapt

Whilst daunting, if you know you are going to lose a large customer for reasons other than their insolvency, you will generally have some time to adapt. But this isn’t the case when a customer suddenly goes bust, leaving a large unpaid balance on its account.

So what can you do?  First of all, you must breathe.  Blind panic won’t help.

Secondly, assess the situation and find out what has happened.  If a customer has entered into insolvency proceedings find out which Insolvency Practitioner is dealing with it and what they are planning to do.  If they are going to trade the business ascertain whether your services/supplies are key for this strategy.  If they are, you have potential bargaining power which, whilst it may not mean you get back the money you are owed, may yield some profitable short term business  Trading with Administrators, despite what many think, tends to be very safe – they must, as a general principle of law, pay for what they use and the costs they incur are paid from the funds they realise in the Administration.  Make sure the terms of any future supply are well documented and are signed off by the Administrator before any further supply is given.

If this is not an option, check whether the customer still holds any of your products and contact the Insolvency Practitioner’s office to arrange to visit the customer’s premises as soon as possible to identify the goods and arrange for their collection.  This is key, particularly if the Insolvency Practitioner is contemplating a quick sale of the business.  You do not want your unpaid stock being sold to a third party.  To enable this you must claim “Retention of Title” over your stock and the strength of your claim will depend upon whether your dealings with the customer incorporate these terms.

Get in touch

Oliver Collinge

Director - Leeds

t: 01134 267 405

e: oliver.collinge@pkfgm.co.uk

Filling in a claim form takes minutes and is worthwhile

Finally, and whilst not immediately pressing, submit your claim to the appointed Insolvency Practitioner.  It is commonly understood that distributions from an insolvency process are rare, but it does happen.  Filling in a claim form takes minutes and can be seriously worthwhile.  We recently dealt with a case where a significant creditor hadn’t submitted a claim and when questioned, stated they couldn’t be bothered.  When they were told that if they did they would receive a cheque in the post for circa £40,000, they quickly changed their mind. Be warned, however, that even on successful restructurings the timing of any dividend is likely to be protracted and you should not rely on this for your immediate or mid-term cash flow requirements.

Remember, the faster you react the better your chances of softening the impact on your business. And once you have dealt with the practicalities of dealing with the insolvent customer, you should immediately assess the short term cash flow effects on your own business and how you can address them.

Some quick wins

If you are VAT registered fill in a bad VAT debt relief form.  Whilst this won’t generate funds it will ease your cash flow pressure when the next Vat payment is due.

If you have credit insurance, notify your insurer immediately and ascertain what you need to do to submit a claim.  Ensure you have copies of all documents relating to the debt including any contracts or terms of supply.

Cash Flow

Review your working capital and cash flow forecasts.  If you don’t do them, now is the time to start.  It’s important to quickly determine whether you can survive the impact on current reserves and working capital, or whether your business is likely to run out of cash in the near future causing pressure on your supply lines and putting your own business at risk of insolvency.  Identifying when a cash flow problem is likely to occur is the first step to evaluating your business so that you can put in place plans to remain a going concern.

Remember cash flow is a problem that all businesses will encounter and can be managed with careful planning as long as you are confident that the business can remain or become profitable in the long term. Before you take any further action you must assess whether your business can return to profit despite the loss of the customer.

This is not an easy exercise: you must review your profit and loss forecasts and ascertain whether the income from your other customers is sufficient to cover the fixed costs of your business and generate a profit.  If you need help with this, discuss with your accountant or contact a restructuring advisor who has expertise in forecasting.

There is no point in addressing a cash shortfall if you can’t demonstrate profitability: if the business isn’t going to be profitable on its current fixed cost base, you must review what fixed costs can be eliminated. Typically this may mean making redundancies, cutting out unnecessary expenses, reducing salaries and possibly downsizing premises. Whilst these actions themselves can cost money, as long as they will return you to long-term viability then you should act sooner rather than later. Unnecessary delays, however hard some of these decision can be to take, can make the difference to whether your business will survive or not.

Once a plan has been drafted you will need to look at whether you need additional finance to action these and bridge any working capital gaps in your current cash flow.

If you are reluctant to take on more debt through ‘traditional’ means (bank loans, overdrafts and increases in facility drawdowns) there are other options to help alleviate short term cash flows, such as:

You should also talk to your bank / finance provider about how they can help with cash flow, or consider whether an alternative lender may be able to offer you facilities which provide you with more working capital. In all of the above, if you are unsure, get help from a suitable restructuring professional; engaging their services doesn’t mean your business will fail – it will hopefully keep it viable.

Whilst we all know it’s good business practice to not have all your eggs in one basket and be over-reliant on one customer, in reality this isn’t always possible. Although the insolvency of the customer isn’t your fault, could you have spotted the warning signs earlier? It’s tempting to focus on turnover, but you should try to keep all of your customers under ongoing review by checking credit ratings, industry news and analysing their payment patterns to identify changes. If you are concerned that payment time is creeping up or they are increasing their credit with you then you should contact them for a meeting at the earliest possible stage.

Be pro-active, stay in control

Finally, it is always important to understand that all businesses change and evolve and this is just a natural part of business.  If you are over-reliant on one customer, even if it makes you extremely profitable, always consider how your own business can adapt and progress into new revenue-generating opportunities to increase your customer portfolio.

A customer insolvency or loss is bad for your business and happens to most businesses at some point, but if you plan properly it shouldn’t be the end of the world.  By being pro-active you’ll always be in control of your business rather than leaving its fate to others.

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more

Forewarned is forearmed

Trustees have, if they know what to look for, a number of warning signs that can alert them to potential financial difficulty within their organisation.

Warning signs that can alert you to potential financial difficulty

It is vitally important that Trustee’s employ good governance. This is more important than ever during the pandemic. This involves scrutinising financial information and identifying any significant or prolonged downturn in their organisation’s income as early as possible.

In the current uncertain economic climate, this, together with constantly stress-testing financial data, has become an imperative. A fit for purpose early warning system can be the difference between an organisation’s survival and its demise.

Get in touch

Stephen Goderski

Director - London

t: 02075 162 224

e: stephen.goderski@pkfgm.co.uk

It’s all about the money, money, money

In our utopian organisation, funding is guaranteed and its level never drops, all staff are sub-contracted rather than employed and property costs are negligible as the premises are owned.  Back in the real world however life will not be like that and control needs to be exercised, and exercised constantly, to secure a viable tomorrow, particularly with the impact of the pandemic.

The obvious things to control are the variables – especially income.  Without money coming in, the rest is fairly academic so this must be a Trustee’s starting point for analysing the forecasts with which they have been provided.

A quick checklist never hurts and here is one which is applicable to the case in point:

  • What was income last year?
  • Where did it come from?
  • Is there a trend or is it seasonal?
  • What is being projected?
  • More importantly, what are the underlying assumptions underpinning the projections?
  • How accurate did last year’s budget prove to be?

If last year’s budget was pessimistic and the reality was much rosier (and it was prepared by the same person as this year’s) then you can have more confidence in the numbers than if income is calculated on the basis of that iconic formula of last year plus 20%.

The bottom line in these matters is that each cell in a budget or spreadsheet should have a rationale behind it, even if that rationale is an educated guess.  What you are looking for is that whoever put the forecast together thought about it first.

It goes without saying that those organisations that produce budgets and cash flows will be better able to identify issues in trading income, assuming of course that the Trustees then cross-reference monthly management information against such forecasts and explore the ramifications of any variances.

All financial information should separate restricted and unrestricted funds and the former should be ring-fenced.

Regular forecasting can undoubtedly be vitally important although the reality is that not all organisations budget effectively or provide management information of a sufficient quality (or in a timely manner) to enable the Trustees to predict impending difficulties.  Fortunately, there are other indicators.

External indicators

These are necessarily generic and will not apply to all organisations but a few examples should suffice.

Trustees should be kept constantly updated so that any delays in obtaining funding from long-standing benefactors or contracts from regular donors can be monitored.  Such issues need to be interrogated to ascertain whether they are merely temporary slippages or part of a longer-term pattern. Are the benefactors experiencing financial difficulty themselves and pulling back on their philanthropy?   Are central or local government contracts a victim of the never-ending austerity culture? Did the forecasts take any of this into account and, if not, what can the Trustees do immediately to prevent a funding issue down the line?

Many organisations have a close working relationship with their funders/customers and Trustees should be able to discuss such issues with them and agree on the future direction of the relationship.

Trustees should keep themselves aware of issues affecting not just their own marketplace but also that of their funders.  The former is a useful exercise to conduct at any time as if your own organisation is struggling in comparisons with its peers, there is generally a reason for this which should be capable of being addressed.

Internal indicators

The obvious warning sign is having to marshal payments to creditors.  Being unable to pay debts as and when they fall due is actually a demonstrable sign of insolvency and Trustees who find their organisation in this position should be even more careful – as I will explain in the final article in this series.

One of the first casualties of cashflow pressures tends to be HM Revenue & Customs.  This should be avoided as a failure to pay tax on time is an offence. HMRC can be sympathetic to a request for an extension of time to discharge historic arrears although any such request should be for a relatively short period (if possible, certainly not more than 12 months), with regularly (monthly) payments, not back-loaded (where a nominal sum is payable initially and a larger sums towards the end of the agreed period) and provision made for the further ongoing tax to be discharged on time.  If in doubt, seek professional help in this regard.

Delays in collecting monies owed to the organisation is another barometer of the economic climate and debtor days is a good comparative measuring tool.

An organisation may also have a number of different elements to its business and each one of these should be critically analysed in isolation to determine whether it is (a) as profitable as it could be and (b) how its contribution to the overall business could be improved.  This will be a very useful exercise to determine where scarce resources should best be invested.

In Conclusion

As cashflow tightens, proactive Trustees will initiate commensurate steps to ensure that costs are rigidly controlled and I will discuss this at some length in my next article.  In this situation, every saving, no matter how small, mounts up and helps achieve the overall aim.

I once dealt with a firm of solicitors who were experiencing financial difficulties (the partners had not taken heed of their management information and were still taking out drawings that the business could not afford).  A rescue plan was put in place and they took cost-cutting incredibly seriously – to the extent that a member of staff who needed a new pen from the stationery cupboard had to bring along their old pen and demonstrate that it had run out of ink.  No old pen, no new pen!

This might be an extreme (albeit real) example of cost control and one which resulted from desperation rather than planning and foresight.  Nonetheless, it demonstrates the lengths some organisations need to go to in order to survive and why stress-testing and variance analysis are essential elements of the Trustee’s tool kit.

News & Insights

Explore our insights for help with managing financial pressures and building resilience in your business.

Read More about Aegis update

Aegis update

Over the last six years Stephen Goderski has been appointed as Administrator and / or Liquidator of a number of […]

Read more

Read More about Cash flow pressures drives over 100% rise in insolvencies

Cash flow pressures drives over 100% rise in insolvencies

Insolvency figures released today for April 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to […]

Read more

Read More about Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

Rainbow Saver Anglia Credit Union Limited – In Administration (“RSACU”)

James Sleight and Peter Hart of PKF GM have been appointed as Joint Administrators of Rainbow Saver Anglia Credit Union, […]

Read more