When to start talking to insolvency practitioners

As is so often the case business owners do not want to admit they have a problem.  A big contract is round the corner, we dont have to pay the tax ontime etc.  As Carl says the earlier directors take action the better the options. 

This is a list of as many warning signs as we can come up with!

when to start talking to Insovency practitioners...surely..touch wood...the answer is never!

 Most independent businesses are in the hands of its founders, consequently these more than others find it difficult to view their business objectively. Most dont follow best practise and wont have regular management meetings nor generally do they have a detailed financial knowledge of the business. This lack of objectivity is the real issue. I cant count the number of times I've gone into a turnaround to discover that the owners have reluctantly called someone in, not because the business is in bad shape, but because they've exhausted their personal wealth in proping up a non performing business and now they've GOT to do something.

Whilst no doubt there are clear legal tests to signify insolvency, these are seldom recognised by the management. They are invariably late talking to IP or turnaround specialists such as myself for the following: they're emotionally tied to the company; the stigma of failure; businesses owners are naturally optimistic (well you have to be to run your own business) and as such you tend to overestimate income and underestimate costs; poor business management.

I would also observe that whilst accountants should provide advanced warning many don't because they are themselves technicians, and they concentrate on getting accounts completed on time, which is dependant on the client submitting the information and we all know how good they are at providing data in good time NOT!  and because often their relationship with their client is not good enough to survive bad news. 

Laurence Ainsworth

Exigent Consulting

As an business rescue and insolvency professional nearly every case I see has one thing in common.  HMRC is a creditor.  Not a shock really but then it shouldn't be a shock to the directors of the business either.  Everyone knows when tax is due for payment.  If you can't make that payment then by definition you cannot pay your debts as and when they fall due. Simples!

Just being insolvent is not illegal, but an important change in the directors duties occurs at that point and so it is important for directors to seek advice, to understand that difference and avoid potential personal liability.  Not every conversation with an insolvency practitioner leads to the demise of a company, far from it.  Most IPs will offer an initial meeting for free so don't be shy.  There is not much that we haven't seen and usually can find a solution.  How painful that solution depends on how early the problem is seen and diagnosed.

"Accountants in business, as well as many accountants in firms (and indeed accountancy firm management) are not insolvency experts - it's a specialist area"

Really?  What is the purpose of these august institutions if their examinations & training are unable to identify solvency problems?

When to start talking to insolvency practitioners?  When a qualified accountant or MBA refers you & only then.

It is absurd to suggest that qualified Accountants are unaware of solvency, cash flow matters or Companies Act requirements of Directors.  Indeed, it is exclusively the qualified opinion of such Chartered professionals which carries weight in these matters.

On the matter of Crown liabilities, the solution is for PAYE/NI obligations to be paid into a "separate trust account" immediately upon the obligation arising i.e. contemporaneously with the payment of wages/salaries.  This is not the businesses' money, it is the Crown's money! Why is there no legislation proscribing this?

The straightforward procedural minutiae involved in formal insolvency processes, now the domain of a "restrictive practice" cartel are but incidental.  Their purpose is first & foremost the protection of the debtor & secondly the appropriate distribution of funds amongst the various classes of creditor.

A problem does & will continue to exist in small & medium sized entities which, because of their economies of scale, do not have the resources to warrant

(i)   bloated systems or full time professional Chartered accountancy support in terms of cash flow forecasting, flexible budgeting, margin & volume analysis

(ii)  MBA support in conducting strategic operational review & an appropriate a turnaround program.

Professional Accountants in practise should seek to monitor this type of client on a quarterly basis where appropriate; I am sure many practices do so.