COMMERCIAL REPORT: Insolvency

POSITIVE OUTLOOK: Insolvencies dealt with quickly and early can work out better for staff and management.

DESPITE the havoc being caused in global stock markets by the continuing low price of oil, the latest figures from Scotland’s insolvency service suggest an ongoing trend towards a long-term decline in personal insolvencies.

In January the Accountant in Bankruptcy (AiB), the body responsible for administering personal bankruptcies in Scotland, reported a fall of some 11 per cent year-on-year in personal insolvencies.

However, Wylie & Bisset partner Donald McKinnon says that he and his insolvency and restructuring colleagues have been very busy throughout the first quarter of 2016 because of the increase in personal and corporate bankruptcies and insolvencies that the firm is seeing.

“There is definitely a slight upturn now on both fronts, the personal and the business side, as far as insolvencies are concerned,” he notes.

McKinnon points out that insolvencies are generally viewed in terms of failure.

ON TRENDS: Wylie & Bisset partner Donald McKinnon.

However, he points out that there is a strongly positive element to them, especially when they are dealt with quickly and early, both from the point of view of enabling staff to get their redundancy payments more rapidly, and because of the relief from stress that they represent for management and senior employees in the company concerned.

On the redundancy front, even if the company concerned is only paying pence in the pound, the Redundancy Service will ensure that all eligible staff receive their redundancy entitlement.

Wylie & Bisset is the largest provider of outsourced services to the AiB, so McKinnon and his colleagues see a number of personal bankruptcy clients.

However, he points out that the firm would have been seeing a lot more personal bankruptcies for consumer and other debt, had it not been for the tight lending conditions from 2008 to around 2013.

Inevitably that trend drove down consumer debt. However, he points out that borrowing has once again become almost as easy as it was before the 2008 Global Financial Crash.

What is holding things steady at present is the fact that the extremely low base rate of interest and the fact that fuel is cheaper, has enabled people to continue. So people who might have tipped over into personal insolvency are able to soldier on. The same is true of firms, where low interest rates are making repayments somewhat easier.

“If we get any kind of economic trigger impacting the current economic conditions, there is little doubt that we will see a lot more people and firms in difficulties,” McKinnon comments.

A FIRM HANDLE ON TECHNOLOGY

New practitioner is recognised for investing in the latest methods

BEING an insolvency practitioner is not an easy job. Quite apart from the rigours of acquiring the insolvency practitioner’s (IP) license, there are regular audits from the IP’s regulatory body to contend with.

Plus, whenever an IP decides to continue running a business as a going concern, which of course makes it easier to sell and thus to reimburse creditors, they take on personal liability for that decision.

If the business racks up fresh debts as a result of that decision, then goes under anyway, the IP can be sued by irate creditors.

On top of this there is the fact that the two sets of people you will be dealing with, the creditors on one hand, and the company’s management on the other, will generally not be being seen at their best. The creditors will be annoyed at the losses they are facing and management will be the worse for months of stress.

However, Claire Middlebrook, a licensed insolvency practitioner and founder of the Edinburgh-based Middlebrooks Business Recovery and Advice, says that the role can be rewarding.

“What I hear very frequently, once people are in the insolvency process, is them saying that they wish they’d applied for insolvency months earlier – it is such a relief for them to be out from under all that stress,” she says.
Middlebrooks is about to open up an office in Aberdeen.

AWARD WINNER: Insolvency practitioner Claire Middlebrook

“What we bring is a fresh approach to insolvency,” Middlebrook says. “We have invested heavily in technology, which means that our overheads are lighter than many other insolvency firms. Plus we are completely electronic in terms of all the payments we make. This is important for creditors because it means that all the payments we make get to the people concerned so much faster,” she notes.

This technology bias played well for the firm when it won the award for Best New Recovery Firm in the UK at the Insolvency and Rescue Awards in October last year.

“What we try to tell people, whether it is personal bankruptcy or a business insolvency, is that we understand that this is difficult and we are here to help,” she says.

Particularly in personal bankruptcy people tend to think that whoever is handling the bankruptcy is going to strip them to the bone. That is quite wrong.

“The first thing we say is that you are not going to have to give up your TV, or your Sky subscription. This is not meant to be a punitive process. But you are not going to be able to keep a Ferrari or a fleet of five cars or a house full of fine art.

“The rules are that anything that is above and beyond what one would normally expect to find in the mythical average household should go into the pot to repay creditors,” Middlebrook explains.

Realistically, the vast majority of the people who get themselves out of their depth with commercial debt do not have those kinds of luxuries in the first place.

So personal bankruptcy is all about looking at what can sensibly be done to pay down the debt.

NO SOLID PLATFORM OF STABLIITY

Low oil price is piling pressure on firms in North East, says Anthony Harrington

EXPOSURE: The woes of the oil industry are affecting the wider economy in the north east with lower consumer spending impacting on retailers.

THE pressure on businesses in the North East caused by the sustained low oil price is likely to see the rate of business insolvencies picking up in 2016, says Begbies Traynor partner Ken Pattullo.

At present the firm is busy dealing with troubled companies in the retail sector, though this has to do more with the fact that January and February are very slow months for the sector, with consumer spending taking time to recover after the Christmas shopping and sales binges.

“These are always difficult months and we often see some insolvencies among retailers as the fall off in spend starts,” he says. Patullo points out that the impact of these traditionally poor months is being exacerbated for retailers in the North East since low oil prices mean firms across the region are seeing sharp reductions in income. This translates into lower consumer spending by everyone connected with those businesses, which adds to the pain felt by retailers.

Pattullo says that he is also seeing some people operating as sole traders, rather than through a company, opting for voluntary bankruptcy. In a number of these incidents, he says, the people involved would have done a lot better if they had been trading through a limited company.

“If you trade through a company then the debts stop with the company, provided you have not compromised yourself by allowing the company to continue trading whilst clearly insolvent. The only funds at stake when you trade through a company are those you put into the company in the first place as share capital,” he comments.

ADVICE: Begbies Traynor partner Ken Pattullo.

At present the insolvency statistics show that personal insolvencies are falling. One thing that is certain is that the continuing low price of oil will mean that the pressure on businesses and on the finances of individuals in the north east in particular, is unlikely to ease.

“Where companies are benefitting right now is from low interest rates. This is keeping interest repayments on debt within manageable bounds for many. Struggling companies are able to continue without going into insolvency and some may well trade their way back to health,” he says.

Pattullo points out, however, that there is a fine line between trading a company back to health and trading while insolvent. The latter puts directors personally liable and removes the protection afforded by incorporation, allowing creditors to sue directors personally for losses.

“We always advise directors to come and see us at the earliest possible stage when they see difficulties on the horizon. That way we can help to guide them through these issues and help them to identify the point at which they would clearly be crossing the line between legitimate trading and trading whilst insolvent,” he notes.