Editor: John Arnold. E-mail jarnold@creditman.co.uk
Pat Williams. E-mail pwilliams@creditman.co.uk
Site: Business Credit Management UK
URL: http://www.creditman.co.uk
Issue: Vol 5 Issue 25
Dated: 24 June 2001
Welcome to the Business Credit News UK.
In this weeks edition you will find the following topics.
UKTHE PRODUCTIVITY GAP MEASURES OF THE UK GOVERNMENT
New measures to tackle the productivity gap with Britain's major competitors were set out last week by Chancellor Gordon Brown, Trade and Industry Secretary Patricia Hewitt, and Education and Skills Secretary Estelle Morris:
Speaking following a business breakfast held at No 11 Downing Street, the Chancellor said:
“Four years ago the Government began its mission to raise the economy’s sustainable rate of growth. In our first term this Government put stability in the macro-economy and work first. In our second term we must build on the platform of stability and employment. Today, we bring forward radical measures to tackle our productivity gap and create in Britain a true enterprise culture where the chance to start and succeed in business is genuinely open to all.”
Patricia Hewitt said:
“This Government will help UK firms get to the future first. Enterprise is key to our future prosperity. We must remove obstacles to innovation, and make competition work properly for the consumer, so that UK companies become the best at meeting consumer needs. We must back success and remove opportunities to break the rules.”
Estelle Morris said:
“It is vital for a healthy economy that young people understand the importance of enterprise and are given the support they need to succeed in their working lives. The Learning and Skills Council provides a very important link between the business community and young people. We are also making sure that schoolchildren get more chances to do work experience to help them prepare for the world of work. So I am pleased to announce that, to encourage an enterprise culture, Sir Howard Davies has been commissioned to conduct a review of the role of enterprise and business in education.”
The Governments statement sets out a package of radical reforms to drive through improvements in the UK’s productivity performance.
These changes build on the reforms the Government made in its first term to improve competitive pressures in the economy, remove barriers to the effective operation of markets and ensure that our tax system properly incentivises enterprise and investment.
Measures include:
A White Paper will be published in July setting out proposals for early legislation: modernising “complex monopoly” powers allowing the competition authorities independence to investigate sectoral markets under clear competition principles;
a strong legal basis for competition authorities to promote competition across the economy;
full independence backed by additional resources for the competition authorities; and
consultation on introduction of criminal penalties for those involved in cartels.
BUSINESS GIVES BROAD WELCOME TO GOVERNMENT ENTERPRISE TARGETS
The British Chambers of Commerce have given a broad welcome to the joint statement made by Chancellor Gordon Brown, Trade and Industry Secretary Patricia Hewitt, and Education and Skills Secretary Estelle Morris, on new measures to promote enterprise and tackle the productivity gap with Britain’s major competitors.
Anthony Goldstone, President of the British Chambers of Commerce said:
“The government has presented a ‘joined-up’ agenda, recognising the extent of the challenges we face. With some of the right targets in sight, government should now get on with the job of working with Britain’s business community to promote enterprise and encourage greater productivity in the private and public sectors. “
Commenting on individual measures announced, Anthony Goldstone said:
On the additional powers and resources being proposed for the competition authorities:
“Businesses that operate legitimately should have nothing to fear from these proposals. Overall, we believe these changes will improve clarity in competition law, boost competitiveness and provide a better, more effective framework.”
On the extension of the 10p corporation tax rate and reforms made to capital gains tax:
“Businesses will of course welcome this additional tax cut, but changes to corporation tax really are less of a priority to our members than, for example, measures to cut the burden of regulation they face. The tax changes announced also widen an already broad gulf with the taxation of self-employed businesses, which we believe it would be healthier to narrow, in the interests of tax simplification.
“The capital gains tax changes are welcome. There has long been a realisation in the USA, that cutting tax on capital gains stimulates investment and actually leads to a higher tax take for government, as the incentives to send capital offshore are reduced.”
On the major review of awareness of business in schools, to be led by Sir Howard Davies, chairman of the Financial Services Association:
“As partners in Enterprise Insight, the national campaign for a more enterprising Britain, we welcome wholeheartedly the major review of the awareness of business, the economy and enterprise across schools and further education, led by Sir Howard Davies, a great choice.
“Chambers of Commerce enjoy unique understanding of the skills and enterprise needs of their local communities. We look forward to making an active and positive contribution to the review. The critical measure will be that this review feeds into action - a real increase in the promotion of entrepreneurship as a career option, and ever-stronger links between businesses and schools, universities and further education colleges. “
On the Green Paper, to be published later this year, on reforming the planning system:
“Business wants greater flexibility in the 'plan-led' system, and a more efficient process of Public Inquiry. It is ridiculous that important infrastructure projects, such as Terminal 5 or rail/road improvements essential to the vitality of the economy, can be delayed for several years under the present system.”
On modernisation of insolvency laws, with the abolition of Crown Preference:
“We welcome the proposal to abolish Crown Preference in cases of insolvency. This is something for which we have pressed for some time, and was included in our election manifesto. By giving this ground, the government will help to encourage business to look on its package of reform more favourably.
On the review of payroll services for small firms:
“Small businesses tell us that one of the greatest burdens they face is administration of government schemes such as the working families tax credit through the staff payroll. Owner-managers are tired of acting as unpaid tax collector for the state, and even the government’s Better Regulation Task Force recommends that firms be compensated for the time and money lost to this activity. Any review of payroll services for firms must seek to cut the costs and reduce the burden, particularly on smaller firms. “
DOMESTIC PRICE FALLS TO GATHER PACE - SAY MANUFACTURERS IN CBI SURVEY
UK manufacturers expect domestic prices to fall more quickly than at any time since September 2000. That is the main finding of the CBI's June survey of industrial trends.
Asked how they expected average prices at which domestic orders are booked to move over the next four months only nine per cent said they would go up, 26 per cent said they would go down, giving a balance of minus 17. That compares with minus 12 in May. The figure has not been as low since last September when it was minus 20.
Total order books were still significantly below normal but they did not slip below the levels in the previous two monthly surveys. In volume terms 13 per cent of firms said order books were above normal while 35 per cent said they were below normal. The balance of minus 22 compares with minus 24 in May and minus 23 in March.
There was a marked contrast between manufacturing sectors. Consumer goods firms said their order books were broadly normal whereas capital and intermediate goods (those supplying goods for other parts of industry) manufacturers reported order books well below normal.
Export order books showed the same pattern. They changed little compared with May's survey but continued to be significantly below normal. A balance of minus 29 per cent this month compares with minus 32 last month, but is down on the minus 24 in the previous monthly survey in March.
Sudhir Junankar, CBI Associate Director of Economic Analysis said: "The downturn in manufacturers' prices is set to gather pace, as competitive pressures in the home market tighten their grip. Weak demand conditions reflect the impact of the world economic slowdown and sterling's strength against the euro. With stocks of finished products still high relative to demand, it is quite possible that manufacturers' hopes that output will remain stable could yet prove over confident ."
Manufacturers had similar views about future output as in the May survey. Over the next four months output is expected to be broadly stable. A balance of plus 2 compares with minus 2 in May. There will, though, be substantial falls in production in the electrical, textile and optical equipment sectors. With finished stocks more than adequate to meet demand, that may spread to other sectors as well.
Backward looking official data suggest there is very little upward pressure on output prices. The underlying growth in output prices in the year to May was only 0.2 per cent, the lowest rate since October 1999. They were only 0.1 per cent higher than in April.
The CBI carried out the survey between 24 May and 13 June 2001. 1102 manufacturers responded. During the survey period sterling averaged DM 3.23 and $1.40 compared with DM 3.15 and $1.43 in May's survey. Against the euro, sterling was at euro1.65 compared with euro1.61 in May.
GOVERNMENT TO PROMOTE DISPUTE RESOLUTION
Workplace conciliation will be pursued as an alternative to tribunals
New moves to encourage dispute resolution and stem the rising number of employment disputes are to be examined by the Government, Employment Relations Minister Alan Johnson announced last week. A main objective will be to resolve problems within the workplace rather than parties having to go through the tribunal system.
Mr Johnson said the Government would look closely at the whole process of employment dispute resolution.
The Government will look at:
Applications to employment tribunals have been rising steadily since the early 1990s. In 1990/91 there were 43,000 applications compared with over 130,000 in 2000/1 - a threefold increase.
Meantime, the cost to employers of defending a tribunal claim and replacing an employee can exceed £5000, while employees going through tribunal proceedings often move to a lower paid, lower status job - or even end up unemployed. Alan Johnson said:
"The rapid increase in employment tribunal cases is bad news both for business and for employees. It is far better for all concerned if disputes can be prevented or resolved satisfactorily in the workplace, avoiding the stress and costs of litigation.
"The Government will review the steps we can take to promote conciliation, not litigation.
"Litigation is costly for business, while the price an employee pays is stress and uncertainty and possibly damage to their employment prospects, when many disputes could perhaps have been resolved satisfactorily in the workplace at an early stage."
The Review will consider why disputes arise and how they are handled in the workplace; and why increasing numbers of grievances are taken to tribunals.
The review will make recommendations on:
The Government will consider legislative options as well as non-statutory means of achieving its objectives. The role of ACAS will be considered as well as that of the employment tribunals. The review is not intended to amend employment rights but is considering changes to the way in which those rights are exercised and to the law on dispute resolution procedures. It is not considering the law on collective dispute resolution.
A factual background paper on employment dispute resolution is now available on the DTI website at http://www.dti.gov.uk/er/individual/dispute.pdf
Last week we published an article by PKF which has provoked the following response from one of our readers Steve Doig. Steve is Credit Controller for Topwood - national supplier of timber products to the UK furniture manufacturing industry. E-mail steve.doig@premiumtimber.co.uk
If you would like to comment on this subject we would be happy to publish your views. E-mail jarnold@creditman.co.uk
As a credit controller for a national supplier of timber products to the UK pine trade I see many Sole Traders, Partnerships and Limited Companies rise and fall - and often rise again. I'm afraid I cannot fully agree with the argument that the Government should remove the stigma of bankruptcy. When a business fails it is often, I stress - not always, but often down to lack of business acumen. It is already too easy for these entrepreneurs to walk away from debts running to many thousands of pounds only to start up again, sometimes within days.
The problem is - if their business has failed because of mistakes they made - how do you make sure they don't make the same mistakes again and leave another trail of debts. Perhaps there should be a body that regulates not just Company Directors but Sole Traders etc to evaluate them at regular intervals. It could provide early warning that a company or business is heading into danger. Perhaps an individual who has run a business into the ground should be vetted before setting up a new business - to ensure he or she has learnt from their mistakes and won't go headlong down the same path again.
Whilst not wishing to dampen the enthusiasm of entrepreneurs, it is the suppliers that end up having to write off many thousands of pounds every year on the one hand whilst, on the other hand, are being told it should be made easier for people to liquidate and start up again.
I appreciate there would appear to be a strong case for IVA's against Bankruptcy but I have yet to see such an arrangement work. If a business is already that far in debt, for what ever reason, then nothing short of a miracle is usually going to help them survive.
In one case recently, I checked on the date when one of our customers. a limited business, called in an insolvency practitioner. Just one week before he had registered a new company with Companies House. The existing company was placed into receivership on the Monday and the new company started trading, with the same stock, from the same premises on the same day. The Director cleared approx £50K of debts in one go and started afresh without missing a days business. What guarantee does any supplier have that the new company will fare any better. Successful entrepreneurs should be applauded and encouraged, unsuccessful one's should persuaded to return to the mainstream and work for someone who knows how to run a business.
In the midst of people calling for reforms on Insolvency Law, wanting to relax the rules and take away the trauma of being made bankrupt; bear in mind the suppliers that regularly get taken to the cleaners by unscrupulous businessmen and women and lets see if their voice can be heard before the Government makes any rash decisions. Perhaps it is cynical but it seems, like Lawyers, the only real winners in any insolvency are the Insolvency Practitioners who get paid whatever the outcome. At the moment we only seem to hear their voice. I for one would welcome hearing the views of other suppliers, manufacturers, distributors etc.
Insolvency reforms announced by the Chancellor and the Trade & Industry secretary will mean more small business go to the wall more quickly unless owner managers hone their cash-flow management skills, warned R3, the body representing professionals who deal with crisis-hit businesses.
In a statement issued last week Gordon Brown and Patricia Hewitt promised major reforms to modernise UK insolvency legislation to reduce the penalties for honest failure and to create a modern and fair commercial system.
A government white paper to be launched in July will propose:
Company insolvency
Commenting, Roger Oldfield, president of R3 and KPMG partner, said:
"We wholeheartedly welcome the government's announcement that it wants to abolish the preferential status of crown creditors. This will mean more successful business rescues and better returns for creditors.
"However, it is also certain that this will result in more aggressive attitudes from the Inland Revenue and Customs & Excise. Owner-managers who rely on "borrowing" tax money to keep their business going will see revenue departments acting much more swiftly. This could be just the impetus required to persuade British managers to learn real management skills. R3's research shows that lack of management skill continues to be the most common cause of corporate failure. My personal experience leads me to believe that it accounts for at least four out of every five insolvencies."
R3 warned government plans to restrict or abolish administrative receivership in favour of a streamlined administration procedure could starve British businesses of the funds they need to grow.
"The devil is in the detail" commented Roger Oldfield. "Unless the government changes the rules on bank security this is just spin and will make almost no difference to insolvency outcomes. If they go further and tinker with banks' security rights, the results could be disastrous. The cost of credit could rise and anything other than low risk lending would become more difficult to obtain. In addition, the asset-backed financiers who are becoming a hugely important source of working capital for British business would find their whole way of working completely undermined. The evidence suggests that a struggling business could expect little mercy from operators in this sector - whose sole interest is to protect the value in their own assets.
"At an R3 symposium in January, three of the major banks expressed a willingness to abolish the right to veto the appointment of an administrator. We believe this was because most administrative receivership appointments are made with the support of the company's directors. Unless the banks are reassured about the value of their security, they will feel they need to raise the cost of credit to make up for the increased risk of loss. The government must be very confident that competition in the marketplace will be strong enough to keep rates down".
R3 (The Association of Business Recovery Professionals) is the leading professional business recovery body. Besides fulfilling the role of a professional institute for the insolvency and business rescue profession, it aims to become the centre of professional excellence for those working with underperforming businesses from rescue right through to insolvency. It has evolved from what was SPI (the Society of Practitioners of Insolvency) and has widened the audience from which it can accept members (previously restricted to licensed insolvency practitioners alone) to include professionals who can demonstrate a high degree of experience and competence in the rescue, recovery and renewal of businesses. The new organisation continues fulfill the role of a professional insolvency institute. Exceptions to this are licensing, regulation and discipline which are carried out by those bodies recognised by the Secretary of State as able to grant insolvency licences - the Recognised Professional Bodies (RPBs). The other exception is examination, which is undertaken by the Joint Insolvency Examination Board (JIEB).
Administrative Receivership
Administrative receivers are normally appointed by a bank or other lending institution that has as security for a loan (under a floating charge) the major part of a company's assets.
The administrative receiver can continue to operate the business an administrator. He often continues to operate the business whilst trying to sell it as a going concern. If he manages to do this he will usually receive a higher price than if the company's assets were disposed of on a break up basis. The money realised by the receiver is distributed to the secured creditors.
The administrative receiver has no authority to deal with the claims of unsecured creditors. If sufficient funds become available for distribution to the general body of creditors they must be dealt with by a separately appointed liquidator.
Administration
A licensed insolvency practitioner is appointed as an administrator by the Court under an administration order. The order is usually sought through a petition by a company that is, or is likely to become insolvency.
An administration procedure is designed to keep a business together while plans are formulated to rescue the business, maximise asset realisations or put forward alternative procedures. An administration can be initiated by the company, its directors or by the creditors.
However, for the petition for an order to be successful the Court must be persuaded that greater benefits can be derived from keeping the company in administration, rather than liquidating it. Any creditor with floating charge security must also be given the opportunity to decide whether to appoint an administrative receiver before the order is made.
Once under an order, the company is protected from creditors who cannot disturb the business or recover any assets, e.g. cars and buildings, without the permission of the Court.
Preferential status
In any insolvency procedure, except voluntary arrangements, control of the assets of the debtor business, or individual, rests with the licensed insolvency practitioner. Once the assets of the individual or company are realised, or as they become available from income streams, they are distributed in a strict order of priority:
As a preferential creditor, the Crown is in a better position to absorb the effect of bad debts than the average trade creditor of an insolvent company or individual.
PRICEWATERHOUSECOOPERS APPOINTED PROVISIONAL LIQUIDATORS TO INDEPENDENT INSURANCE COMPANY LIMITED
Mark Batten and Dan Schwarzmann, partners in the Insurance Restructuring Group of PricewaterhouseCoopers, have last week been appointed Provisional Liquidators of Independent Insurance Company Limited ("IIC") which went into run off (*) on 14 June 2001.
The directors of IIC concluded that there was insufficient certainty that the company's insurance operations could be run off on a solvent basis, (ie that its assets would exceed its liabilities), having considered the financial position of the company in the light of the decision to cease writing new business.
Accordingly the Directors have concluded that the company should be placed in Provisional Liquidation. Inevitably some job losses are to be expected.
The present financial position of the company is still uncertain and the Provisional Liquidators will be seeking to determine the financial position of IIC. They will also be working with policyholders to develop a reorganisation plan. It is probable that a Scheme of Arrangement under section 425 of the Companies Act will be put forward. Such a scheme usually provides for part payment of claims by the company in the event of a deficiency (ie the company's liabilities exceeds it assets). On account payments are usually made in respect of those claims.
Decisions concerning the future position of other companies within the group will be made shortly. However efforts are being made, as a matter of urgency, to dispose of those businesses or companies which remain viable.
Mark Batten commented:
"We will be conducting a forensic investigation into the financial position of the company as a matter of urgency, including the reasons for the company's failure. Over the next few months we will also be seeking to develop a Scheme of arrangement to enable claims to be agreed and payments to commence for settling those claims."
Policyholders should therefore continue to submit claims information in the normal manner.
The Policyholders Protection Board will be concerned to safeguard the interests of policyholders and is willing to consider assisting policyholders whom it considers would be eligible for protection under the Policyholders Protection Act 1975 if IIC were in full liquidation and whose claims are not met or to be met from other sources. The Policyholders Protection Board is asking the Provisional Liquidators to refer all relevant cases to it. In these circumstances, policyholders need not contact the Policyholders Protection Board directly.
Independent Insurance Company Limited ("IIC") is the principal underwriting company within the Independent Insurance group of companies, which also includes underwriting/ reinsurance subsidiaries or branches in Ireland, France, Spain and Australia. The other businesses in the group include claims handling and investigation, loss adjusting, software development and environmental risk assessment.
The audited accounts of the Independent Insurance Group as at 31 December 2000 show gross assets of £1.718bn and gross liabilities of £1.401bn. The company wrote principally property, liability, home and motor business in the commercial and personal sectors. It has in excess of 500,000 policyholders and about 2,000 employees.
Please note that the Company has established a help line for policy holders: 0161 741 1010
(*) 'Run-off' - An insurance company in run-off cannot write any new business but relies on cash balances, investments and reinsurance to continue to pay claims in full. It enters insolvency only when it cannot continue to pay policyholders' claims in full.
'Scheme of Arrangement' - A Scheme of Arrangement is an agreement with creditors which is binding on all creditors if a majority in number, and at least 75% by value, of those present at a creditors meeting vote in favour of it.
'Protection' - In general, protection is extended to private individuals or partnerships of individuals. Corporations are also protected but only in respect of compulsory classes of business such as employers' liability.
UNITED ENGINEERING FORGINGS (UEF) GOES INTO ADMINISTRATION
UEF, the largest independent forging business in the UK and one of the largest in Europe, has gone into administration. Myles Halley and Mick Mcloughlin from KPMG were appointed as joint administrators by the High Court onTuesday June 12.
UEF was formed in January 1997 from the forgings division of British Steel. The group has a turnover of around £120 million and employs 1595 people. It supplies components such as axle beams and crankshafts to heavy commercial vehicle manufacturers.
The group has suffered from losses over the last two years and has not been able to complete a restructuring of its operations due to the significant up-front costs that such restructuring would involve.
Bob Bates, UEF's Chief Executive, commented: "Even though this is a difficult day for the company, UEF has a strong market position and a high level of customer confidence with long-term contracts going forward. The group has been in discussions with various interested parties over the last 12 months. However, a deal could not be concluded within the necessary timescale and therefore a petition was presented for the group's administration."
UEF operates from six locations; Bromsgrove and Kidderminster (with 770 employees across the two sites), Lincoln (169 employees), Sheffield (231), Ayr (201) and Chesterfield (224).
Myles Halley, the joint administrator from KPMG in Birmingham, commented: "It is likely that there will have to be significant cost-cutting at the company to enable it to return to profitability. We will be working with the management and the union to view what needs to be done and are hopeful that, in due course, a buyer for all or part of the business can be found."
CHERUB: IN ADMINISTRATIVE RECEIVERSHIP
Administrative Receivers from KPMG Corporate Recovery were appointed on the 18 June to the long-established Leicester company, Cherub, a manufacturer of children's socks and nightwear garments.
The Leicester based company, employs 230 people, and at November 2000 turned over £15m.
Allan Graham, administrative receiver and KPMG Corporate Recovery Partner in Leicester, said:
"We are reviewing the situation carefully and hope to receive the support of customers, suppliers and employees to enable us to continue to trade the company.
"We are looking for a buyer, and any interested parties should contact me as soon as possible."
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Nortel Newtorks, a large Canadian telecoms-equipment firm, confirming that the telecoms business was in terrible shape, said that its losses in the current quarter would exceed $19 billion. The company said that it would lay off 10,000 workers in addition to 20,000 job cuts that it had previously announced.
British Telecom announced that 90% of a GBP5.9 billion ($8.2 billion) rights issue had been taken up, despite speculation that investors would be reluctant to acquire more BT shares even at a heavily discounted price. The company will use the cash to pay off part of its GBP30 billion debt.
Marconi, the UK's telecoms-equipment maker, reacted to its shares hitting a near-six-year low by reducing the strike price of share options for its executives. Hard-hit shareholders were less than impressed.
General Electrics's planned takeover of Honeywell, already approved by America's regulators, seemed likely to be scuppered by the European Commission. Jack Welch, GE's boss, had delayed his retirement to see the deal through, but has seen market conditions worsen since the bid was made.
Source - The Economist
MERGER NEWS
The Secretary of State for Trade and Industry has decided, on the information at present before him, and in accordance with the recommendation of the Director General of Fair Trading, not to refer the following merger/s to the Monopolies and Mergers Commission under the provisions of the Fair Trading Act 1973:Proposed acquisition by RCG Holdings Ltd of Doncasters plc
CONSENT GIVEN TO NEWSQUEST'S ACQUISITION OF THE DIMBLEBY NEWSPAPER GROUP
Melanie Johnson, Minister for Competition, has given consent to the transfer to Newsquest Media Group Ltd of the newspapers and related assets of the Dimbleby Newspaper Group, without a Competition Commission enquiry. The Dimbleby Newspaper Group publishes eight local, paid-for newspaper titles.
Miss Johnson was satisfied that the paid-for circulation of each of the titles being transferred is below 50,000 copies per day of publication. She has decided to exercise her discretion under section 58(4) of the Fair Trading Act 1973 to consent to the transfer without requiring a report by the Competition Commission.
Miss Johnson has also decided that, as the market may change over time, the duration of her consent should be limited to one year, or such longer time as she may agree.
Newspaper titles published by Dimbleby Newspaper Group:
25 June Institute of Credit Management - Wessex Branch meeting How Credit Managers can get the most out of E-Commerce Presentation by Bill Chalker of the National Westminster Bank Plc Royal Southampton Yacht Club Channel View Road, Southampton. 7pm for 7.30pm start Refreshments provided. Friday 29 June Institute of Credit Management - Sussex & Surrey Branch Summer Social - Wine Tasting Bookers Vineyard Foxhole Lane, Bolney, West Sussex Time: 7.00 for 7.30 p.m. Wednesday, Thursday and Friday 24th to 26th October 2001 International Credit Exhibition & Conference The Westin Stamford, Singapore http://www.internationalcredit001.com Mailto:info@internationalcredit001.com If you have an event coming up which is credit management related and you would like us to make an entry in the Diary section please e-mail the details to jarnold@creditman.co.uk
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