My June article referred to various options for helping to deal with creditor pressure now that trading activity is resuming : always assuming that the business can source both product and staff. The view expressed was that over-stretching the business/personal cash flow programme is unlikely to prove fruitful if survival is to occur and hence, care needs to be taken to manage one’s cash resources in order to plot a return to overall solvency in the long term.

In May of this year, Kwasi Kwarteng MP wrote to the insolvency trade body R3 in his capacity as Secretary of State for Business, Energy and Industrial Strategy because R3 had asked him to provide comfort that HMRC would be supportive in their debt recovery measures for unpaid taxes.  His letter noted :

“You ask that HMRC take a commercial view in order to drive rescue and publicise its strategy to encourage companies and insolvency practitioners to bring forward rescue procedures such as Company Voluntary Arrangements and restructuring plans.  I am very much in agreement with you that all stakeholders should support company rescue.

I am aware that HMRC will take a cautious approach to enforcement of debt during this critical period however, HMRC will be largely driven by a lack of engagement by companies rather than just their inability to pay, and that using formal insolvency to enforce payment will remain a last resort.  A flexible approach will be taken with those companies who engage with HMRC”.

This stance was supported by a government publication at the end of June entitled “Collecting tax debts as we emerge from Covid-19”. Thus, as with the approach to personal insolvency set out by the Scottish Government, the UK Government ( corporate insolvency is a matter reserved for Westminster ) is clear that if a company can pay its taxes, they should do so. Clearly, if a business is struggling, HMRC will seek to work with it in order to agree a plan based on commercial reality.

It is appreciated that, as an involuntary creditor, HMRC cannot simply stop supplying goods or services and hence, must rely upon an honest and transparent negotiation process for debt recovery.  The Meston Reid & Co experience over the years has seen some taxpayers acting as if the inability to stop supplying goods and services is a weakness that should be exploited e.g. by ignoring requests for payment/discussion. Not a good idea, and tends to mean that one has limited sympathy when the same company complains that HMRC are seeking to liquidate the company because of a lack of a realistic repayment proposal.

As many readers will be aware, HMRC organise visits and instigate regular communication in order to make sure that a taxpayer is aware of the liability. Indeed, various support measures are in place in order to ensure fairness of outcome for the taxpayer. It is rarely in anyone’s best interest for a business to be liquidated by HMRC and thereby diminish the prospect of both a recovery of the current tax debt and the potential for receiving further tax if a business continues to trade.

No creditor can wait forever and, as many of the business effects of Covid-19 begin to subside,  HMRC have announced that from September 2021, if a taxpayer is either unwilling to discuss a payment plan or ignores all attempts to communicate, enforcement powers exercised through court are likely to resume.

The Meston Reid & Co insolvency team deal with HMRC in virtually every liquidation : insolvent and solvent and recognise that if bad news has to be conveyed to all creditors, including HMRC, it is best done sooner rather than later such that a sensible way forward can be pursued.

It always makes sense to talk and establish a practical way forward. Occasionally, the process results in the directors of an insolvent company instigating formal insolvency proceedings under their own hand, but that is by no means an automatic outcome.

In conclusion, there is no substitute for seeking advice from an experienced source, ideally before creditors begin to circle and start placing pressure on a company, such that a mature view can be taken about a business plan, turnaround options and a payment programme for all stakeholder groups.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

Reflecting upon 2020, one cannot deny that we have all faced interesting challenges and, as a licensed insolvency practitioner, much of my work has involved dealing with the failure of businesses in the hospitality, leisure and retail sectors, and one suspects that these will continue to experience difficulty in 2021.  In fairness, over the last ten years, quite a number of bars, restaurants, hotels and leisure outlets have passed through my hands which perhaps reflects the precarious nature of commercial life for these sectors.

The oil and gas industry has provided a large number of insolvency appointments and it is a fairly familiar exercise to deal with a one-man personal service company which has an overdrawn loan account and hence, difficult discussions ensue with a director about how much is to be repaid.  Typically, this involves the potential spectre of bankruptcy and having to refinance the family home in order to keep the liquidator at bay. Lots of delicate conversations required!

It is impossible to forecast the size, type and variety of business that will fail next and this tends to mean that a key skill of the licensed insolvency practitioner is to know which agency/department to contact in terms of helping to identify/protect/realise assets whilst communicating the bad news to a group of angry creditors.  Indeed, I have worked with most law enforcement agencies including the Crown Office, local Procurator Fiscal, Financial Conduct Authority and Police Scotland Fraud Squad. On the occasion where a wayward solicitor is involved with a financial failure, either the Law Society of Scotland or the Solicitors’ Regulation Authority in England have been brought into the fray.

Assets that I have sold include motor bikes, cars, all types of clothing, patents, intellectual property rights, livestock, oil tools, property, land, and perhaps the most unusually a collection of pornography.  As it happened, the pornography was linked to a well known adult movie company which also went bust (pardon the pun) and denied electronic access to the collection thereby stopping a sale.

A few years ago I was appointed liquidator of a pig farm. On the first day of my appointment a boar was delivered.  After a brief period of rest following the journey, the boar was led into the breeding arena whereby it immediately commenced work………..only to suffer a major heart attack during its first conquest.  Fortunately the supplier accepted my view that the goods were not fit for purpose and provided a full credit in exchange for a dead boar!

Having to deal with the sad task of dismissing employees is a frequent occurrence. In one such situation at a fish factory in Peterhead I spoke to about 40 people and explained why the company had been liquidated and hence their jobs were no longer required.  At the end of my address I asked if there were any questions, only to be advised by the foreman that everybody had been standing quietly because I wore a suit and tie, but nobody understood a word because they were all Russian.

On another occasion I had to address about 90 employees the day after they had been dismissed and explain their employment entitlements.  Unfortunately, the appointment had been arranged for 2.30 pm in a working man’s club in the centre of Aberdeen and, to my dismay, the podium was at the far end of the room.  Trying to explain why no cash would be paid for many weeks was an unpopular topic and resulted in me weaving past tables of angry and intoxicated former employees as I beat a hasty retreat, leaving a representative from the department of employment to close the meeting.

On the subject of redundancy, one of the forms asks if there have been any breaks in employment. This is designed to deal with any individual who has left an employer for a year or so, but then returns.  In one case a former employee had written in the narrative box for employment breaks “10 am to 10.15 am daily for tea”.  Cue a mental note for me to advise all employees thereafter that a cup of tea does not constitute an employment break.

Life can be challenging. It is not that long ago that a person claimed to be a member of a secret sect and placed a curse on me. In another case, I received a telephone call from a concerned director advising me not to travel to his business the day after I had closed it because a former employee, worse for consuming alcohol, was walking up and down outside the main gate with a knife in his hand.

I recall vividly the time when I sought to close a business one evening and found      myself accused of assault : which seemed bizarre because I was the only Meston Reid & Co representative and there were 2 directors and 12 employees.  Nevertheless, Grampian’s finest thought it appropriate to confine me to a cell for a few hours and helpfully advised the local newspaper.  Fortunately, all was well after a detailed investigation had been undertaken and I received a most fulsome written apology from the Chief Constable.

A number if years ago a small package was delivered with the mail. No more than 6 inches by 3 inches, it was wrapped in plain brown paper and addressed to me. Upon opening it, one could see a clear Perspex box with wires, batteries and other components. The Police were advised and immediately despatched an officer who examined the package and declared it a bomb. The office was sealed and the bomb squad in Edinburgh were contacted. Meantime, the Police conducted some routine enquiries with each member of staff and a Policewoman sat outside my room guarding the location where the package lay. Shortly thereafter, the local TV outside broadcast unit arrived and asked for interviews. When the bomb squad arrived, they were aghast to see that the building remained occupied and immediately cleared the premises. The bomb was uplifted and taken away, but not before the authorities confirmed that it was a real bomb and the only reason it had not exploded was because the batteries had corroded.

Gulp! It was not until many months later that Police enquiries confirmed that the bomb had been sent to the wrong person.

Of course, the vast majority of time tends to be spent at one’s desk looking at accounting records and dealing with statutory filing requirements, but it is always fun when there are some unusual circumstances that help produce a sense of colour and excitement to the daily routine. I wonder what 2021 will bring.

Prior to accepting appointment in a formal insolvency, the golden rule is to ensure that there will be sufficient assets to pay one’s anticipated fee.  One of my earlier appointments was a car repair business in the centre of Aberdeen.  Initial enquiries suggested that most of the equipment was financed but there were no secured borrowings over the premises.  It was not until the case was underway that I received notification from the Council to the rather unfortunate effect that the garage was no more than a few lockups that had been converted into a workshop without planning permission.  The Council declined to grant permission retrospectively and demanded that the lockups be returned to their original condition.  Substantial expense and anguish with no fee for the trouble that I had to endure.  An expensive lesson!

As might be expected, the task of repossessing a person’s home can be fraught with challenge.  In one situation, the person had fought through every court possible and refused to accept that the trustee had the upper hand.  Come the day of eviction, a mercifully rare occurrence I should say, the person barricaded himself in his top floor flat in order to repel sheriff officers.  He then proceeded to abseil down the outside of the building in order to exit the scene but fortunately, I had take the precaution of mobilising the Police who were on hand to catch him when his feet touched the ground.  Keys uplifted and repossession exercise complete.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

When the Insolvency Act 1986  became the principal law applicable to corporate insolvency in April 1986, there was much discussion around section 214 because it introduced the concept of wrongful trading in the form of personal liability falling upon a director in respect of certain unpaid company debts in the event of the liquidation of a company in which the director was involved.

Previously, directors had operated on the basis that company liabilities were not a personal problem if they were unpaid, with the exception of those for which either a personal guarantee had been issued or personal assets pledged.  Following the introduction of the 1986 legislation, there were one or two well publicised cases which attempted to clarify wrongful trading so that a broad set of guidelines could be established. Briefly, a successful action for wrongful trading makes a director liable for unpaid debts of a company in liquidation if debts arose during the period that a person knew, or ought to have concluded, that there was no reasonable prospect of the company avoiding insolvent liquidation.

The standard defence to an action raised by a liquidator tends to be that the director acted responsibly as soon as he/she realised that there were financial difficulties and either communicated with all creditors in order to explain a turnaround plan, or sought the appointment of a liquidator.

Wrongful trading has often been part of legal action by the director disqualification unit of The Insolvency Service, in that part of the director’s disqualification was due to the fact that he/she allowed debts to accumulate when there was no realistic prospect of them being paid and hence, deserved to be disqualified.  Perhaps unsurprisingly, such attempt to remove the protection of limited liability was not popular in many circles and the reality is that there are few reported court cases upon which a liquidator can base a wrongful trading challenge because many cases are settled out of court.

The arrival of Covid-19 changed the corporate landscape because the UK government wished to give protection to directors who were running companies in challenging circumstances rather than simply close the business and make employees redundant.  Accordingly, the wrongful trading legislation was suspended in mid 2020 in order to remove the potential risk/anxiety that a director would be doing his/her best to save the company, but might fail in the process and incur personal liability.  At that time,  a number of commentators suggested that the suspension of wrongful trading was inappropriate because it was perfectly possible for a director to record decisions and explain what was happening in order to deal with the effects of Covid-19 and hence, be seen to act responsibly.  The suspension of wrongful trading was dealt with in the Corporate Insolvency and Governance Act 2020 which  has been updated fairly regularly as the impact of Covid-19 has ebbed and flowed.

As readers will be aware, there have been many incentives to support all types of business over the last twelve months or so such as a bounce-back loan, CBILS loan, non-domestic rates cancellation/reduction, council grants, and furlough support. On the basis that the Government believes commercial activity is returning, there is an expectation that directors will act responsibly.  As a consequence, the suspension of personal liability for wrongful trading expired on 30 June 2021.  In reality, one suspects that Covid-19 will be blamed for many financially distressed situations for a considerable time to come and the success, or otherwise, of a liquidator pursuing a director for personal liability in respect of actions from 1 July onwards will prove an interesting challenge for lawyers to argue matters in court.

Acknowledging that running a business in the current economic climate is challenging, and as part of the contribution to supporting business, the insolvency profession’s trade body R3 (rescue recovery and renewal) has published a Get Back to Business guide which deals with corporate financial distress (www.backtobusinessuk.com).  The 28 page document is free to download and seeks to clarify how one might identify financial distress, explains the informal and formal options available, and suggests what type of advice might be available.  The guide also comments about some of the basics of acting as a company director and, as one might expect, includes a section on wrongful trading. Thus, one viewpoint  in the future may well be that directors have access to all sorts of advice and hence, cannot pretend that they did not know how to behave correctly.

A director acting responsibly has nothing more to fear than would have been the case before Covid-19 came to call. Further, as one looks ahead, it is probably fair to suggest that a responsible director who has been fully advised by someone experienced in insolvency matters should have nothing to fear by the reintroduction of the wrongful trading section of insolvency legislation.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

A large number of people in Scotland operate as either a sole trader or partnership, preferring the flexibility compared with a limited liability company or LLP.  All types of trades and professions have self-employed people, and we have all read media reports of complaints that the level of Government support has been insufficient to help deal with the myriad of Covid-19 challenges.

That said, the furlough arrangement has been available to all employers which has proved to be a lifeline in terms of keeping a business alive until Covid-19 has dissipated and giving some income to employees. Scottish Government statistics published in February of this year report that as at 31 December 2020, 282,800 Scots were on furlough : representing 11% of those eligible.  However, as business activity begins to resume and Government support falls away, the self-employed are likely to face cash flow challenges in terms of funding their business, whilst many employees will return to work and find that, in reality, there is no work and hence face redundancy.

It is probably fair to say that over the last 12 months or so, business and personal debts have increased for many. For example, sole traders and partnerships may have been in short-term hibernation or have operated only on a care and maintenance basis, meaning that debts that existed in March 2020 have yet to be settled and/or new ones have arisen in the subsequent 12 month period for rent, loan servicing, utilities etc.

From an individual’s standpoint, the debt level may have increased as a result of a mortgage/rent holiday, reduction in payment of finance agreements or credit card liabilities, or increasing indebtedness as a result of more internet spending.

In order to try and help self-employed traders and individuals manage debts and take appropriate advice before deciding whether a debt relief option such as a trust deed, sequestration or debt arrangement scheme is the best way forward, those with debt problems in Scotland could apply for a six week moratorium period i.e. during this period a creditor could not instigate action against an individual as long as the moratorium had been registered with the Accountant in Bankruptcy (State civil service department that deals with people suffering financial problems).  Recognising that six weeks was relatively short, the Scottish Government introduced legislation in mid 2020 which increased the moratorium period to six months : a significant benefit to anyone seeking shelter from creditor pressure. The legislation also disallowed a creditor bankrupting either an unincorporated business or an individual for a debt less than £10,000 and stopped a secured creditor evicting someone from their house.

Has this helped ? Well, in terms of providing perspective on the issue, a recent Scottish Government report  for the quarter ended 31 March 2021 revealed 778 moratorium applications, but only 25 creditor bankruptcy petitions.

These changes were scheduled to cease on 31 March 2021 but the rather snappily entitled Coronavirus (Scotland) Act (Amendment of Expiry Dates) Regulations 2021 extended the date to 30 September 2021 i.e. an individual now has a further six month period during which steps can be taken to regularise financial difficulties and  reach repayment agreement with creditors. One view is that a key purpose of the extension is to stop a huge wave of bankruptcies before the economic picture is clearer. Such a wave of insolvencies would be devastating for individuals in terms of losing their business, house and other possessions without being given a realistic chance to salvage the position.

Clearly, the debt moratorium process and inability to bankrupt a business/person by a creditor has resulted in a lack of debt pressure in the last twelve months or so and some commentators suggest that a false sense of debt-impunity may have developed where individuals have been able to ignore the level of debt piling up behind them.

Whilst the current legal provisions allow one to keep creditors at bay meantime, the law remains unchanged in terms of an individual seeking to make himself/herself bankrupt in order to address debt problems. The Meston Reid & Co experience shows that secured lenders are becoming increasingly supportive of a trustee in sequestration when seeking a voluntary repossession/sale of heritable property.  After all, if the property market does not improve considerably and mortgage servicing is ignored for a further six month period, the secured lender will often find that the ultimate loss on disposal is even larger and be less receptive to dealing with the houseowner.  Accordingly, when discussing personal insolvency proceedings, the issue of the family home is even more central to a decision on the way forward than ever before.

Experience suggests that it is usually better to seek advice early and take action under one’s  own hand once the effects are explained/accepted rather than wait until a creditor who has lost both patience and understanding over an extended period is allowed to pursue through court again.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

A large number of people in Scotland operate as either a sole trader or partnership, preferring the flexibility compared with a limited liability company or LLP.  All types of trades and professions have self-employed people, and we have all read media reports of complaints that the level of Government support has been insufficient to help deal with the myriad of Covid-19 challenges.

That said, the furlough arrangement has been available to all employers which has proved to be a lifeline in terms of keeping a business alive until Covid-19 has dissipated and giving some income to employees. Scottish Government statistics published in February of this year report that as at 31 December 2020, 282,800 Scots were on furlough : representing 11% of those eligible.  However, as business activity begins to resume and Government support falls away, the self-employed are likely to face cash flow challenges in terms of funding their business, whilst many employees will return to work and find that, in reality, there is no work and hence face redundancy.

It is probably fair to say that over the last 12 months or so, business and personal debts have increased for many. For example, sole traders and partnerships may have been in short-term hibernation or have operated only on a care and maintenance basis, meaning that debts that existed in March 2020 have yet to be settled and/or new ones have arisen in the subsequent 12 month period for rent, loan servicing, utilities etc.

From an individual’s standpoint, the debt level may have increased as a result of a mortgage/rent holiday, reduction in payment of finance agreements or credit card liabilities, or increasing indebtedness as a result of more internet spending.

In order to try and help self-employed traders and individuals manage debts and take appropriate advice before deciding whether a debt relief option such as a trust deed, sequestration or debt arrangement scheme is the best way forward, those with debt problems in Scotland could apply for a six week moratorium period i.e. during this period a creditor could not instigate action against an individual as long as the moratorium had been registered with the Accountant in Bankruptcy (State civil service department that deals with people suffering financial problems).  Recognising that six weeks was relatively short, the Scottish Government introduced legislation in mid 2020 which increased the moratorium period to six months : a significant benefit to anyone seeking shelter from creditor pressure. The legislation also disallowed a creditor bankrupting either an unincorporated business or an individual for a debt less than £10,000 and stopped a secured creditor evicting someone from their house.

Has this helped ? Well, in terms of providing perspective on the issue, a recent Scottish Government report  for the quarter ended 31 March 2021 revealed 778 moratorium applications, but only 25 creditor bankruptcy petitions.

These changes were scheduled to cease on 31 March 2021 but the rather snappily entitled Coronavirus (Scotland) Act (Amendment of Expiry Dates) Regulations 2021 extended the date to 30 September 2021 i.e. an individual now has a further six month period during which steps can be taken to regularise financial difficulties and  reach repayment agreement with creditors. One view is that a key purpose of the extension is to stop a huge wave of bankruptcies before the economic picture is clearer. Such a wave of insolvencies would be devastating for individuals in terms of losing their business, house and other possessions without being given a realistic chance to salvage the position.

Clearly, the debt moratorium process and inability to bankrupt a business/person by a creditor has resulted in a lack of debt pressure in the last twelve months or so and some commentators suggest that a false sense of debt-impunity may have developed where individuals have been able to ignore the level of debt piling up behind them.

Whilst the current legal provisions allow one to keep creditors at bay meantime, the law remains unchanged in terms of an individual seeking to make himself/herself bankrupt in order to address debt problems. The Meston Reid & Co experience shows that secured lenders are becoming increasingly supportive of a trustee in sequestration when seeking a voluntary repossession/sale of heritable property.  After all, if the property market does not improve considerably and mortgage servicing is ignored for a further six month period, the secured lender will often find that the ultimate loss on disposal is even larger and be less receptive to dealing with the houseowner.  Accordingly, when discussing personal insolvency proceedings, the issue of the family home is even more central to a decision on the way forward than ever before.

Experience suggests that it is usually better to seek advice early and take action under one’s  own hand once the effects are explained/accepted rather than wait until a creditor who has lost both patience and understanding over an extended period is allowed to pursue through court again.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

Whether it is the continuing impact of Covid-19 or the more recently reported effects of  Brexit, media comments proliferate about the financial distress faced by numerous businesses in Scotland who are involved with fish catching/processing/selling.  Although a fund has been established by the UK Government to try and help businesses survive in the short term, it may be insufficient to deal with all applicants.

Last June, the Corporate Insolvency and Governance Act 2020 “ the Act” received Royal Assent. A key focus was to try and protect otherwise economically viable businesses who are experiencing significant trading difficulties brought about by the impact of Covid-19.  Indeed, the all-pervasive impact of Covid-19 has meant that virtually every business activity in the UK could legitimately claim to have been affected : mostly adversely.

In September 2020, the UK Government announced that it would extend the duration of some of the Act’s temporary measures and, for example, continued the company moratorium process which was introduced in June. Corporate insolvency is a matter reserved for Westminster whilst the Scottish Government legislates for the insolvency aspects relating to sole traders and partnerships. Accordingly, although different in underlying nature and in order to maintain a level playing field for all business types, the Scottish Government enacted the Coronavirus ( Scotland ) Act 2020 which introduced a six-month moratorium for such businesses.

In terms of the corporate position, which is perhaps more relevant to the vast majority of fish-related business activity in Scotland, a company which uses the moratorium process is protected from creditor action (unless permission has been obtained by a creditor from court beforehand to pursue a company e.g. by seeking to appoint a liquidator ). A moratorium must be overseen by a monitor (a licensed insolvency practitioner) although responsibility for the day to day running of the company remains with the directors. This approach is a departure from standard UK insolvency procedures which envisages a liquidator being in control rather than leave the directors in possession of the business activity.

The legislation was not designed to deal with the type of export challenges that we read about as a result of Brexit but it might not be unreasonable to suggest that trading difficulties had already been in existence for many months e.g. hotels, restaurants and other fish purchasers had either closed or were greatly reduced in volume which restricted sales. Hence, the Covid-19 view remains appropriate when looking at a fishing business that is struggling at the moment.

A debt moratorium under the Act is for an initial period of twenty business days, but can be extended upon just cause being shown for a period of up to one year.  The intention is to rescue the entire company rather than just parts of the underlying business and the monitor must remain of the view throughout the process that the moratorium is likely to save the company. The protection under the Act includes a prohibition on suppliers ceasing to supply product and, as a quid pro quo, incorporates safeguards to ensure that ongoing supplies are paid for as part of the rescue plan.

In any insolvency procedure, a strategic plan must be prepared/agreed  beforehand and clearly, considerable trust requires to be placed in the directors that the plan to guide the company through current financial difficulties is capable of being achieved. Accordingly, where the licensed insolvency practitioner has agreed to act, creditors can take solace from the fact that the plan has been scrutinised and adjusted as necessary in order to focus upon business survival, and the trust in the directors is shared by an independent third party. Equally, the directors know that they must continue to act responsibly because if the monitor forms the view, at any time, that the plan is unlikely to succeed or the directors are nor cooperating, he can cease the moratorium immediately.

On the basis that there has been a suspension of serving statutory demands and a restriction on winding-up petitions where an unpaid debt is due to Covid-19, a business has an opportunity to act promptly but without undue haste in order to consider whether a moratorium is feasible.  The costs of a moratorium process are somewhat akin to a standard administration i.e. not cheap, but if it allows a fishing business to be protected and create a basis for long term survival, perhaps it is a process worthy of consideration.

Of course, the Act applies to all sorts of businesses and for this article, the fishing industry has been selected for the purposes of this article as one that might benefit.

The views in this article of those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general and clearly, each corporate situation must be viewed on its merits before any decision is taken.

Our high streets have witnessed significant changes in recent years as a result of the collapse of well known names such as Jaeger, BHS, Woolworths, Victoria’s Secret, Laura Ashley and DW Sports.  More recently, the Arcadia Group (Topshop, Burton, Wallis, Miss Selfridge, Dorothy Perkins) and Debenhams have collapsed and I am often asked what a licensed insolvency practitioner  does when appointed Administrator and handed the keys of a chain of shops.

By way of general explanation, the essential difference between administration and liquidation is that the Administrator has formed the view that there will be better realisations overall compared with  a liquidation process of shops closing, employees made redundant and assets sold for a modest sum. On the basis that the Administrator is trying to extract maximum value for the benefit of creditors, an assessment must be unemotional, over-arching, and realistic.  After all, he is trying to save all/part of a business and create the prospect of a dividend to creditors.

Before accepting appointment as an Administrator, a substantial amount of work will  be undertaken in terms of considering/assessing issues such as :

1. Which outlets are owned and which are leased. For those which are owned, what is the level of secured borrowings and the attitude of the lender.  For those which are leased, are there rent arrears, what is the current rent and how willing is the landlord to deal with either the administrator or a new tenant.

2. What work is required to each building in terms of repairs, health and safety compliance etc. It is fairly typical to find that expenditure on fabric has been small (if anything) in recent years because of a gradual decline in profitability and positive cash flow. The Administrator will wish to know what security and insurance arrangements are in place : buildings, contents, staff and general public.

3. On a store by store basis, what is the staffing level. If trading is to continue, what staff will be required, what is the cost of redundancy (for each person) is there a Union presence, and are staff in the mood to participate in trying to save all or part of the business in order to preserve employment.

4. What are the intellectual property and GDPR issues, and what social media presence exists. As we see more often these days, the most valuable assets are frequently the business name, website and customer address list.

5. Are there potential buyers, which might include the existing board, who can act quickly when administration incepts. If not, trading may have to continue for a period of months in order to market the business to as wide a base as possible. If ongoing trading occurs, what systems are in place to monitor sales, control cash or deal with expenses etc.

6. If trading is to continue, is there sufficient cash flow to support the activity or will lenders be invited to contribute. What does the cash forecast look like and what is the attitude of suppliers in terms of stock on hand e.g. retention of title claims, and future supplies.

7. Are there activities that can be cut/reduced immediately e.g. buying group, marketing department, IT support, or the strategic development team. Is it sensible for an immediate closure of some stores, phased closure of others, with a few better performers retained in the hope of finding a buyer.

8. What are the arrangements for delivery/return of online orders to customers. Will unused gift vouchers and customer credits be honoured.

9. What is the credit card/PayPal process for dealing with sales, and is there a danger that monies that would normally be released from credit card purchases will be delayed considerably.

10. What ongoing legal issues are there in terms of suppliers, customers, employees, local Council, landlords etc.

These points only give a flavour of the tasks to be addressed and clearly, whilst the existing finance and reporting function of a multi-store entity may be retained, at least in part, the Administrator will install a system of reporting because it is his responsibility to ensure strict financial control at all times. The Administrator recognises that he will be held publicly responsible if the whole process goes sadly wrong and hence, it is important that all stakeholder groups understand/respect the challenges being addressed.

Thus, detailed planning is crucial before an administration incepts, supported by regular reviews and strategy discussions during the process. Further, an effective communication programme is a key aspect, particularly with intense media scrutiny, which keeps all stakeholder groups advised of developments.

This article can only give a flavour of the process but it can be seen that the administration of high street stores is a challenging task, but not insurmountable if a sensible and experienced approach is adopted.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

The fluctuating nature of Covid-19 restrictions, particularly for businesses, has made it difficult to keep going, never mind maintain hope that a profitable basis of trading lies just around the corner.

Of course, some businesses have performed well as a result of Covid-19 : think food chain, doorstep delivery services, anything that can be provided online such as training, and small contractors who have found a plentiful source of work amongst those who have been forced to stay at home and find that the house repair/renovation that has been delayed indefinitely now becomes a matter of urgency.  Others however, have not enjoyed the same uplift : think public house, hotel, general retailer, hairdresser, tattoo parlour and sports centre.

Some commentators bemoan the fact that a supermarket remains open selling all sorts of goods unrelated to food e.g. newspapers, household goods, electrical items and mobile telephones whereas the shops selling specific product ranges have been closed : an uneven playing field.  In fairness, the high street has been struggling for years and unless there has been an attractive online offering that supports the retail outlet, smaller shops have found it difficult to maintain profitability and continue. Rightly or wrongly, we have seen many of our high streets become a collection of cafes and betting shops.

The view is often expressed that not all businesses have been treated the same in terms of government support. There are valid pleas from the bars and restaurants that they should remain open because their physical distancing and track-and-trace protocols are more stringent than a supermarket and thus, that some are being dealt with less fairly than others.

From an insolvency perspective there have been far fewer business failures than anticipated in the last six months or so and this may be because many people with a business struggle to see the benefit in a formal insolvency process if nobody is around to purchase the assets and use them to better effect.  Returning to a licensed establishment for a moment, if it operates from leased premises and the key assets are financed, why would someone pursuing a debt wish to close a business when there is little or no prospect of financial return.  Far better perhaps to wait until trading has resumed and there is a possibility of payment. The insolvency practitioner’s skills may be better used to assist with the preparation of business survival packages and liaising with creditors such that the interests of all stakeholder groups are preserved meantime.

In an effort to protect the financial position of businesses and individuals during Covid-19, the Scottish government changed the rules in order to stop a creditor from liquidating/sequestrating a debtor in order to recover a debt until 1 April 2021 at the earliest. Indeed, some now talk about that date being extended until, say, October in order to allow a business to resume activities and establish a sustainable position before addressing the historic debt that has accrued. If creditors have to wait a little longer to be paid, it could mean that landlords who have not received rent for many months, HMRC who have been patient in not pursuing unpaid VAT, PAYE and corporation tax, the local Council, as well as suppliers of goods/services and utility companies will have to be practical and accept a longer period over which old debts are settled.

If the business dream is to be kept alive until a sense of normality returns, what is to be done? Most businesses now have experience of staff consultation and furlough arrangements and this will be put to good use in the months ahead. In terms of financing the business, attention may well turn to what existing/additional sources of finance might be available in order to support a resumption of trading activity.  The Institute of Chartered Accountants of Scotland have produced a splendid 42-page guide which provides information on a plethora of sources of finance (www.icas.com/professional-resources/coronavirus) and is highly recommended.

For many, a bounce-back loan has been obtained, and perhaps a Coronavirus Business Interruption Loan application is the next step, which will require a realistic cash forecast and an appointment to see one’s bank manager/accountant. If investment is sought, business equity might be available from family/friends, wealthy individuals looking for an interesting investment (either hands-on or hands-off), business angel groups or a crowdfunding platform. Indeed, even during all times that furlough arrangements were in place, employers were required to fund employee pension contributions which means that there are numerous pension funds looking for good investment ideas.

Landlords, understandably upset because rent has not been paid for many months, may well be keen to ensure that an existing tenant remains and thus, willing to work with the current occupant in order to provide long term security of rental income.  The Meston Reid & Co team has been involved in helping to prepare cash forecasts on the basis of experience gleaned from businesses who have failed and hence, that any new activity is able to avoid the usual classic mistakes when seeking to open for business and be successful.

Given the fact, frustrating or otherwise for creditors, that there is little that can be done to collect a debt in Scotland in the short term, anyone keen to establish a new business idea or resume an existing trading activity, has time to think/plan carefully rather than feel rushed into making decisions that return to haunt. Whilst this process will not prove successful for everyone, and a formal insolvency procedure may be required in order to tidy what is left, the current lockdown restrictions on trading offer an opportunity to think ahead and keep the business dream alive.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.