Insolvency Practitioners Offer Lifeline To Businesses

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In the face of the Organisation for Economic Cooperation Development’s warning that the country is facing a technical recession, R3 members in Cornwall are offering a lifeline to struggling businesses.

Nigel Boobier, south west regional chair of R3
Nigel Boobier, south west regional chair of R3

R3 regional chairman Nigel Boobier, reiterated the commitment of its members to help businesses facing difficulties by offering a free hour of impartial and specialist advice to company directors.

The offer comes as the pressure on businesses, particularly those associated with the property industry, look set to increase.

“The commercial world may view seeking advice from an Insolvency Practitioner (IP) as a last resort, but in fact our preferred outcome is always to save businesses if we can.  A recent report on the insolvency industry conducted by the Centre for Economics and Business Research (CEBR) estimated that 910,000 jobs were saved by formal and informal business rescue procedures in 2006,” says Nigel.

“Administrations are increasing and the effect of the economic shift so far, particularly on the property market and the businesses which supply it, means that this is likely to continue.  What they provide is the opportunity for an IP to protect an ailing business from its creditors while a rescue attempt is made.

“Administration is a legal status which protects a business from its creditors usually for a year.  The IP’s duty lies with the creditors while they look for a rescue package or a buyer who can pay back more than the value of the underlying assets.  If this fails then the assets are sold off in favour of the creditors.

The IP can look to develop an agreement with creditors and suppliers so they continue to trade with the business yet set aside existing debts for a fixed length of time.  Banks, suppliers and stakeholders are all more likely to co-operate if positive and specialist action is being taken to save a business.

“If these measures are not enough a raft of more formal arrangements can be put into play,” explains Nigel.  “Corporate Voluntary Arrangements or CVAs allow an IP to extend the period of time a business has to pay back a debt according to what it can afford.  More than 75% of creditors have to agree to the terms of a CVA but these can be tailored for the needs of the particular business.

“In the absence of a rescue route, and if it becomes apparent that the company cannot afford to pay its debts or that its liabilities exceed its assets, then liquidation of the business on a court order would be the IP’s final step.”

“It’s far more rewarding to find a creative solution for a business in trouble than it is to close it down.  Business owners should see the IP as a specialist source of advice for their company alongside their accountant or solicitor.  They should also take advice as soon as they have concerns and whilst the IP has the maximum number of tools at his disposal.”

A register of R3 members, who are all regulated, is available in regions on the R3 website at www.r3.org.uk.

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