Biz Extra

Published: August 24, 2020 | Updated: August 25, 2020

Insolvency Guru Malcolm Niekirk, Partner with Frettens Solicitors, is this month’s legal expert

By Andrew Diprose, editor

Insolvency Guru Malcolm Niekirk, Partner at Frettens Solicitors, has been thinking about what businesses in this area should be focusing on right now and answers your questions on insolvency law.

Q: What would you say to someone whose business is struggling at the moment?

There are a few simple rules:

  • Be realistic. If you’ve got a problem admit it to yourself and others. It won’t go away if you ignore it.
  • Look ahead. Make some informed guesses about what’s going to happen in the coming months. Make some pessimistic guesses and some optimistic ones. See what you can do to make the optimistic ones come true (and avoid the pessimistic ones).
  • Take advice. The earlier you take advice, the more options you have. Take advice from someone with the right skills and experience. Follow the advice you’re given.
  • Remember the three pillars to build a successful business turnaround. You normally need:

Pillar 1 – Change. If nothing changes, the business will continue to decline. The change may come from outside (for example, if Covid-19 restrictions slacken), but most change has to come from inside the business.

Pillar 2 – Management. Changing management normally brings its own change. Consider bringing someone new in. Perhaps even selling the business.

Pillar 3 – Finance. New investment is often essential, to remove strain, and fund the change the business needs. Perhaps new management coming in will be able to introduce new funding.  Perhaps a business sale will bring the investment it needs.

Q: There’s a competitor of mine who went bust.  They re-opened the next day. Same name. Same address. Surely that’s not right?

This is always an irritation, and, yes, from the perspective of businesses that pay their taxes and suppliers in full and on time, it looks like unfair competition.

From a liquidator’s point of view, selling the business as a going concern is often the best way to mitigate the damage. It can save jobs (which benefits the local economy) and it can help get some money back for creditors owed money. Very often the best offer for the business comes from the management. After all, they know it better than anyone else.

There are a couple of legal points to bear in mind.

Firstly, whenever a company goes into liquidation, there’s an automatic ban on its recent directors. They are not allowed to be involved, at a senior level, in another business that trades with a similar name. That ban lasts for five years.

There are a number of loopholes, and they are quite technical. I’ve written an article on our website, for anyone who is directly affected, that can be read here.

Secondly, repeat offenders (and those who have badly mismanaged their business on a first offence) can be legally disqualified from future company directorships.  It’s a government department – part of the Insolvency Service – which deals with that. Disqualification can be for up to 15 years and is assessed, by the courts, on a case-by-case basis.

Q: There’s a customer of mine who owes me money. I think they’re going bust and I won’t get paid. How can I protect my business?

As with so much else in business, this is down to planning and preparation. The law doesn’t do much to give you automatic protection. If they do go bust, you will have to put a claim in to the liquidator and wait for it to be processed. You may get only a very small percentage of what you are owed, perhaps nothing at all.

You may be able to protect yourself, in advance, with trading terms suitable for your business.

As one example, if you supply goods to high street shops, you may be able to get your customer to agree that you retain title (ownership) of the goods you supply, pending payment of all that is due to you. With the right combination of care and luck, that may see you getting paid much more than you would otherwise get.

Retention of title clauses can be used by many businesses that sell goods, but not all. There are many factors that affect how useful they can be in.

Trading terms are part of effective credit control systems.  Some businesses are also able to use personal guarantees, and suspension of service clauses to improve their leverage when things go wrong.

Q: Do you believe we’ll see an increase in insolvencies?

Sadly, yes I think we will. Most of the work I do is for insolvency practitioners, so I like to think I’m hearing from plenty of people who are looking at the developing trends. There is a broad consensus that a storm is building.

Right now, many companies are having to make difficult decisions about their people on furlough. That scheme is coming to an end, and already it’s costing businesses more. Many are businesses whose turnover is still down, and likely to stay down, from the effects of the lock-down.

The sensible strategy must be to make business plans on the assumption that there will be restrictions, for many months yet. Many businesses have been severely weakened already, and may struggle to survive in those conditions.

Advice from Frettens’ Insolvency Guru

Malcolm has some three decades of experience in insolvency and is regarded as one of the leading practitioners on the South Coast.

Having spent time as a practising solicitor and partner, heading the insolvency teams at two large regional firms, Malcolm set up his own consultancy in 2016. He has spent the last four years working as the ‘Insolvency Guru’, keeping insolvency practitioners out of trouble, offering advice on specific cases and generally.

He joined Frettens as Partner earlier this year.

If you are an insolvency practitioner looking for legal advice, you can contact Malcolm here.