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Insolvency - Protecting Your Business

Standing in my local Wetherspoons recently, drinks distribution certainly didn’t seem to be much of a problem! However, the recent appointment of PWC as administrators of Conviviality tells a different story. Wetherspoons is one of Conviviality’s main customers.

Conviviality’s administration is being attributed to some ambitious acquisitions including wholesalers Bibendum and Matthew Clark which were quickly purchased by the company behind the Magners brand, C&C Group. A forgotten tax liability of £30 million didn’t help matters either!

Taken together with other recent high-profile insolvencies including Toys R Us and Maplin Electronics and sobering announcements from New Look, Select, Homebase, Prezzo, Byron, Jamie’s Italian, Café Rouge and Bella Italia, the retail / leisure sector seems to be continuing its significant drop in fortunes.

However, as with all things, the reasons for the poor health of companies is more complex than a general downturn in the fortune of a sector. Bad management, flawed strategies, customer confidence levels, the negative impact on discretionary spending and increased costs due to things such as the National Living / Minimum Wage and the devaluation of the pound are just a few of the factors involved in the recent insolvencies and announcements.

Of course, perfectly healthy businesses can also be impacted by the insolvency of suppliers and customers which can put an unexpected strain on cashflow and supply chains.

What can be done to safeguard your business?

The recent insolvencies and announcements are clearly a cautionary tale and should prompt business owners to give their businesses of whatever size a health check to ensure they are not the next insolvency story and/or avoid the knock-on effect from other business’ financial woes. For example:

  1. Agreements with suppliers and customers should be checked.

  2. Credit terms should be reviewed.

  3. Due diligence on new suppliers and customers should be undertaken with care.

  4. The business’ own terms and conditions should be reviewed – for example, do they contain a retention of title clause? Is the contracting process such that they are incorporated into contracts rather than those of the supplier or customer? This is important because they will usually be more favourable.

  5. Is an adequate and proactive debt recovery process in place?

  6. Can appropriate insurance protect against unexpected impacts on your business?

These are just some of the things that can be considered to ensure that your business is protected as well as possible against being affected directly or indirectly by insolvency. However, if, despite your best efforts, your business is affected by insolvency, seeking early professional advice is the key to a successful resolution. The facts and issues can be analysed properly, and a coherent strategy put in place to achieve your objectives and resolve any issues in as positive a way as possible.

We can help companies ensure their contracting process, terms and conditions and debt recovery processes are fit for purpose. We are also able to help with the vast array of issues which arise in insolvencies. If we can’t help with your query ourselves, we work closely with a number of trusted advisers and professionals who we can put you in touch with.

To discuss things in more detail or seek advice, please do contact Scott Taylor on 0117 959 5439, 07961 255 206 or staylor@loneystewartholland.co.uk.