Retail bloodbath: IPs warn it's survival of the fittest

After household names including Habitat, Jane Norman and Thorntons all either collapsed into administration or announced store closures, insolvency specialists have warned that the retail sector will continue to endure pain this year.

The news also followed a report from the British Retail Consortium (BRC) that said retailers were being hit by weak demand and surging prices for commodities and property, while employment costs remain high.

Brian Green, a restructuring specialist at KPMG who worked on the company voluntary arrangements (CVAs) for retailers Blacks and JJB Sports, said: “For the retail industry it is now a question of survival of the fittest.

“Companies with healthy cash flow, low debt levels and sustained customer demand will survive; conversely retailers facing a cash squeeze, large debt burdens, faltering sales and - particularly those with expensive and large store portfolios - will face a tough time.”

Green highlighted the most recent set of figures published by the Insolvency Service for the first quarter of 2011. This showed that retail administration appointments jumped by a staggering 55 per cent, with retail CVAs increasing by 30 per cent.

He added: “With the cushioning effects of suppressed interest rates having worn off, persistently worsening consumer spend is starting to crystallise in business failure. Unfortunately the fundamental economic indicators suggest that retail insolvency figures will continue to worsen this year.”

Green’s comments follow news that HomeForm, owner of KitchensDirect, entered administration and an announcement from TJ Hughes that it may have to appoint administrators. This comes on the back of HMV, Waterstones and video games retailer Game all reducing the number of stores.

Last month the BRC said numbers from the Office for National Statistics showed the weakest growth in sales values so far this year.

BRC economist Richard Lim said: “After the feel-good boost of April, which saw retailers benefiting from sunny weather and bank holidays, May was a return to reality. Consumers are overwhelmingly cautious about their personal finances and are reluctant to spend, particularly on big ticket items.”

R3 president Frances Coulson said the recent last quarter day for rent in June was the catalyst for many retailers’ collapse.

She added: “The high-street and the way consumers shop is changing and the rate of change has been sped up by the protracted economic downturn. The most significant change is consumers shift to the internet.

“Close to a third (31 per cent) are now shopping online more and this has definitely impacted on those retailers that have a heavy high-street presence.”

HMRC: £650m overdue under time to pay “is collectable”

HMRC was responding to figures which revealed the taxman was owed £970m by businesses under time to pay, and that £650m of this was overdue, while £320 is due for payment within an agreed deadline.

It was claimed that some businesses have deferred payment of their tax debts as many as four times under the scheme.

The latest figures emerged after a parliamentary question was put to HMRC from Lord Newby, co-chair of the Liberal Democrat Treasury parliamentary policy committee. Lord Newby asked how much money remains outstanding under the business payments support service, under which the time to pay operates.

Lord Newby was told that 395,400 time to pay arrangements have been made, involving £6.8bn of tax, of which £5.87bn has already been repaid.

Meanwhile insolvencynews.com has discovered that HMRC will not be publishing any more figures on time to pay after July.

A spokesman for HMRC said a consultation on continuing to publish the figures was launched earlier this year, although no press release was issued because the subject was not deemed “high profile” enough.

The consultation received no responses other than one from the Treasury and one internal response from HMRC. HMRC then decided that the July 2011 release of time to pay figures will be the last.

HMRC added that the majority of businesses that have entered into time to pay arrangements are “fundamentally viable” and are still in business “in no small part” due to the practical support provided by its arrangements.

The spokesman for the authority added: “Around 90 per cent of the tax rescheduled has been paid and this, coupled with the enormous benefits that small businesses deliver to the country through tax revenues, jobs, and long term expansion, strongly justifies our pragmatic approach.”

HMRC said the £650m is collectable and will either be subject to further time to pay when appropriate, or to its normal debt collection procedures.

Those arrangements which have not been paid in accordance with their schedules will have undergone standard HMRC recovery and enforcement action.

This will involve further recoveries, but HMRC said it is not possible to identify these separately as being related to earlier time to pay agreements.

HMRC’s spokesperson added: “Time to pay is designed to help businesses with short term cash flow difficulties and we are well aware that multiple applications may be evidence of a deeper structural problem with implications for the long term survival of the business.

“So when a business makes multiple applications we probe to ensure the request is driven by a short term cash flow problem, rather than a deeper and insurmountable one.”

Private Investor to the Rescue!

This month we’re offering two short case studies highlighting recent work we’ve carried out for clients. As you know we are set up as a transaction based business. We rely on referrals and will never seek to overlap work that our introducer can ably carry out. That said we don’t believe there is anyone in the UK who so regularly delivers urgent capital to businesses as we do.

Talk to us if you know of a business that has a need for capital. Our network of investors is unparalleled in the UK numbering well in excess of one thousand high net worth individuals. We offer an honest and swift appraisal of any situation and we'll happily meet with the owners at no cost or commitment.

Interior Design & Consultants  - Case Study

Our client provides high quality interior design and consultancy services primarily to the commercial market.  The business owner has enjoyed success over a period of more than 20 years and has a customer list with a truly global reach. Post-recession, a number of client relationships have regenerated and an impressive order book has been built up.

In 2010 we introduced our client to investors and helped close the investment transaction. The investor concerned worked within the industry and this element was seen as crucial to the fit. Unfortunately, over a relatively short period of time, this relationship broke down and we were engaged for a second time to find a new investor.

In a very short timeframe, not only had we found and introduced a new investor – also an established individual within the trade, but we helped negotiate exit terms from the previous relationship. An amicable settlement was reached, leaving our client clear to enter terms with this new party.

"I was completely happy and satisfied with the service that we received from Beer & Young who clearly understood both parties’ needs and acted accordingly. They were always on the ball, reacted speedily to all situations and we are completely indebted to them for introducing us to an ideal investor partner enabling the business to survive and grow from a very precarious position and in addition complementing the investor’s business. I would have no hesitation in recommending Beer & Young to others".

Wholesaler / Distributor – Client Testimonial

As you can see from the testimonial below, our client had a serious issue with HMRC

Our business had been re-financed but had significant historic arrears with HMRC. We reached the point where HMRC moved our case to the solicitors’ office who would then issue a winding up petition. We called Beer &Young who swung into action straight away. They were able to persuade HMRC to take an immediate step back, giving us the chance to re-submit proposals for repayment. Beer & Young managed the whole process for us and we’re delighted that they were able to negotiate workable terms for us. I recommend any business with HMRC problems to contact them. They will act immediately, clearly have an excellent reputation within HMRC and are able to deliver results. Thanks again for your help.

AW, Director

Helping business owners deal with tax arrears

For this month’s news story we thought we’d highlight our non-core, but extremely important, area of our business – namely helping business owners’ deal with tax arrears.

Over the past 10 years or so we’ve been dealing with HMRC in their various forms, and since early 2009 when the recession started to bite we’ve been really active in this area. Since this time we’ve helped many dozens of businesses negotiate or re-negotiate workable payment terms with HMRC. We’ve offered a couple of client testimonials below. Before we move onto these comments, it’s worth offering a few pointers to business owners and finance directors.

1.     Don’t ignore the letters that arrive, once your case has become live, it won’t go away by ignoring it.

2.     HMRC have been very helpful in offering time to pay arrangements. Whilst these are not coming to an end, there is value to you in having a third party negotiate on your behalf as the scheme has been tightened significantly.

3.     There is a point where the taxman loses patience with the business owner or their management and begins to take action. This is not the end of the road, but a realisation that you must take advice and engage with a specialist firm.

If you are at the early stage of arrears, or about to miss your first payment, be it PAYE or VAT, it is important to communicate effectively with the relevant department.

Here are some recent testimonials demonstrating the quality of Beer & Young’s work in this area. Please contact us to talk about any issues you have.

Wholesaler / Distributor

Our business had been re-financed but had significant historic arrears with HMRC. We reached the point where HMRC moved our case to the solicitors’ office who would then issue a winding up petition. We called Beer &Young who swung into action straight away. They were able to persuade HMRC to take an immediate step back, giving us the chance to re-submit proposals for repayment. Beer & Young managed the whole process for us and we’re delighted that they were able to negotiate workable terms for us. I recommend any business with HMRC problems to contact them. They will act immediately, clearly have an excellent reputation within HMRC and are able to deliver results. Thanks again for your help.

AW, Director

Manufacturer of Specialist Fastenings

“Before I met with Beer & Young, my Company was in serious financial difficulties.  I had been through a poor trading period and our tenant had recently gone bust.  I

had creditors chasing me and we had arrears of both PAYE and VAT.  The sales finance company were restricting our facility and I was being advised to liquidate the business, which was the last thing I wanted to do. Beer & Young suggested the Company propose a CVA and on my behalf they talked to HMRC, the sales finance company as well as some key trade suppliers with the result that the CVA was agreed.  Thanks to Beer & Young, my company has survived the crisis and now sales have recovered to record levels I am confident my business has a future.”

Owner

Six million people behind on bills, says R3

Around six million people are behind with their bills and payments as record numbers experience financial distress, according to insolvency trade body R3.

About eight million people are due to go into their overdraft this month, with two million believing that they will go into an unauthorised overdraft position, according to research published in R3’s latest Personal Debt Snapshot report.

The study also finds that 36 per cent of  people believe that their financial situation will worsen over the next six months, while 32 per cent of people are now saving less than they used to – this equates to 15 million people.

R3 president Frances Coulson said: “These figures make for worrying reading. It is clear that many have found themselves in a position whereby they have to go into and often exceed their agreed overdraft in order to keep on top of their bills and debt repayments. “Unfortunately, more often than not this leads to bank charges, which further deplete the amount available for bills. It’s a catch-22 situation which can result in debts snowballing.”

Coulson said a sudden change in circumstance such as redundancy tends to trigger insolvency.

She explained that  with many people effectively experiencing a pay cut as living costs continue to rise, it is not always possible to set aside money for a “buffer”.

Coulson added: “Our research shows that 19 percent of people now set a budget. This is definitely a positive step as, for those who are struggling with their debts, a budget is a key tool which allows you to clearly compare how much money you spend against your income. This will help to identify if any savings can be saved and where.”

Project Merlin fails to hit target

Bank loans to small businesses fell £2.2 billion short of their target for the first quarter of 2011 under the Project Merlin agreement, according to official figures. Loans to small and medium-sized enterprises (SMEs) from the Merlin banks totalled £16.8 billion for the first three months of this year, falling short of the £19 billion lending target set out in the Merlin agreement between the banks and the government.

The shortfall was attributed to a lack of demand from SMEs, according to a statement released by the British Bankers’ Association (BBA) on behalf of the banks signed up to Project Merlin. 

HMRC in £1.5bn debt collection tender

HM Revenue and Customs has selected 10 debt collection agencies (DCAs) to work placements valued at between £500 million and £1.5 billion following a tender process.

The 10 agencies selected are in line to share between £30 million and £70 million in fees from the two-year deal, were notified of their selection on May 20, following what one DCA chief executive called “the largest tender the industry has seen in 20 years”.