The insolvency profession and particular the role of insolvency practitioners (IPs) has come in for some serious criticism from the Office of Fair Trading (OFT), after a 7 month study of the market. Clive Maxwell, the OFT Senior Director of Services, said: “Self-regulation has not worked. We have called for some fundamental changes so that bad behaviour can be better constrained by fear of regulatory punishment and fines. Our recommendations would benefit the wider economy and good insolvency practitioners, without imposing on the taxpayer.”
One of the major issues highlighted in the OFT report was the level of IPs fees in comparison to the level of realisations and therefore dividends to unsecured creditors. This has always been an area where unsecured creditors see themselves being left behind while the IPs fees take preference.
In reality probably a few bad apples in the insolvency community have meant the whole profession being tainted with the expensive undertaker badge and the vast majority of IPs would welcome a more robust regulatory framework.
Specialist firms like Beer & Young have worked closely with IPs for many years and their experience has generally been very positive, particularly where an insolvency process was required as part of an investor backed turnaround solution. Inevitably the baggage of the past is sometimes prohibitive for an investor to simply ‘pick up the tab’ and a re-structuring process needs to be utilised.
The real key is working with all the stakeholders, including unsecured creditors, to make sure the business has the maximum chance of success in the future. It is crucial for SMEs to engage with firms like Beer & Young no matter how distressed things might seem and they will focus on the positives. An insolvency process may be necessary but this can merely be a stepping stone to a positive future, particularly with new investment being provided as part of the recovery solution.
In today’s uncertain financial climate with Bank lending having all but disappeared, great volatility in the World’s stock markets and interest rates and inflation at record lows, private investors have limited options available to them when it comes to investing their capital for maximum returns. They can gamble that the worst is over for the major stock markets, if their interest is in quoted companies, or for the more adventurous they can enter the world of small to medium sized enterprises (SME’s) and become a business angel and risk all for the promise of larger gains and more excitement by investing in start-up situations, or take less risk and lower rewards with more established SME’s who require additional capital for growth.
There is, however, an alternative that offers the possibility of greater rewards, increased participation, if desired, and more personal satisfaction and often with reduced capital commitment for a greater share in the company concerned. This alternative is to invest in ‘Turnaround Situations’ with established companies that have been hit hard by the present economic climate and cannot raise the additional finance required from traditional sources.
The companies in need of this type of finance are typically those businesses that have traded profitably in the past but for one reason or another now have serious cash flow problems. This might be due to a major client going bust, slow reaction to increased competition, late introduction of a new product or just tired management, to mention only a few.
The overdraft may be sitting at its limit, the Bank is unwilling to help and the directors may be unable to offer more security. The balance sheet is often fully geared and there may be creditor pressure or just a need for more working capital to operate through a poor trading period. The problem could be even more serious with solvency issues to address. These are good companies that for one reason or another have got into difficulties but with fresh ideas and new capital could once again prosper.
Investors are drawn to turnaround situations not only for the financial returns but often because they have experience in the market, can see synergies with their existing interests and can add value, not only by investing their capital, but also by strengthening the management team and harnessing their own network of contacts. In other words they can see that they can make a real difference.
The existing management team are happy as they too can see the benefits of new management skills coupled with new capital and especially as turnaround investors usually are not looking to take over the business.
Companies that could benefit from this type of funding, however, do not advertise the fact that they need help and so to find these interesting situations it is necessary to approach one of the few companies that specialise in this area. One such company is Beer & Young Limited.
Beer & Young is one of the UK’s leading providers of equity funding for small businesses. We have been delivering business finance, turnaround finance and company rescue solutions to companies in the small and medium business sectors since 1998 and have worked successfully with a number of PKF partners during this time. We are transactional based and as such are solely focused on the task that we have been engaged for, after which our involvement comes to an end. We exclusively operate the largest network of private investors who are active in turnaround situations.
We raise new money, mostly in the form of equity funds from business angels. We provide quick (or additional) business finance capital for businesses and, where necessary, help with cash flow and credit problems to aid with company rescue. We operate nationally and are proud to be known for our immediate response. Our reputation for quickly delivering business finance capital should assist negotiations in relieving financial pressures with institutions and creditors.
Our Head Office is based in the City of London. We also have regional associates spread right across the UK. Our associates have a wealth of invaluable experience, typically having run their own businesses and so from personal experience understand the needs of entrepreneurs particularly when faced with cash pressures. The majority also have banking or accountancy qualifications.
Companies and management under critical pressure need help, support and in short, solutions. Most business owners would agree that new money would certainly help to resolve the issues facing the business - money alone doesn’t provide all the answers, but when faced with cash pressures it will help relieve these and provide confidence to other stakeholders who are being asked to support the business.
Investing in turnaround situations is not risk free, far from it, but the financial and personal rewards cannot be matched in any other investment market. It provides an opportunity to add skills, experience and contacts to smaller companies, at a stage when such support is most needed. There is no charge to investors to gain access to our carefully selected clients.
