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Early intervention vital if signs of distress show

COMPANY failures may be at a record low, but professionals in the business community have been given an insight into useful distress techniques.

Early intervention vital if signs of distress show

With clear warnings about a high number of zombie companies still out there, and increasing prospects of volatility in the market, those working closely with firms have been given a useful overview.

Kingsbridge Corporate Solutions held the special session at Grimsby Golf Club.

Liam Cotter, director, said: "2015 saw the lowest number of corporate insolvencies since 1989 – nearly 30 years – that's quite an impressive figure, and 2016 hasn't seen an awful lot of change.

"Economic growth has been pretty good over the last couple of years, at 2 per cent or thereabouts; inflation is low, less than 2 per cent for the last few years, and there is cheap money, with a base rate of 0.25 per cent and it not being above 0.5 per cent for seven years. Most of the headings on a profit and loss account are running low, too: wages, commercial rents, energy and fuel, there hasn't been a lot of upward pressure on any of these.

"However, fuel prices are rising, and that may change. The Bank of England is suggesting inflation may rise to 2.8 per cent, some forecasters are saying 4 per cent, and that could change things altogether."

He told how 136,000 businesses in the UK are only paying interest on debts. "These zombie companies are still lurking around and it wouldn't take much to change in the economy to push them over, so while the garden appears to be rosy there are factors that could influence change," he said.

While signs of distress are near record lows, with a recent survey showing only 4 per cent of companies at maximum overdraft; five per cent seeing a fall in market share and 2 per cent making redundancies, he said there are pressures in the economy that may change things. "One is Brexit – the party line from Government is everything is fine and dandy, and nothing to worry about, I have inside information that would suggest otherwise."

He said while 74 per cent of businesses recently surveyed said they had yet to feel any financial impact, 16 per cent had been negatively impacted with only 5 per cent positive, with only the exchange rate a tangible change since the vote.

Underlining what to watch out for, Mr Cotter said: "It is rare that a business goes from corporate health to insolvency in one fell swoop. There are nearly always signs and always time. It is incumbent on us all to recognise these signs."

Flagging them up, he said: "Utilisation of cash, people may talk about refinancing or leveraging assets a bit more.

"When we get beyond distress and at crisis point, then we are talking about creditor pressure, CCJs and writs, the company may be on stop with some of the suppliers and may be making redundancies. At this stage options reduce even further, it maybe beyond refinance and be a combination of refinance and restructure that we have to look at. Once beyond that, we're talking HMRC arrears, persistently exceeding borrowing limits, you are increasingly looking at insolvency and if rescue isn't an option, closure and liquidation.

"The earlier people like us get involved the more options we have and more tools we have in our kit to assist businesses to recover their financial health. It doesn't always work, but the earlier we get in, the more chance we have got and the greater the degree of management control."

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