Insolvency reforms to harm business.


Insolvency reforms could damage SMEs

Government reforms to give HMRC priority ahead of pension schemes, trade creditors and lenders when recovering debts in insolvency cases have raised serious concerns amongst businesses for their likely damaging and limiting effect on UK trade.

The proposal to effectively reinstate the Treasury’s former preferential creditor status would mean that certain tax debts – including VAT, employee NICs and PAYE – could be reclaimed by HMRC in cases of company insolvency ahead of the debts owed to unsecured lenders, pension schemes and trade creditors. The Treasury would however still remain behind fixed charge creditors, such as mortgage lenders, in these instances.

HMRC priority risks damage to business lending, growth

Proponents say that adjusting creditor priority would simply reinstate the previous hierarchy scrapped to promote business growth in 2002 by the Enterprise Act, thereby ensuring that the government is no longer liable to pick up the costs of the growing number of company insolvencies.

However, critics of the proposals say that the reform would place an unfair burden on small business lenders, leaving them less likely to be able to recover their debts, and damage trust between investors and enterprises. In deterring banks from lending to businesses, the reform’s impact on companies’ ability to secure funding threatens to have a significant knock-on effect on business growth and expansion across UK industries – a prospect which is particularly concerning at a time when market conditions remain challenging and insolvency procedures are already on the rise.

Retail chains could lose floating charge loans

Small businesses in the retail sector in particular could be affected by the reforms, with the floating charge loans often relied on by retailers to expand stock levels set to become a much riskier prospect for lenders. Retail businesses have been impacted in recent times by the confluence of high wage and rent costs, business rates, competition from e-commerce and a dip in consumer confidence. In combination with these factors, the changes to creditor priority and their impact on lending facilities could pose a grave concern for the thousands of UK retailers currently thought to be in significant distress.

Critics say ‘short-sighted cash grab’ will harm business

R3 President Stuart Firth says the proposals are “frustrating and misguided.” Terming the reform a “short-sighted plan for a quick cash grab,” he warns that the move risks “long-term damage to the UK’s enterprise and business rescue culture, and to businesses’ access to finance.” Other critics of the proposal say it could counterproductively result in lower tax income in future years as lending confidence decreases, with some even warning that more businesses may go insolvent due to the loss of access to finance.

In a similar way to the CVA vehicle used by a string of major corporations recently, the return of Crown Preference could leave lenders unpaid in the event of insolvency – jeopardising creditors including small businesses, suppliers and pension funds in order to protect the Exchequer. In addition, borrowing costs are likely to rise in proportion to the new risk on private creditors. Small businesses are particularly vulnerable to the impact of debtor insolvencies, with many unable to absorb unpaid debts. To mitigate these risks, SMEs are advised to seek professional help to fortify their credit management systems and late payment recovery processes to ensure debts are recovered as effectively as possible before any client falls into administration.

CPA’s view

This means any SMEs out there who get caught by the insolvency of a customer are going to suffer even more.

Already business owners know that the insolvency practitioner was going to take a large slice of any realisations from the wind -up of their customers business. They know that banks and other preferential creditors are also going to take most of the remaining capital that was freed up by the collection of debts and sale of assets.

Those SME businesses new they were only going to see maybe pennies on the pound of what they were owed.

Now, the chance of even that have diminished with HMRC putting itself as a preferential creditor.

The chances of an SME, unsecured creditor getting anything when a customer with outstanding invoices goes bust look even more unlikely.

So it is even more paramount that they do all they can to avoid being over extended to  companies in danger.

CPA provides its members with credit checking facilities and gives its members the ability to monitor their customers so they are alerted should anything in their status that might affect their credit worthiness change.

CPA doesn’t tell it’s members to not do business with those clients. No, just set appropriate credit policies for them. Don’t let them over extend, maybe request payment on delivery or payment by card.

CPA can help you avoid those companies who are in danger.

Our credit reports predict 96% of insolvencies before they happen.

About CPA

The Credit Protection Association can help!

Formed in 1914, CPA has been providing credit management services to SMEs for over 100 years.

At the Credit Protection Association, we provide first class credit information that can help you avoid being over extended to customers who are at risk. Our monitoring service can flag up warning signs long before the end, giving you the chance to adjust and reduce your exposure. We provide recommended credit limits and credit scores on a traffic light system and can help you set appropriate credit policies for your customers.

We regularly publish lists of the latest insolvencies but by then it is too late. Our credit reports however predict approximately 96% of company insolvencies long before they arrive.

Companies in trouble usually have very bad bad cash flow and they try to deal with it by delaying payment to their suppliers, increasing your exposure to them.

As a third party collector, we can also get your payments prioritised over those who are not as hot on collections. When you customer receives a letter from the Credit Protection Association regarding their outstanding account, they are going to want to get that resolved as a priority. Our overdue account recovery service can get your unpaid invoices to the top of their “to do” list and get your invoice paid.

Over the years we have collected billions in overdue invoices for our customers.

Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.

Ready to speak to an advisor?

For help or advice on credit management, entirely without obligation.

Call us today

0330 053 9263

The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!

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Are you at risk of going insolvent?

Are you battling to avoid insolvency?

Do you realise you may have a hidden source of capital within your business waiting to be activated?

If you trade with other businesses and were often paid late then you could be entitled to significant compensation.

Under little known and underused legislation your business could be due huge amounts in compensation that you didn’t even know about.

That compensation could be the cash rescue your business needed.

How can CPA help?

CPA has developed a unique technology to dig into your accounting records and discover the cash injection you are due by means of compensation. The software does all the hardwork. Our software interacts over the cloud with over 300 different software packages, working directly with your accounts package, just so long as it’s stored on a computer.

We do the work, you receive the cash.

If you have supplied goods and services to businesses on credit and were regularly paid late then you could be due significant sums in late payment compensation.

We are talking to companies and unearthing claims in the hundreds of thousands from former business customers who paid them late. Large business customers who abused their power to inflict unfair and sometimes illegal payment practices.

We are helping companies that were looking to close down, who looked insolvent and finding that cash injection they need to avoid insolvency.

The Credit Protection Association has been protecting smaller firms against poor payment practices for over 100 years.

We are passionate about breaking the late payment culture that holds back the UK economy and threatens many SMEs with cash flow difficulties being the single biggest killer of Britain’s small businesses.

If you were regularly paid late we can help. Those former customers used you to boost their own cashflow, regularly paying you late.

As a result you had extra costs, you had the distraction of having to chase payment, you had opportunity costs because your capital was tied up in their late invoices.

Under little used legislation, you are entitled to compensation for those late payments.

Now you can boost your own cash-flow.

CPA can help unearth the those hidden treasures.

We have the technology to reveal the compensation you are due and we have the extensive experience and expertise to then turn those claims into cash.

Yes, CPA can help you boost your business cashflow.

Don’t et your bankers control you,  contact CPA today.

Read our blog here on how to break the late payment culture.

visit our late payment compensation page

See our full blog and FAQ on late payment compensation