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Andrew
Livesey – who heads up Taylors business recovery team (which
provides specialist legal support to insolvency practitioners and
turnaround managers) looks at the implications of the Government
Insolvency Service released figures in early February which showed a
downturn in the number of company liquidations and personal
insolvencies throughout 2007, compared to 2006*.
That’s not to say that 2007 hasn’t been without its problems for
companies, but generally speaking, North West businesses have fared
better than many expected, especially in comparison to other UK
regions. This was illustrated in a recent report by Begbies Traynor,
which showed that businesses in the North West suffered the smallest
rise – 15.3% - in critical problems in 2007, compared to all other
UK regions. At the top end of the scale the West Midlands saw a
43.1% increase. However, the build up of these problems fuels
speculation that there will be an upward trend in insolvencies in
the first part of 2008.
Optimism
While the combined news from both reports is perhaps a reason for
some optimism for companies operating in the North West, management
teams should be careful not to grow complacent as we move into 2008.
There is a suggestion that the slow down in economic conditions and
the widely talked about tightening of credit will lead to an
increase in the number of companies running into problems throughout
the year ahead. The combined effect of toughening market conditions
is likely to have the greatest impact on the mid corporate sector,
and businesses operating at this level are at the highest risk of
business failure over the next twelve months.
A credit crunch, in particular, tends to negatively affect small to
medium sized companies as these types of businesses are more heavily
geared and often have no access to other sources of finance, such as
private equity or venture capital. Companies operating in the
transport and distribution industry in particular face a tough year
as fuel prices continue to increase.
While the extent of public debate surrounding the national economy
in recent months certainly poses a risk of the North West talking
itself into a recession, the business community must not lose sight
of reality.
The substantial increase in companies facing critical problems is a
very significant indicator for the year ahead. There are, however,
certain precautions that all business owners and management teams
can take to ensure that their company minimises the risk of becoming
a casualty in 2008. A proactive approach to planning for a market
slowdown and more expensive credit is a must.
Troubled Waters
Once a company actually finds itself in a compromised position, it
can be difficult for management to distance themselves from
‘fire-fighting’ day-to-day challenges in order to apply a strategic
mindset to navigating the company out of troubled waters. Companies
should seek help at the very first sign of a problem. It takes time
to set up a rescue plan and find alternative sources of finance so
by seeking advice early on, particularly when a company still has
options, they maximise their chance of success.
Copyright 2006 - 2010 Taylors Solicitors
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Crunch Time in the North West