MORTGAGES AND PAYDAY LOANS

Everybody knows it’s more difficult to get a mortgage these days. 

But, did you know that at least one of the leading mortgage providers rejects anyone who has taken a payday loan in the past 3 months or who has had two or more payday loans within a year? 

This rule applies even when the loan has been repaid in full and on time. 

Written by Tim Corfield

NEW RULES FOR FINANCIAL ADVISERS

With effect from 1^st January 2013 IFA’s (Independent Financial Advisers) will no longer be able to draw commissions from customers. These new rules are being introduced under the Retail Distribution Review (RDR). Instead, IFA’s will only be able to charge on a fee basis – very much like an accountant or solicitor. Under the commission basis payments are made (which can be worth thousands of pounds) on the sale of various life insurance, pension or other investment policies.

This change is likely to have a significant impact on an industry already under pressure from changes in recent years. There are presently close to 50,000 people selling investment products in the UK which includes those employed by the banks and building societies. Around half of these operate as IFA’s, often as sole traders.

It is likely that for many of the smaller IFA businesses this will result in a sale or retirement and there will be fewer IFA’s in future. Inevitably this will result in the larger organisations surviving as smaller firms are taken over or go out of business.

Tim Corfield commented “Whether intended or not, this will leave much of the industry in the control of the banks and building societies and fewer people will receive financial advice in future”.

Tim Corfield - August 2012

DEBTS SOAR FOR OVER 55’s

Recent insolvency statistics make grim reading for the older generation.

In the second quarter of 2011 the typical debt level for the over 55’s was just over £17,000. By the second quarter of 2012 the figure is now nearly £25,000 – an increase of over 30%.

Tim Corfield commented “Yes, the figures are worrying. Research also shows that the cost of living for pensioners has risen by 20% due to food inflation and the increasing cost of household utilities. This is the wrong time of life to have financial problems. Let’s hope the insolvency and debt industry can make a better job of assisting these people than their lenders ever did”.

Tim Corfield - August 2012

Are our MP’s pro - business?

Yes, G4S got things seriously wrong with their Olympic security shambles.

But, I am sympathetic to the comments made by Neil Woodford, Investment Manager at Invesco Perpetual which owns around 5% of G4S’s shares.

Woodford said the verbal dressing down of Nick Buckles (Chief Exec of G4S) at the select committee meeting last month was like watching “a medieval persecution….if this is the way Parliament wants to treat business, please Parliament, don’t be surprised when businesses decide this isn’t the country for them”.

He went on to say that the behaviour of MP’s was “incredibly damaging for the economy and this country…..Companies will be thinking twice about bidding for any government work”.

It’s just too easy for politicians to have a cheap sound bite swipe at business which they think will go down well with the majority of the electorate. We’ve seen it so many times before. It would be so refreshing to see politicians recognising that we need to send a message to the global economy that the UK is open for business and looking for more.

Domestically, it is ultimately down to business to get the UK through this economic mess that has been created by the politicians! – A little bit of support from time to time wouldn’t be a bad thing.

Tim Corfield - August 2012

Fewer Directors Being Made to Account for Their Actions

A recent report by R3, the Insolvency Trade Body has warned that a shortage of resources at the Insolvency Service has meant that unscrupulous company directors are escaping any action against them. 

Only 1,151 of 5401 reports (21%) sent by Insolvency Practitioners to the Insolvency Service resulted in a disqualification court order or undertaking, the administrative equivalent. This compares with 27% last year and 45% ten years ago. 

R3’s president, Lee Maning said “it is not apathy at the Insolvency Services it is lack of resources. We are reporting “misconduct” and the authorities aren’t acting. Later on, it results in new victims that could have been protected if it wasn’t for the lack of resources. Justice needs to be seen to be done.”… “We need to push up the disqualification rates and make sure those who have been disqualified stick to their terms if we are to maintain public confidence.” 

Tim Corfield said “These comments reflect our experience at Griffin & King and an issue we have been highlighting for some time”.

Written by Tim Corfield

http://www.griffinandking.co.uk

WHY THE HURRY TO PRODUCE GDP FIGURES IF THEY COULD BE MISLEADING?

We are now being told that better than expected construction figures may well mean that the second quarter GDP figures published last month will be revised upwards. The Office for National Statistics (ONS) reported last month that the economy shrank by 0.7% and based on this more recent data this may well now be revised upwards to 0.5%. 

The initial estimate was based partly on the assumption that construction output fell by 5.2% but now more data has been analysed, the ONS believe that the reduction was only 3.9%.

The ONS admits that much of the data gathered for the second quarter was a ‘best guess’. It bases its initial estimates solely on a monthly survey of 44,000 businesses covering the production, manufacturing, services, retail and construction industries. It polls firms of all sizes, but admits that those with fewer employees are less likely to be included – meaning that small fast growing businesses would be excluded from the calculation.

By the time the preliminary estimate is released, the ONS will have around 70%to 80% of responses back from its survey covering the first two months of the quarter (April and May) but for June the responses received is only around 20% to 30% and the ONS fill in the gaps based on historical data and a lot of assumptions.

The ONS admits that the bad weather and extra bank holiday made the estimate ‘more challenging’! These figures are unlikely to be fully revised for up to five years by which time who will care! Are we really to believe that Spain’s economy declined by 0.4% while the UK’s economy was down by 0.7%?

Tim Corfield commented “Given the political turmoil that these figures can produce and influence on business wouldn’t it be better to hold fire with producing figures that could indicate the wrong trends? Sending out the wrong signals could be damaging for the economy.” 

Andrew Sentence (a former member of the Bank of England’s monetary policy committee) has called for the ONS to include broader data including employment information. He commented “What the ONS is not very good at is taking a common sense view of economic data. They need to be much better at cross-checking technical data to give a true picture.”

Written by Tim Corfield

http://straightalkdebt.com/

Financial Pressures Hitting the Older Generation Harder

The latest available data from The Insolvency Service shows that while the 35-44 year old range has the largest number of individual insolvencies, the 45-54 year old group had leapt from representing fewer than 15% of individual insolvencies a decade ago to making up 25% in 2011. 

The older generations are now being hit harder by insolvency and the number of individual insolvencies for over 55’s increased between 2009 and 2011.

Tim Corfield commented “The impact of insolvency on an older person is much greater. Younger people have a much better opportunity to start again and psychologically won’t have felt such an impact of losing everything. It’s much more difficult for older people to re-train and re-enter the job market even though they may well have great skills to compliment any business or workplace.”…“I am seeing many more situations where the younger generation are now supporting the older generation rather than the other way around.”

The good news is that the overall number of personal insolvencies has fallen from 135,089 in 2010 to 119,031 in 2011.

Written by Tim Corfield

Tax Incentives Point the Way

Up to 15 major corporations are looking to relocate back to the UK following changes in tax rules.

The identities of the companies are not all known but publishers UBM and Advertisers WPP are believed to be among the names. 

A treasury spokesman said the tax change was part of a package designed to create “the most competitive tax system in the G20”. …”at the budget this year, we cut corporation tax by and extra percentage 24% and by 2014 it will be 22% putting the UK within sight of a 20% business tax rate, helping us move closer to our goal of creating a tax system more competitive for business than that of any other major economy of the world”.

Surely, this is the way to attract the right companies and people into the UK who will pay UK tax rather than the increases in tax that we are seeing across the Channel in France. 

Written by Tim Corfield

Borrowing Overshoot is a Blow to George Osborne

Recent data in shows that the State borrowed more in June this year than it did in 2011. The public sector borrowed £14.4bn which is £500m more than in 2011 and £1bn more than the market expected.

Statistics, produced by ONS (Office for National Statistics) showed that borrowing for the financial year to date is £6.8bn higher than for the same period twelve months earlier - which puts under threat the borrowing targets for the year. 

These figures are the result of the economy falling back into recession which has a significant bearing on tax revenues and social spending. 

June’s figures show a 0.1% drop in income tax raised to £10.8bn while spending on social benefits, including unemployment rose by 2.3% to £15.4bn.

Recently the IMF (International Monetary Fund) has slashed http://www.griffinandking.co.uk/ forecast GDP Growth for the UK to just 0.2% for 2012.

These figures highlight the importance of the UK returning to growth. The IMF has warned that austerity should be eased in 2013 if the economic recovery fails to materialise.

written by Tim Corfield.

http://straightalkdebt.com/

ISN’T IT TIME TO CALL TIME FOR THE EUROZONE?

Recently the Eurozone approved the terms of a loan of up to 100bn Euros to re-capitalise Spanish banks but the crisis continues.

Investors have reacted negatively and Spanish 10 year bond yields have increase to well over 7%. Madrid is now paying 20% more for short term money than it was around 6 weeks ago! The market seems to be very seriously questioning the fiscal viability of Spain which is the Eurozone’s fourth largest economy.

We really need to start thinking about the break up of the Euro as it now stands. Italy is also teetering and the crisis is only just getting started.

A spokesman for the IMF (International Monetary Fund) recently said “the Euro area crisis has reached a new and critical stage”… “And financial markets in parts of the region remain under acute stress, raising questions about the viability of the monetary union itself”.

Without the Germans accepting Euro bonds whereby the Eurozone becomes a genuine loss sharing banking union the present system seems doomed to failure. Are the Germans likely to do this? Would the rest of Europe accept the terms of the Germans and polices necessary to keep the Eurozone going in its present state? Full fiscal union is probably politically unobtainable.

The underlying problems relate to excessive debt and uncompetitiveness of the southern states. With countries locked into the Euro there is no mechanism to resolve these problems.

One solution could be that Germany actually leaves the Eurozone – perhaps with other Northern Eurozone countries including Austria and the Netherlands.

This spilt would be along the lines of competitiveness. One interesting question would be whether France would join the group of Southern European counties who are largely less competitive countries than the Northern Countries. France’s recent economic performance would ally into the Southern states but politically the French are more likely to want to continue their close relationship with Germany.

There are many questions to be resolved to bring this crisis to an end but the sooner it does happen the sooner the global economy will benefit from a European currency with a future.

Tim Corfield - July 2012

WILL THIS BANKING INITIATIVE WORK?

The latest Government initiative to get the banks to lend money has recently been announced by the Bank of England and the treasury under the “Funding for Lending Scheme”.

Under this scheme UK banks and building societies will be able to raise funds for about 1% less than they currently can in the market.

The thinking behind this is that this cheap money should be passed on the households and businesses in lower borrowing costs bringing a quicker end to the recession. The scheme will work by incentivising lenders to compete.

George Osborne said it would “inject new confidence into our financial system and support the flow of credit to where it is needed in the real economy – showing that we are not powerless to act in the face of the Eurozone debt storm”.

The banks have always said that the major stumbling block for lending money was that businesses presently do not have the appetite to borrow.

However, any credit easing has to be welcome.

Add to this the relaxation of the banking liquidity rules and the additional £50bn of QE and the measures could add up to a helpful package.

With the worsening Euro crisis lending has fallen and borrowing costs risen - uncertainty associated with the problems in the Euro area have simply exacerbated the problem.

According to a Bank of England report “some firms were unable to obtain credit at any costs” and resorted to raising money “wealthy individuals”. This is clearly a very difficult situation for small business’s to operate within.

The scheme will let UK banks and building societies swap difficult debts for treasury bills at a fee starting at 0.25%. This fee will increase if lending is reduced so therefore the more lending the bank does the bigger its interest margin and the easier it is to outprice competitors – easy!.

Tim Corfield says “any initiatives in this area have to be welcome. However, I suspect that until confidence is resorted many businesses will not have the appetite for investing. Bank credit decisions also would not have changed and given that the balance sheets of many small or medium size companies have deteriorated over the last few years the banks may not see sufficient security for their lending”.

Tim Corfield - July 2012

FRENCH PRESIDENT TO CARRY OUT HIS PLEDGE

The new French President, Francios Hollande has recently raised taxes by 7.2bn Euros for this year, and more to come next year as he laid out in his election pledge.

The wealth tax is to be increased with a one off levy this year. Under the wealth tax anyone worth more than 1.3m Euros pays further tax.

Inheritance taxes are also set to rise.

There are also new taxes aimed at banks, dividends, bonuses and big business.

Properties owned by foreigners are also going to be further taxed. Any income above 1m Euros is now set to be taxed at 75%.

A recent poll of the French showed that 75% were in favour of these increases in taxes for the wealthy.

Jean-Philippe Delsol, a French tax lawyer said there is a “considerable increase” in wealthy clients who are prepared to leave France. There was particularly an increase in younger entrepreneurs interested in moving to London.

Delsol calculated that some high net worth taxpayers would pay tax at marginal rates in excess of 90%. He went on to describe the measures as “scandalous” and compared the regime to “pre Thatcher” UK under Harold Wilson.

“The more you tax the rich, the less it brings in”. This is because the rich adapt, they leave, transfer their money into capital, sell their affairs, work less, and move. This is a punitive tax, not productive tax” Delsol said.

It will be interesting to see what effect this has in France. It should at least stimulate the industry of tax avoidance!

Tim Corfield July 2012

WHAT CAN WE LEARN FROM SPAIN’S BANKING CRISIS?

Spain’s banking problems lie with the regional banks (the cajas) that lent all the money to property developers to fuel the boom times.

In theory, the cajas sound good – they are small, local and focus entirely on retail and commercial banking, lending to local businesses.

Almost all of these banks were controlled or influenced by one of Spain’s local governments. The politicians in power would have voting rights in its local cajas and would also sit on the board of the bank and nobody in Madrid bothered too much about it whilst all was well.

There were about fifty cajas – now reduced to ten. It is now becoming clear that the local developers were in cahoots with the local politicians. Public sector construction works would be won by ‘favoured’ contractors who would receive loans from the bank.

Investigators are trying to get to the bottom of the value of all of the loans – but don’t hold your breath – this is likely to take years. And this is the problem at the root of the banking crisis – nobody seems to know the extent of the losses on the bank books. The practice in Spain has been for the banks to largely provide their own valuations!

We’ve seen recently George Osborne unveil the final details of the reforms to the UK banks proposed by the Independent Commission on Banking. Essentially, the retail arms of the banks are to be separated from investment banking. But, won’t these new ring-fenced banks look a bit like the cajas of Spain?

The UK banks that have failed, Northern Rock, Bradford & Bingley and HBOS were all pure retail banks.

The real security lies in making the banks stronger – holding more capital and liquid reserves which they now do.

Tim Corfield June 2012

UK OUTLOOK JUST GOT GLOOMIER!

The UK’s hopes of rapidly escaping the recession were dealt a series of blows last week.

Producer output prices rose by larger than expected at 0.7% on the previous month according to Office for National Statistics (ONS) data.

A contraction is the construction industry was also stated to be considerably worse – 4.8% compared with the previous 3 months, rather than the 3% initially reported.

The ONS said this revision is likely to increase the originally reported contraction of the economy for the first three months from 0.2% to 0.3%.

An economist at the RBS said “As a number of large scale construction projects, such as work on the Olympics have come to an end and public sector cuts have begun to take their toll.”

The level of activity going forward could remain low.

There is also an index from Nationwide which show that consumer confidence has declined in April as people became more worried about their jobs.

Tim Corfield - May 2012

YOU TELL ‘EM CHRISTINE!

In a hard hitting recent interview with the Guardian, Christine Lagarde, head of the IMF insists its payback time for Greece and makes it clear that the IMF has no intention of softening the terms of the country’s austerity package.

She says Greek parents have to take responsibility for their children being affected by spending cuts. “Parents have to pay their tax” she says.

Greece, which has seen its economy shrink by a fifth since the recession began, has been told to cut wages, pensions and public spending in return for financial help from the IMF, the European Union and The European Central Bank.

“I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens”.

“As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time”.

Legarde says she thinks equally about Greeks deprived of public services and Greek Citizens not paying their tax.

In recent days the caretaker Greek Government has met to discuss sharp fall in tax revenues – down by one third in a year. Under the terms of the country’s bail out, Athens has agreed to improve Greece’s poor performance for tax collection in order to reduce its budget deficit.

These comments come at a time when most recent polling in Greece is pointing in favour of the anti-austerity parties.

Tim Corfield comments ‘all the problems of Greece were known before the Euro adventure started. Politicians have a lot to answer for here – and what about Spain?.’

Straightalkdebt.com

LOSS OF INCOME TOP REASON FOR DEBT PROBLEMS

Figures from DEMSA (Member of Euro Debt Financial Services) have carried out an annual survey showing the reason why people get into debt problems. The top reasons are as follows;

• Loss of income (i.e. one breadwinner losing their job or having a pay cut or reduction in hours) - 23%
• Spiralling debts – where one credit card or loan is used to pay off another - 23%
• Poor financial management - 15%
• Divorce or separation - 10%

A spokesman for DEMSA said “There is no doubt that many consumers need help managing their finances and taking control of their debts”.

Tim Corfield comments “These statistics reflect what we find in practise. The important thing for any person who feels they are struggling with debt is take professional advice. We suggest they call a local Insolvency Practitioner and have a no obligation discussion, preferably face to face as soon as possible to see what their options are “.

WHO SAYS FOOTBALLERS ARE THICK?

John Carew, the former Aston Villa player has recently been on the wrong end of a bankruptcy order in the High Court following a petition from HM Revenue and Customs.

Last year, Carew reportedly had a tattoo misspelled on his neck. It was meant to say, in French - “My Life, My Rules”. Unfortunately, for Mr Carew there was a misplaced accent and what was actually tattooed was written as “My Life, My Menstruation”!

Tim Corfield

Business Failure Rates Expected to Rise 10% Over the Next 2 Years

Business failures are set to rise by up to 10% over the next 2 years according to a study by BDO LLP recently.

Some 23,600 businesses collapsed in 2011. This is expected to hit over 25,000 in 2012 and nearly 26,000 in 2013 according to a BDO survey.

The pessimistic forecast is based on lower levels of consumer consumption arising from weaker earnings growth and rising unemployment.

Construction and property, business services and retail and wholesale are the three sectors to suffer the most during 2012.

Technology, media and telecoms and manufacturing are ear marketed as the sectors likely to grow.

A spokesman for BDO said, “Businesses that develop innovative products, distribution channels and a strong customer proposition will gain significant competitive advantage – irrespective of sector. Those who do not respond to the new normal are at a greater risk of falling into difficulty”.

The report also predicts that after 2013 failure rates will start to decline.

Tim Corfield May 2012

MIND THAT ELEPHANT IN THE ROOM!

Spain’s King Juan Carlos has recently shown his complete inability to grasp the crisis at home by taking a holiday in Botswana to shoot elephants and other exotic animals.

“We all have to tighten our belts a bit because of the difficult times for the economy” the King told his subjects a few months ago,

The holiday was estimated to cost £8,000 a day while he as on his hush, hush, all expenses paid, hunting trip.

Unemployment has reached 24 % in Spain and the economy is heading towards a double dip recession. The monarch claims he lay in bed worrying at night about the plight of the jobless….

Tim Corfield May 2012

OFT Announce Revised Debt Management Guidance

The Office of Fair Trading (OFT) has estimated commercial fee charging debt management companies (DMC’s) make £250 Million a year from over-indebted clients.

Since the last review issues have continued to be raised over advertising and marketing practices as well as the quality of advice given by these firms.

Following the OFT’s earlier review, 129 warnings were issued to DMC’s while a further 67 warning letters were sent out. The OFT has since claimed 87 firms have left the market either voluntarily or due to enforcement action.

However, there remains concern over the quality of the management advice in this sector where there are “vulnerable consumers”.

The new guidance looks to clamp down on firms making “false or misleading claims” about the business such as operating websites which appeared to be run by a Government of a charitable body.

Any “unfair or improper practices” could lead to the loss of a firm’s consumer credit licence. Among the practices identified were the sending of unsolicited text messages, email or voicemails and the issue of inappropriate financial incentives to staff giving debt advice.

The latest guidance has been welcomed by the two leading trade associations for the industry: The Debt Manager Standards Associate (DEMSA) and the Debt Resolution Forum (DRF). The pair together represent some 46 DMC’s and aim to promote professional standards in the industry.

Tim Corfield

http://straightalkdebt.com/ 

UK’S AAA RATING CONFIRMED

Standard and Poor have recently confirmed the UK’s AAA credit rating but have also warned that the Government’s austerity drive would continue to drag on growth for years to come.

S&P said the outlook for the UK’s AAA rating was “stable”.

George Osborne said S&P’s decision was a reminder that without austerity the UK would be lead into “an economic catastrophe”.

S&P acknowledged that household spending would be hit by weak wage growth, rising unemployment and a weak housing market.

Tim Corfield - May 2012

New High Court Ruling On Pension Pots

The High Court has recently ruled that untouched private pension pots of undischarged bankrupts can be used to pay off creditors.

Bernard Livesey QC judged that pensions of bankrupts yet to be accessed should no longer be off limit to a Trustee in Bankruptcy.

“Why should it be that a person who elected on the day proceeding his bankruptcy should be in a position where his entitlement to enjoy the fruits of his pension is liable to be subject to right of the trustee to apply for it to go to his creditors … whereas the person who had not yet done so is immune from the impact of the section and can enjoy the full fruits of his pension to the detriment of his creditors?”.

This case follows a Trustee who brought an application to force an undischarged bankrupt to draw his pension which he was eligible to do.

This judgement, which is subject to appeal, may have some far reaching consequences. We need to bear in mind that we need entrepreneurs to get this country bank on its feet. Many of these people will be sole traders and may not have been particularly well advised before they start out. The difference between such a person and one who take limited liability protection can have a massive effect if the business fails. For a great many, by the time they have decided to take the leap to set up their own business, they have accumulated a pension pot from previous employers. Why should they have to release this at a later date having fuelled the economy for a number of years in order the send the majority of this cash back to the creditors?

The whole question of risk and benefit needs to be taken into account when framing the law in this area.

I suspect there will be much more on this particular subject…

written by Tim Corfield

http://straightalkdebt.com/

EUROZONE HEADS FOR ANOTHER CRISIS

“The problem is solved” said French President Nicholas Sarkozy just five weeks ago but we have seen recently that Spain is the next Eurozone country facing a crisis.

Spain is the fourth largest Eurozone economy and the twelfth largest in the world.

• Spanish GDP last year was almost five times that of Greece.

• Unemployment in Spain in March hit a record of 24% which is by far the highest in the industrialised world and more than doubles the 10% Euro average.  

• Almost one half of Spain’s young people are unemployed.

• Over 8% of banking loans are not being sustained.

In a bid to boost employment the Spanish Government passed new laws making it easy to cut wages and lay people off. The Spanish Unions have responded with a general strike and there have been serious political protests.

Spain has now tipped back into recession with GDP shrinking in the first quarter. The Government predicts a 1.7% contraction in 2012 which many analysts consider optimistic. As the economy slows, tax revenues fall and welfare payments rise which makes the fiscal position worse. The Government admit that the public debt will hit 80% of GDP by the end of the year.

Spain must repay nearly 12 billion Euro Bonds by the end of April and another 13 billion Euro loan at the end of July.

I hope Sarkozy has this all under control. The King of Spain obviously isn’t too bothered – he’s managed to get away from it all with a bit of elephant hunting!

Tim Corfield - May 2012

SHOWDOWN ON AUSTERITY GATHERS PACE

Germany and France have moved towards a bruising and potentially destabilising showdown on how to tackle the European debt crisis.

Francois Hollande has made a presidential pledge to re-open the EU’s financial pact. Angela Merkel said in response “the fiscal pact has been negotiated; it has been signed by 25 Government leaders, and has already been ratified by Portugal and Greece. Parliaments all over Europe are about to pass it. Ireland has a referendum on it at the end of May. It cannot be negotiated anew”.

There is a backlash across Europe against austerity and a greater emphasis on boosting growth and job creation. If Hollande wins the French presidency and also secures a parliamentary majority in June he and his team are committed to not ratifying the EU pact unless it is modified to include growth boosting policies. Technically, the pact can come into force without French ratification but this is politically inconceivable.

The Dutch Government has collapsed recently over a failure to agree on spending cuts and comply with the new rules.

Spain’s credit rating has been revised downwards recently because the austerity is defeating the chances of economic growth.

The Romanian Government has recently been ousted in a vote of no confidence triggered by opposition budget cuts.

The Czech Government is fighting for its survival.

Herman Van Rompuy said “Over the past two and a half years the EU has had to react to the economic and financial crisis. This has not been easy and lead to some frustration at times and strains. We have had to deal with the urgent pressures of the sovereign crisis. The emphasis should now shift increasingly to measures that can boost growth and jobs.”

Hollande responded robustly to Merkel “it’s not Germany that decides for the whole of Europe”.

Tim Corfield

TASKFORCE WARNS OF BUSINESS FUNDING GAP

Business may face a £190 billion funding gap within 5 years unless more is done to stimulate lending - a Government backed taskforce warned recently.

Many small businesses are struggling as banks rein in loans. The committee, lead by Legal & General boss Tim Breedon warned that problems will intensify when demand for credit increases as the economy expands in recovery.

The report predicts that demand from businesses for credit will outstrip supply by at least £84 Billion and up to £190 Billion over the next five years.

This report comes at a time when George Osbourne has intensified his efforts to make funds more accessible to SMEs.

Tim Corfield April 2012

EU TO RAISE CAPITAL RESERVE RATIO FOR BANKS

Europe’s biggest banks could see the amount of capital they are required to hold in reserve more than double. Current plans due to be fully implemented within the next seven years could require banks to hold a minimum of 7% of core capital to act as a buffer against potential losses. However, the EU is now considering requiring the banks to have as much as 17% in reserve in an attempt to avoid another Lehman style bank collapse. The Treasury is preparing a White Paper on new capital rules for UK banks that is expected to be published soon. It will pave the way for putting into law the recommendations of the Independent Commission on Banking for restructuring the UK banking industry. Under the rules, British retail banking businesses would be required to maintain a minimum core capital ratio of 10%, to ensure that retail deposits are not put at risk in a future crisis. http://straightalkdebt.com/

COMPANY INSOLVENCIES ON THE INCREASE

Company insolvencies were up 7.4 per cent during the final report of last year in England and Wales compared to the same period in 2010.

Overall, there were 4,260 compulsory and creditors’ voluntary liquidations (CVLs) – 0.4% increase on Q3 (three months ended 30th September 2011) according to statistics released by the Insolvency Service.

Compulsory liquidation recorded the biggest increase at 1,389 – any increase of 14.1% on Q3 and 16.1% on the same period from the previous year.

The number of CVLs recorded a 5.1% drop on Q3 yet this was still 3.4% up on the same period in 2010.

Frances Coulson, President of R3 said “We have known for a while that many businesses are surviving but not thriving, operating as “zombies” and eventually some will have to fail. This is certainly the calm before the storm. In fact if the economy is to recover, we must see some businesses fail to allow viable ones to thrive”.

The statistics indicate a beginning of a change in the mentality of lenders. It appears that this may be the beginning of a reduced appetite to continue to support stressed companies.

WRONGFUL TRADE - WHAT AMOUNTS TO A DEFENCE?

The High Court recently judged that the liquidator of a company had been wrong to pursue two companies’ directors for wrongful trade.

In this case the company had been set up to utilise satellite technology and offer broadband internet access to the rural areas in the UK which was seen as a market opportunity that was not being taken by other providers.

The factor that triggered the directors’ decision to cease trade was that its main supplier of satellite services ceased the supply without providing any notice leaving the company unable to trade.

Under Section 214 of the Insolvency Act (wrongful trade) directors can be personally liable if they allow the company to carry on trading after the point when they “had known, or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation”.

The company had always been under capitalised, had always traded at a loss and it probably had been always insolvent on a cash flow basis.

However, the High Court Registrar believed that the directors had genuinely and reasonably believed right up to the point of liquidation that the company could be saved and had done all that they reasonably could to minimise the potential loss to creditors.

The Registrar appeared to acknowledge that the main reason for the liquidation was probably the failure of the any available satellite provider.

What can be learnt from this recent decision?

It is all too easy to assess director’s conduct with the benefit of hindsight. The Registrar said that the question of culpability is based purely on the information which was know or ought to have been known by the directors at the relevant time.

It is up to the liquidator to identify the precise date which he believes the company became insolvent and then consider the reasonableness of every director’s decision.

Another important lesson arising from this case is that directors should always make careful and dated notes and document all decisions and actions that they take to protect the creditors.

SO WHERE DO WE GO NOW?

The Greek ‘debt deal’ has now been secured which kicks the problem firmly up the road.

In immediate terms this should have a massive positive effect for the EU and this has avoided a huge disorderly default.

This debt write down of bonds now paves the way for further aid to be advanced to Greece allowing it to meet its obligations under bond redemption later this month.

This still amounts to the biggest sovereign debt default in history. Greece will still be under a huge ongoing debt burden. The best possible outcome is expected to be a debt to GDP ratio of 120 per cent by the end of this decade.

Most economists (and politicians) know that this is unsustainable – the outcome is much more likely to be worse. This is far from the final restructuring of Greece’s massive national debt.

Unfortunately, this default now increases speculation that Portugal could follow the same path.

Yet, Nicholas Sarkozy recently declared that the Greek “Problem is Solved”. Is there a French election looming?...This seems to me to be mighty optimistic! Watch this space….

OSBOURNE TO CUT CORPORATION TAX TO 20%?

George Osborne has recently been reported that his objective is to reduce corporation tax to 20% which is significantly lower than other Western economies and would be great for UK business.

Hopefully, we will hear more of this in the budget later today.

George Osborne inherited a rate of 28% from the last Government and plans to reduce it to 23% in the lifetime of this Parliament.

A further planned reduction would be a good move and would attract business to the UK.

What about the UK’s competitors? The USA has a basic rate of 35% and France over 33%. Germany has a rate of 15% but there are additional social taxes which bumps this up to a rate in excess of 30%. Conversely, Ireland which attracts many multinationals has a much lower rate of 12.5%.

Only one in thirteen with debt concerns intend to seek advice

Although debt concern now affects over 18 million (39%) of GB adults, only 1.4
million individuals (or 3%) intend to seek debt advice in the next six months. R3’s
latest Personal Debt Snapshot also reveals that only 6% of the GB population has
ever sought debt advice in the past.

R3 President Frances Coulson commented:

“This snapshot uncovers the huge unwillingness to take debt advice – while at the
other end of the balance sheet, if you had a sum of money to invest, you wouldn’t
think twice about taking advice first - and what is more, in that event, the advice
would be regulated and with an obligation to give “best advice”.

“This is frustrating as we know the experience of those who seek proper advice is
invariably positive. While there is some confusion about where to seek clear advice
for about a quarter of the population, there seems to be a ‘head in the sand’
approach or maybe it is the stigma of bankruptcy.”

The snapshot indicates that one in four (25%) do not think it is clear where to go
for good, impartial debt advice, yet 41% of those who had taken debt advice wish
they had done so sooner. This is set against a backdrop of record personal
insolvencies for 2011 and a tendency for more people to think their financial
situation will worsen rather than improve, with nearly a third (32%) stating their
financial situation will worsen in the next six months. However, there has been a
slight decrease in the number of people with no savings, now at 1 in 5 of us.

Of greater concern are a group of over 2 million GB adults who say they are
currently in a Debt Management Plan, much higher than estimates from previous years.

Unpaid invoices costing UK economy £1.4 trillion

Research released today from Tradeshift finds that 13% of invoices issued by UK
small businesses remain unpaid every year, causing a £1.4tr black hole in the
economy. At a time when life is tough for many small businesses, just under a third
(30%) said cash flow issues caused by unpaid invoices could force them to lay off
staff and 20% said they would have to turn down business or take out a business
loan.

The responses to the Tradeshift survey from UK small business owners and financial
decision makers are revealed in a report entitled “Getting Paid”, available to
download from shiftbusiness.net/getting-paid. It found that small businesses issue
528 invoices on average every year and yet 69 of these remain unpaid, totaling 177m
invoices.

In addition to these unpaid invoices and, despite the majority of small businesses
having payment terms of less than 60 days, 39% of all invoices issued are not paid
on time. When asked about the reasons for non-payment of invoices, 34% put slow
payers at the top of the list, followed by companies going out of business (24%),
disputes over work (19%), cash flow (11%) and administration (9%).

The resulting administrative burden of chasing these payments requires an average of
25 employee hours per week spent managing, processing and chasing invoices. Small
business owners estimate that 76% of this time could be saved if all invoices were
managed online, but only 28% said they currently handle invoices in this way. This
burden is magnified by the fact that over a third of invoices are still received by
post.

Mikkel Hippe Brun, Co-founder and Chief Strategy Officer at Tradeshift, an online
platform that aims to revolutionise e-invoicing by eliminating charges for small
businesses, sees this as a dangerous trend that is crippling UK companies: "For
centuries, the invoicing process has held small, innovative businesses at the mercy
of others with a clear disregard of agreed payment terms and damaging cultural
precedents. This is 2012 and there's no reason why invoicing shouldn’t undergo a
revolution that fits the modern times in which we live rather than acting as a noose
waiting to drop around the necks of the UK’s army of small businesses.”

The full report – available to download from shiftbusiness.net/getting-paid –
contains the full research as well as tips for small businesses looking to reduce
the burden of unpaid invoices. Small businesses can use Tradeshift’s e-invoicing
platform free of charge. For more information, visit www.tradeshift.com.

Rise in number of distressed law firms

New figures show that the number of law firms in distress has risen dramatically.

This could be made worse by the introduction of alternative business structures
(ABSs) under the new Legal Services Act, according to research by Begbies Traynor.

The firm has issued its quarterly ‘red flag alert’ which shows that 163 professional
services businesses were facing ‘critical’ distress in the last quarter of 2011.
This is an increase of 61% compared to the same period in 2010 and Begbies Traynor
says the majority of these were legal firms.

According to the alert, the last quarter of 2011 saw some non-legal businesses
finalise plans to offer legal services ahead of 3 January 2012, when applications
for such practices could officially be received.

However, while the Legal Services Act presents opportunities for non-legal firms,
many law practices have found themselves ‘floundering’ as clients cut back on their
legal fees spending, the alert adds.

Michael Bernstein, a partner at Harris Lipman, said many smaller legal firms were
left wondering what to do next due to the uncertainty raised by the Legal Services
Act.

He warned that this was not a viable strategy and urged firms to make a positive
decision about their future, rather than simply waiting to see what happens.

Read more: www.prlog.org/11812459-rise-in-number-of-distressed-law-firms.htm

Insolvency Practitioners Association elects new Deputy Vice-President

The Insolvency Practitioners Association (IPA), the membership body and regulator for those specialising in insolvency practice, has chosen Mark Fry (pictured), national head of Begbies Traynor Group’s restructuring and insolvency division, as the next Deputy Vice-President. He will subsequently take up the office of president in April 2014.

Mark brings a wealth of experience to the role having practised in the insolvency and restructuring sector for more than 20 years. His expertise in handling high profile cases such as Alphasteel, Southampton Football Club and Silverjet Airways has further enhanced his reputation as one of the leading practitioners in his field.

Mark has long been a supporter of the IPA and its member services, he has been a member since 1994 and for the last four years has served as a director on its governing board which is responsible for determining policy and strategy. He previously served on its Membership & Authorisation, Examinations & Training, and Finance & General Purposes committees.

Mark Fry comments, “The IPA plays a vital role not only in raising standards within the insolvency profession, but also in widening knowledge and understanding of the value of the work of insolvency practitioners.

“I have enjoyed a long relationship with the IPA and it is a real honour to be elected as Deputy Vice-President. It’s important that those with first-hand knowledge in insolvency practice play an active role in working within the professional bodies that shape policy.”

David Kerr, Chief Executive of the IPA, comments, “It’s great to have Mark as Deputy Vice-President. Over the years he has given his time and energy to the IPA and we value the attributes and experience he brings. With so many ongoing debates about current issues within the insolvency sector, the contribution of leading experts like Mark will be crucial.”

With more than 20 years’ experience as an insolvency practitioner, Mark was originally a founding partner in Taylor Gotham & Fry, a specialist boutique practice in the corporate recovery sector, which he sold to Begbies Traynor in 2005. He is now a member of the plc board of Begbies Traynor Group and is the national head of its restructuring and insolvency practice. During his time at Begbies Traynor, he has developed a separate but integrated restructuring and banking practice; this part of the business has worked in both debtor and creditor led turnaround situations. Mark is also CEO of BTG Mesirow Financial Consulting, Begbies Traynor Group’s joint venture with American business Mesirow Financial Consulting.

read more: http://www.creditman.biz/uk/members/news-view.asp?newsviewID=15280

Administration fees courting controversy

Companies which could have been rescued face the prospect of closure and unnecessary job losses because of a Government refusal to introduce new laws, according to R3, the trade body that represents more than 300 insolvency practitioners in Yorkshire.

R3 says recent court cases have added to the financial burden facing administrators when they are called in to rescue a company, making it less economic in some cases.

In the past, administrators were liable for the trading costs like wages, rent, rates and new supplies that followed their appointment, but new court judgments mean they may also be liable to meet other rent and pensions obligations of the collapsed company.

R3 wants new laws that clearly state what charges administrators are liable to pay.

Yorkshire chairman and Irwin Mitchell partner Andrew Walker said: “These court rulings and the continued uncertainty has had an unhelpful impact on the UK’s rescue culture, with far reaching, adverse consequences for the UK economy.

read more:
http://www.thestar.co.uk/news/business/administration_fees_courting_controversy_1_4176421

Portugal borrowing costs fall after ECB action

Portugal’s borrowing costs declined at a successful auction of €1.5bn of shorter-term government debt, after the European Central Bank intervened in the country’s sovereign debt market earlier this week to subdue soaring bond yields.

The six-month notes due in July 2012 were issued at an average yield of 4.463 per cent, according to Portugal’s IGCP debt management agency, compared with an average yield of 4.74 per cent at a previous auction on January 18.

The Portuguese debt agency also sold €750m of three-month bills due in May at an average yield of 4.068 per cent, down from an average yield of 4.346 per cent at a previous auction on January 18.

Concerns that the sharp lurch in Portugal’s borrowing costs could lead to contagion spurred the ECB’s intervention. Its action has helped send bond yields, which move inversely to prices, tumbling over the past two days. Portuguese 10-year bond yields fell as much as 161 basis points on Tuesday, the biggest daily fall this year, as the ECB bought debt for the second day in a row.

The 10-year benchmark bond yield fell 80bp to 14.1 per cent on Wednesday, down from a peak of 16.7 per cent earlier this week.

Read more: http://www.ft.com/cms/s/0/47482298-4cf4-11e1-bdd1-00144feabdc0.html#axzz1mrqfWnm8