9 February 2012

The ICM joined forces with P&A Receivables, Experian, AON, and Tower Associates to run an event in London last week looking at practical implications of the Eurozone crisis. I thought - since this was so topical - I'd ask Bill Dunlop, Managing Director of Tower Associates to share his thoughts, and here they are:

"Since early December 2011, I have been working with partners to facilitate a series of workshops to examine the effects of single or multi-country exit from the Eurozone. The purpose of the workshops was to best acquaint our clients with economic, political and social events as they unfolded and what impact country exit would have on operational credit management for businesses having outstanding debts in those countries. They were also to afford the opportunity of considering the areas of operational concern and develop the template of a plan to be implemented in the event of exit occurring.

Despite these workshops being informative , well attended and generating intelligent debate, I am extremely concerned that the rapid deterioration of the economic, political and social situation is not being matched by heightened company awareness, planning and creative thought in response. Since December, the balance of economic prediction has shifted from probable Greek recovery to likely Greek exit within 12 to 18 months. In my opinion the combination of social and political unrest will accelerate this exit and we will be faced with the immediate and predicted 50 to 60 percent depreciation in the new currency. The effect of this on companies trading in Greece will be significant but, possibly because of the size of its economy, in most cases may be manageable. However, many of the pressures faced by Greece are closely mirrored in Portugal, Spain, Ireland and Italy. My greatest fear is that the Greek exit will create contagion to such a level that some or all of these other counties will follow and operate their own currency or effectively create a two tier Eurozone; either way, we will be faced with considerable depreciation of their respective currencies in those.

The effect of this on operational credit management would be close to catastrophic and there are compelling questions, as professionals, we would have to give consideration to before the event-

• Are we likely to be asked for debt forgiveness to the value of the depreciation? Most probably yes!
• How do we quickly 'stress test' our account portfolio to establish that it remains economically viable?
• How do we structure our bad debt provision in response?
• Could our customers invoke 'force majeure' to avoid payment of existing debts?
• Where possible, how do we operate more effective control over our stock in term of repatriation of existing stock or enhanced protection of future stocks?
• What future instruments of security or insurance may be available?
• Does our existing insurance cover this eventuality? Most probably not!
• Should we or can we be considering converting older debt to long term debt or customer loans?

Hopefully, I'm being overly pessimistic, but I think it's better to address these questions before the hypothetical event, rather than after the actual tragedy."

2 February 2012

Ed Davey announced last Thursday that the Government is not going to seek to introduce new legislative controls on pre-packs at this time because it is not convinced that the benefit of new legislative controls presently outweighs the overall benefit to business of adhering to the moratorium on regulations affecting micro-business.

It's hardly surprising that the announcement has caused a furore and been presented as a victory for the insolvency profession and a massive blow for creditors. Indeed, there was a blog over the weekend that drew attention to my comments and those of Frances Coulson, President of R3, as epitomising the two positions. To be frank, this suggestion misses the point. My anger and frustration is not at the decision not to introduce legislative changes, even though I think they had some merit.

I am not fundamentally opposed to pre-packs and I believe they can be of enormous benefit when used correctly and appropriately. What I am fundamentally opposed to, however, is the abuse of pre-packs and the phoenix situation when the same directors continue what is, to all intents, the same business, but without previously incurred debts, leaving creditors high and dry. Two of the key benefits of the proposed changes were the notice period that would allow creditors to communicate with insolvency practitioners and bring what might be important and relevant information to their attention (a notice period that the Court could agree to be waived in certain circumstances), and the requirement that the IP should make a declaration in advance that he believed the pre-pack to be the appropriate solution in the circumstances; psychologically, so much more powerful than making that statement after the event as part of the SIP16 process.

But perhaps what really frustrates me is the obvious waste of time, resources and effort, and the justification for the decision that has nothing to do with what is right or wrong. A consultation launched in March 2010, and the subject of numerous meetings with stakeholders, papers, and discussion, has now been kicked into the long grass (as I feared it would) with an assertion by Ed Davey that he has asked his officials "to undertake an urgent review in conjunction with stakeholders of how the existing controls on pre-packs have been working…….". Surely that 'urgent review' could and should have been carried out as part of the consultation process? I am all for cutting regulation and red tape, and I am encouraged by the Government's ambitions and success in reducing bureaucracy through the work of the Better Regulation Executive under Lord Curry, but when the regulations argument justifies policy decisions, it feels too much to me like the tail wagging the dog.

I certainly do agree with those who, in the debate since last week, have suggested that suppliers might - and should - pay more attention to credit risk management in order not to be in the frame (or at least to control their exposure) when a pre-pack, or any other insolvency, happens.

26 January 2012

A campaign was launched by David Cameron in Leeds on Monday. 'Business in You' is a partnership between private enterprise and Government to highlight support for start-ups and growing businesses and encourage entrepreneurial spirit in 2012. It will run throughout the year and I'm delighted to say the ICM is actively engaged as one of the initial supporting organisations.

The campaign aims to highlight the fact that many people are sitting on an idea that could become a business, and many businesses have the potential to grow whether that's by launching new products, entering new markets, exporting for the first time or more widely, or by accepting the challenge and going for growth despite the negative malaise that surrounds us. The campaign website can be viewed at: http://businessinyou.bis.gov.uk/

I was at a meeting at BIS with many other of the supporting organisations on Tuesday and there are some really inspiring case studies being shared, and some innovative support solutions being offered by organisations as diverse as the Forum of Private Business, CBI, Institute of Directors, British Bankers' Association, ACCA, ICAEW, Intuit, Microsoft, Paypal, and Mitie to name but a few. Interestingly this is less about a government campaign with private sector support, and more about a collaboration that brings together the best from both the public and private sectors. And encouragingly, this isn't a government short-term soundbite-style gimmick but a long-term activity lasting for the whole year with links into many events and propositions. So how does the Institute of Credit Management fit into this?

One of the challenges for all businesses, and particularly for start-ups and growing organisations, is making sure they have enough cash to sustain the business and its requirements. Managing cash-flow is vital, and the over 275,000 downloads of the ICM's Managing Cashflow Guides are testament to how relevant the subject is, and what an appetite there is to gain the necessary skills to manage it better. I hope the 'Business in You' campaign succeeds in encouraging more entrepreneurs to create a start-up, and more businesses to successfully expand but if it also helps businesses to manage their finances better and therefore survive longer, then it will have delivered something really worthwhile. I am proud that the ICM is among its supporters.

19 January 2012

The Tribunals, Courts and Enforcement Act 2007 contained provisions for the regulation of bailiffs and followed a White Paper published in 2003. Since then, I have been to numerous meetings to discuss the issue and the Ministry of Justice has been repeatedly promising a consultation on detailed proposals for a new regulatory regime. When Justice Minister Jonathan Djanogly announced this week the release of updated 'National Standards for Enforcement Agents', he also promised that the Standards are 'the first step towards tackling this issue [unscrupulous bailiffs], which will be followed shortly by proposals for a new regulatory regime.' I'm heartened that at last something seems to be happening but, although I understand the consultation is expected by Spring, I'm always nervous when I see the use of words like 'shortly'. I remember the importance of SMART objectives being used in business and I sometimes wish the public sector would apply the principles by putting a specific and measurable date on actions rather than using vague descriptors like 'soon' and 'shortly'.

Anyway, back to the updated Standards. They can be found here but don't expect to be overwhelmed by their content. Creditors' responsibilities include, among other things, that they should be aware of their own responsibilities, must not seek payment in order to secure a contract, must notify the enforcement agent if the debtor pays or contacts them, and must forewarn the debtor of impending enforcement action. The section 'Professionalism and conduct of the enforcement agent' says they must act within the law at all times, must not be deceitful by misrepresentation, must not act in a threatening manner, should always produce relevant identification, must not discriminate, and a few other similar instructions.

In short, there is little in the Standards that any credit professional or enforcement agent couldn't have written on the back of an envelope if asked to suggest what they should be. As the document says, they are not legally binding, but offered as a 'helpful tool for the industry and for creditors.' As Colin Naylor, Co-Chairman of CIVEA (the Civil Enforcement Association) points out: "these are the Industry's own standards……all the signatories are already committed to the practices and standards contained in the document……and most CIVEA members already publish similar creeds of professional behaviour."

So will they have any effect on 'unscrupulous' bailiffs? I think not, and I wish the time and effort in producing them had been spent on drafting the long-promised proposals for a new regulatory regime so that the consultation can get under way and we can see some real progress.