Weekly Blog by Philip King, CEO of the ICM - 'A chorus of disapproval'

I was at the ICAEW Insolvency & Restructuring Group Annual Conference in London earlier this week and took part in a panel looking at 'Breaking down barriers between participants in the insolvency process'. It was a good debate, and the whole conference had some excellent speakers and content, not least a presentation by Justin Urquhart Stewart on the global economy that was both insightful and highly entertaining. The reason for writing about the conference here, though, is that I had an issue with three views expressed by different presenters, with which I personally disagreed.

The first view was that the low rate of corporate insolvencies is likely to continue and unlikely to rise even when the economy starts to recover. I've had a long-held belief that insolvencies will spike when things get better and that remains my view. The demand for cash in struggling businesses will inevitably put them under more pressure and a greater likelihood of failure, and it will be accompanied by an environment in which the banks and other creditors will take a less tolerant view of businesses in distress. We were told that this recession is likely to be different from previous ones and the cyclical rise is less likely to happen. I disagree.

The second, from a politician, was that one of the prime reasons for the zombie companies about which we read (and I've written) so much is the failure of the banks to lend. I questioned the linkage he'd suggested and he clarified his point which was that the original failure to lend had created the shortage of working capital that had created the 'zombie state'. I acknowledge there will be some cases where having more working capital would have made the business stronger and allowed it to perhaps expand and thrive but, more generally, the problem must be that the underlying business model is flawed such that either turnover or profitability is inadequate to sustain the operation. Yes, we want the banks to lend more (to businesses that will be able to repay) but not if it means they will become a bigger write-off in due course.

The third was from an eminent senior banker who said he had yet to see a 'zombie company'. Maybe his definition is different to mine but I see, and hear about, plenty of businesses that are living from day to day covering the interest element of their debt with difficulty and knowing they are in no position to reduce the capital borrowing. And that goes for individuals too who are borrowing from one source to cover the minimum repayment on another.

I guess the value of conferences like this is that we learn, we hear different views, and we get the chance to challenge - or reinforce - our own thinking. I'm often wrong, indeed it's one of my well-known strengths, but I'm not sure I am on these issues.
 

Weekly Blog by Philip King, CEO of the ICM - 'New Directive leaves authorities doing the maths'

So, the deadline for transposition of the EU Late Payment Directive 2011/07/EU finally arrives this Saturday and the UK government has met the deadline and even issued a Users’ Guide that can be found here.

 

I don't want to go into great detail about the Guide, Directive or Statutory Instrument here, but one paragraph in the Guide has really caught my attention. The paragraph in question within the 'Payment between public authorities and business' section says: ‘If you are a Public Authority..........If you do not pay within the deadline, you are obliged to automatically pay the outstanding amount that includes daily interest for every day payment is late based on 8 percentage points above the Bank of England’s reference rate plus the fixed amount, depending on the size of the unpaid debt. The onus is on you to pay your supplier on time and the supplier is not obliged to remind you that payment is outstanding."

 

The public authority customer is therefore expected to proactively recognise that it is paying late, calculate the late payment charges/interest and add the amount to the remittance regardless of whether the creditor asks for the amount or not! Now, I don't want to be a cynic but what are the chances of this actually working in practice? I can see all sorts of issues and difficulties: how, for example, are authorities going to know they are expected to do this? Who is going to make the calculation and approve the additional payment? How is the increased value going to be matched to the original purchase order? I'd be interested to hear views from readers with their opinion of how they see this working. Please email me at ceo@icm.org.uk or go to the ICM Credit Community LinkedIn group, or the Discussion Forum on the ICM website members area’ and let me know.

  

Finally, I have to mention Start-Up Loans. I'm privileged to have been involved on the Board of the company since its launch and I'm incredibly proud of its success as demonstrated by the announcement this week that the scheme has exceeded expectations as 2,000 aspirational young entrepreneurs have now received support (a loan supported by mentoring) to help get their business venture off the ground. The scheme has already reached its £10 million pilot spend, and a further £5.5 million injection of funding was approved this week in Parliament to fulfill its pipeline until the end of the month. The Government has made £117.5 million available to fund the Start-Up Loans scheme up to 2015. Amidst all of the sometimes dubious schemes our government has come up with in recent times, this is one where it appears to have got it right.