Guest blog by Debbie Tuckwood, Director of Operational Strategy, Institute of Credit Management – ‘Education that sticks’

In my view many miss opportunities because they overlook people.  It’s easy to focus on process improvement and new technology for dramatic savings.  After all people development takes time and investment - both in short supply.  It’s tempting to run token training though hardly surprising when there’s limited long-term benefits.  Deep down most know that without effective people change is difficult, however is people development really achievable given cut backs in training teams and budgets?

I believe it is, given the right strategy and support.  Look at the Institute’s corporate membership scheme for large teams which involves all.  It’s set up to help secure budgets and regular support from an education specialist (20 – 30% discounts help too).  If you focus then on moving 10% through qualification programmes, whether linked to own training or an external provider, you build skills and the appetite for learning.  After all, isn’t people development more about longer cultural change and ‘education that sticks’?

Weekly Blog by Philip King, CEO of the ICM -'Directors must take responsibility for their actions'

I received the report from the House of Commons Business, Innovation and Skills Committee on The Insolvency Service (Sixth Report of Session 2012/2013) recently. In more everyday parlance, this was the report from the Select Committee that met last October and heard evidence from the Insolvency Service, R3, the Insolvency Regulatory Bodies and others. One of the comments in our submission has been somewhat over-stated,  and our words used out of context, but I am particularly pleased at the inclusion of another reference which says: 'The Institute of Credit Management summarised the concerns of many of those who submitted evidence to us when they commented: "We would be greatly concerned if the reductions in budget [of the Insolvency Service] resulted in a degradation or reduction of Disqualification Unit activity. We believe any such dilution of activity would send entirely the wrong message to delinquent directors at a time when corporate insolvencies are likely to increase".'

 

In connection with the disqualification of directors, the report points out that 'disqualifications have halved over the last couple of years………whilst the number of directors disqualified each year has remained relatively stable over the past decade (approximately 1,200 a year), the number of cases of misconduct identified by Insolvency Practitioners in the same period has risen from 3,539 to 5,401…..the disqualification rate has fallen from 45% in 2002-03 to just 21% in 2011-12.'

 

It is widely accepted that the UK is one of the easiest countries in which to start a business, and that's good, but business owners need to show some responsibility in return for the 'veil of incorporation' which limited company status affords them. If a company can be formed with £1 issued capital and the directors have no personal liability, there have to be consequences if they are found to be guilty of misconduct that leaves their creditors out of pocket. Insolvency Practitioners are required to submit a return identifying where they believe misconduct to have occurred and they have the right to expect their report to be acted upon. Currently only 20% of reports are taken forward to disqualification and that's not good enough so I'm delighted that the Report recommends 'that the Department provides the Insolvency Service with sufficient, and if necessary, additional funding to disqualify or sanction all directors who have been found guilty of misconduct.'

 

Let's encourage entrepreneurship and initiative but let's not turn a blind eye on sharp practice that leaves suppliers with bad debts and impacts negatively on their business and the wider economy. I happen to believe there should be a minimum amount of issued capital required to form a limited company so that directors and business owners take their responsibility more seriously but I'll save that argument for another day. In the meantime, let's hope the Select Committee's recommendation is fulfilled. It definitely needs to be.

Weekly Blog by Philip King, CEO of the ICM -'Kill or cure the zombies'

On Monday the Financial Times ran a story with the headline "Institutions urged to kill or cure the zombies" which talked about "zombie" businesses, to describe those that can pay interest on their debts but has no viable means of repaying the principal over the long term. The article highlights the fact that many businesses are passed the point of no return but are staying afloat because of low interest rates, HMRC's discretionary Time to Pay arrangements, and/or banks keeping businesses in "intensive care" rather than allowing them to fail. It is little comfort to see a respected newspaper making the very same arguments that I have been saying for at least the last two years in my public assertions that there is a spike of corporate insolvencies waiting just round the corner. I recognise that it has taken longer to reach the corner than I anticipated but I continue to maintain that we are going to see a substantial increase at some point. Too many businesses are in a state of denial and it is only going to take a change in one factor to push them over the edge, be that the rent quarter day this week, a negative response to a request for an extension to the HMRC Time to Pay arrangement, an increase in interest rates, or another factor such as a large customer failing or failing to pay sufficiently promptly.

If you watched Dragons Den this week you might have seen the director of a twenty year old business seeking £100,000 investment to help his business grow. Upon questioning, it became apparent that the business had been loosing money in three of the last four years, had a very low balance sheet net worth and, if current forecasts were met, would be technically insolvent at the end of the current financial period. The argument that sales next year would be much better and would see a return to profit seemed to have little substance and, not surprisingly, there were no takers among the dragons. It's obviously difficult to see the whole picture from a few edited minutes on TV but the scenario of a business thinking tomorrow will be better without realising the reality of its financial situation today is not uncommon.

In the FT article, Christine Elliott, Chief Executive of the Institute of Turnaround said "she would like to see institutions that have potentially viable businesses under their care change their mindset. They should either recognise non-viable businesses and deal with them through insolvency or put in place a transformation plan to achieve their potential". We credit professionals have a very similar task: to recognise viable businesses and help create profitable sales for our own organisations, and to recognise non-viable businesses and ensure exposure is minimised. Sometimes we to have to decide whether to kill or cure the zombies.