Director Resignations – When a director resigns, it can present challenges such as knowledge loss and transitional risks.Changes in leadership can sometimes result in alterations to credit limits, impacting the financial stability of the business. It’s essential to consider the history and background of the departing director. Warning signs may arise if the individual has been associated with companies that have faced insolvencies or financial difficulties in the past, indicating a potential risk factor for the current business.

Group Company Activity – If a company is part of a group structure, its credit limit may be influenced by the financial performance and credit worthiness of other entities within the same group.If one group experiences financial difficulty, it could negatively impact the creditworthiness of the entire group, resulting in a reduction to credit limits for all group members.

Rate of Insolvency within a specific Industry – The industry a company operates in can impact its creditworthiness. If a company is in an industry with a high rate of insolvency, credit reference agencies may view that industry as riskier, potentially leading to tighter credit limits. Overall, while the industry’s rate of insolvency can influence a company’s credit score and credit limit, it is just one of many factors considered by creditors when assessing credit risk.

Every supplier of credit information will have invested in different algorithms to attempt to produce the most relevant credit limit and credit scores. Unfortunately this is never going to be an exact science.

The majority of credit reference agencies will take mostly the same factors into account when suggesting credit limits but how they apply each factor will be slightly different. 

For example, most agencies will take outstanding mortgages and charges into consideration when suggesting a credit limit and score for a business, they will also take into account the businesses age, location and line of business. The weighting of each of these factors though may be slightly different, so one agency may score lower for a business in the construction industry than another, or higher for a business based in London than another.

Some other key elements of a credit reference agencies algorithm:

• Net Worth: This reflects a business’s solvency, assessing whether it would remain financially viable after settling all liabilities. A negative net worth can significantly impact a credit score, sometimes leading to the denial of credit altogether.
• Working Capital: Vital for assessing liquidity, working capital reveals the cash flow available to a business after deducting current liabilities from current assets. A low or negative working capital could signal potential difficulties in meeting trade creditor payments.
• Turnover: While turnover indicates a business’s size, it holds minimal sway over credit limits if expenditures exceed earnings, rendering the business unprofitable.
• Assets and Liabilities: Tangible and intangible assets, compared with liabilities, form a crucial aspect of credit assessment. A decline in assets, particularly alongside rising liabilities, can spell trouble for credit limits.
• Late Filings and County Court Judgments: Late filings at Companies House and County Court Judgments (CCJs) reflect negatively on a business’s organisational efficiency and financial health, respectively, impacting credit scores accordingly.
• Winding-Up Petitions: Among the most serious threats, winding-up petitions significantly impact a business’s creditworthiness due to their severe consequences.
• Notice of Intents: Notices of Intent highlight a concern as they suggest that the company may have difficulty meeting its financial obligations and could be taking steps into official insolvency.
• Directors’ roles are also examined, with resignations or departures carrying significant implications. Such events are viewed as potential knowledge and experience loss, prompting adjustments to credit limits for a period of time.
• Payment data – the majority of CRA’s are now collecting payment data, which they say gives an indication of how promptly a business pays its suppliers. However, in reality this non industry specific data very often strongly differs from real, industry specific trading experiences. 

There are now four, not three tracks for cases in the civil courts to be assigned to:

The new intermediate track will apply to cases valued between £25,000 to £100,000 which are for monetary relief only (not injunctions or specific performance) where the trial is likely to last no longer than three days, with no more than two experts per party giving oral evidence. Furthermore, certain claims must still be allocated to the multi-track such as those concerning cases against the police, human rights issues, asbestos lung disease or clinical negligence claims or those involving the harm, abuse or neglect of children or vulnerable adults.

The intermediate track, like the fast track, will also have four complexity bands, with each case being assigned to both a track and a complexity band. The parties may agree on the complexity band for their case, but the court will retain its discretion to assign each case to the band it feels is most appropriate.

The benefits of the intermediate track will be a simplified procedure, which includes stricter case management, a maximum of fifteen stages and fixed recoverable costs.

This is an attempt to provide certainty as to costs, allowing wider access to justice for all as costs do not run the risk of spiralling. The complexity band along with the stage the claim has reached will be used to ascertain the level of fixed recoverable costs.

What Does This Mean For Claiming Costs of Legal Action?

Usually, no costs are awarded to cases within the small claims track, apart from the fixed costs relevant to making the claim. Costs for defended cases are not awarded, whether or not you are the winning party. 

Once a case is allocated to a specific track (such as Small Claims Track, Fast Track, Intermediate Track, or Multi-Track), there are set fees recoverable as costs by the successful party from the losing party. The complexity of Fast Track and Intermediate Track cases determines the Band the case will be assigned to, and this, along with the stage the case concludes at, will determine the fixed costs recoverable. You can find more information here: Practice Direction 45 – Tables of Fixed Costs (2023).

For Top Service members, we will always ensure you are fully aware of the merits of each case before legal action is instructed. Our team of experts review cases individually and are able to review cases both from a legal and commercial perspective. 

Our advice to members is that solicitor advice should be sought where possible, to ensure you are fully aware of the cost implications of taking action and how those implications compare to the merits of the case. 

The Insolvency Service has released the latest figures for February 2024, shedding light on the state of insolvencies in the UK. Here’s a breakdown of the numbers:

Registered Company Insolvencies Breakdown:

In February 2024, a total of 2102 company insolvencies were recorded, with the following distribution:

• 1707 Creditors Voluntary Liquidations
• 217 Compulsory Liquidations
• 166 Administrations
• 12 Company Voluntary Arrangements

Year-on-Year Comparison:

Comparing February 2024 with the same month in the previous year reveals a notable increase. There’s been a 17% rise in insolvency cases, with February 2024 witnessing 301 more cases than February 2023.

Month-on-Month Comparison:

In February 2024, there’s been an 18% surge in insolvency cases compared to January 2024, marking a significant increase of 328 cases.

Changes in Insolvency Types:

Compulsary Liquidations: Decreased by 35% 📉

Creditors Voluntary Liquidations: Increased by 32% 📈

Administrations: Increased by38% 📈

Company Voluntary Arrangements: Decreased by 25% 📉

Upcoming Insights:

The industry specific insolvency statistics for the construction industry in February will be released next month, however for the month of January, 295 insolvency cases were registered.

These statistics provide crucial insights into the financial environment, enabling businesses to make informed credit decisions.

At Top Service, we encourage businesses to regularly check how well your credit management tools and processes are working. Given the high number of companies facing financial issues, it’s crucial to review these processes carefully. A proactive approach to credit management will help to support businesses through challenging times.

Contact Top Service on 01527 503990 to explore how we can assist you further with credit management tools and to learn more about the range of services we offer.

“In our credit management procedures, we engage with two agencies for credit information. One is a mainstream agency, and the other is Top Service because of their construction industry-specific information.

Recently, when assessing a potential customer seeking a credit account, our primary provider’s data seemed satisfactory at first glance. However, upon cross-referencing with Top Service’s industry-specific insights, a completely different picture unfolded. This led us to decline the credit account, potentially saving our business £10,000. This is why we love using Top Service. Their unparalleled industry-specific information enables us to make well-informed credit decisions, safeguarding our business against bad debt risks”.

Sydenhams have a long tradition of supplying Timber & Building Materials throughout the Central South West region of England. They joined Top Service Ltd in August 2002, to help manage risk, minimise debt & maximise cash. 

What sets us apart? Our specialised focus on the construction industry and access to exclusive trading experience data make us an invaluable resource for companies operating in this sector. As the only credit reference agency in the UK exclusively for the construction sector, Top Service is dedicated to providing a one-of-a-kind credit information service specifically designed for the construction industry.

Offering real-time trading experience data shared by our members, updated minute by minute Top Service delivers the most relevant and insightful information to help you understand potential customers’ payment behaviour. Enabling you to make the best & most informed credit decisions for your business. Our data provides valuable insights including: whether you can expect to be paid on time, late, not at all or even whether you should expect disputed claims. Or crucially if your potential customer is approaching your business because they are on stop elsewhere.

This construction specific data is instrumental in helping businesses to minimise debt & maximise cash by making the best credit-related decisions.

Included in our credit reports are suggested credit limits, credit risk scores, county court judgment information & everything else you would expect from a credit report.

Our commitment to providing relevant, accurate, and up-to-date credit information tailored to the construction industry makes us a valuable partner for businesses in this sector.

Choose Top Service for unparalleled insights and support in making well-informed credit decisions within the construction industry.

https://youtube.com/shorts/ZMfHBzC7b0U?feature=share

MJG Timber Ltd is a wholesale quality timber trade supplier, they decided to join Top Service Ltd in October 2023 to help manage risk, minimise debt & maximise cash. 

Introduced in 2020, the Restructuring Plan builds on the principles of a Scheme of Arrangement (A compromise or arrangement between a company and its members or creditors), but importantly prioritises the rights of creditors who stand to benefit from the terms of the plan, allowing them to take precedence over those classes of creditors with less or no economic benefit. Our friends at PKF has provided us with an exceptional guide that is packed with invaluable information.

Restructuring Plans – The Key Facts

• A Restructuring Plan is a statutory procedure under which a binding, but flexible arrangement can be made between a company facing financial difficulties and its creditors.  The process is designed to enable the company’s rescue as a going concern.

• Much like a Scheme of Arrangement, The Restructuring Plan enables a company to restructure its balance sheet and may also provide the necessary stability to support new lending (whether debt or equity).  Future operations can then be focused on growth as opposed to paying down historic debt. 

• A Restructuring Plan is subject to the approval of creditors who are arranged into various classes; any class of Creditor that would under normal circumstances have no economic interest, may now be excluded from the process with the approval of the Court, (which must ultimately sanction the Plan).

• More significantly, those classes of creditor who are likely to receive some form of financial return may also be compromised by a Restructuring Plan, as long as they receive more than they would otherwise have received if the Plan were not implemented.

• This ‘cross-class cram-down’ differentiates Restructuring Plans from other similar procedures. It allows those creditors with an actual economic interest to approve such Plans without being held to ransom by creditors who would otherwise not benefit at all.

Restructuring Plans – The Process

• Step 1 – Initiating the Process

The company must be experiencing difficulties or be likely to encounter such difficulties in the short term.  The process can be instigated by any one of the company’s directors, creditors, or shareholders applying to Court to seek approval to convene meetings of creditors and members.

• Step 2 – First Court Hearing

A first Court hearing will be held to consider whether:

• The company meets the eligibility criteria (i.e. it is insolvent or likely to become so)
• All classes of creditor have been correctly identified/formulated.
• Any classes of creditors or members who should be excluded on the basis that they have no genuine economic interest.

• Step 3 – Convening of Meetings

If the Court consents to the meetings being convened, a formal Notice will be sent to the creditors and members.  At the meetings, the votes of the creditors and members are recorded.  The requisite majorities are 75% by value of those present and voting in each class, which if achieved, will result in a second Court hearing.  If the majority threshold is not met, the process ends.

• Step 4 – Second Court Hearing and subsequent insolvency

At this hearing, the Court will determine whether to sanction the Plan, for which it has absolute discretion.  It should also be noted that even If the Restructuring Plan is approved, but the company subsequently enters into another insolvency process, “bound creditors” will continue to be compelled to abide by and will only be able to claim in the second proceedings for their compromised debt.

Thank you to our friends at PKF GM for producing the facts around Restructuring Plans for our use. 

A message to Top Service members from Emma Reilly FCICM, CEO at Top Service Ltd & Credit Expert

For more than three decades we have been seeking feedback from both clients and team members about how we can improve our services and elevate our levels of customer service.  The majority of our service enhancements over the years have been as a result of this valuable feedback for which we are very grateful.

As we grow it becomes more difficult to effectively capture ideas, suggestions and feedback from team members so we have recently launched a ‘Lunch With A Director’ initiative where every team member has the opportunity of one-to-one time with a director over a nice lunch.

We’ve had a really positive response from our team so far.

We have a highly skilled and experienced workforce who add so much value in terms of insights and new ideas and we can’t wait to be able to spend one-to-one time with everyone in the coming year.