Adding value in an unstable economy

The latest surveys are all telling us that things are improving. Retail spend is increasing and consumer confidence is on the up. Indeed, retail spending increased in January and February of this year (0.8% in February). SME’s are apparently more confident about the future too according to the MYOB Business Monitor survey issued in March.


Unfortunately, that is not our experience. As a Chartered Accountancy practice that focuses on insolvency and restructuring, we are seeing and hearing that both large and small businesses are still hurting. So, in an unstable economy, how can a Chartered Accountant add value to the services they provide to their clients?


The simply answer is to keep regular contact with your clients. Don’t wait for the end of the tax year to speak with them. Find out how they are doing and see if they need some help and advice.


A common issue that we see contributing to the demise of companies is a poor pricing model with insufficient margin to cover all overheads. The other is cash flow problems caused, primarily, by poor credit control procedures in attending to slow paying or insolvent customers. For example, many companies in the building sector have lost huge sums of money over the Mainzeal collapse. It will undoubtedly take years to resolve all of the issues before any distribution to unsecured creditors can be even contemplated (assuming there are sufficient funds available to do so). This has had a huge impact on the sub-contractors.


They are mostly small owner managed firms that simply can’t afford to carry the loss. New contracts may be available but they need to survive in the short term and delays in payments to them by their customers won’t help. Many companies are now stretching their creditor terms from 20th of the following month to 60 or even 90 days. While this may be a temporary fix for your client’s cash flow, it leads to disgruntled suppliers.


The most common situation we see is a company being served with a statutory demand under section 289 of the Companies Act and ignoring it. The directors either don’t understand the meaning of the notice or simply file it in a drawer to deal with later. This is a serious mistake.


A statutory demand should never be ignored, as the clock starts ticking immediately. The company has 10 working days to dispute the debt. Failure to do so, assuming it can validly dispute it, crystallises the debt. The company then has a further 5 working days to pay the debt. Failure to pay the debt then allows the creditor the right to petition the High Court to liquidate the company. If a petition is then served on a company, the directors and shareholders have 10 working days to voluntarily appoint their own liquidators or the Court will appoint one for them.


Overturning an undisputed statutory demand or a petition to liquidate, while by no means impossible, can be costly and must be done through a High Court application. Directors would therefore be wise to act quickly upon receiving a statutory demand.


The first call they should make for professional advice should always be their accountant.
So, the message is clear; talk to your clients. Help them improve their cash flow and their profit margins but importantly, make them aware of the law and make sure they call you the moment things don’t go their way.