In contrast to the improving fortunes of the England football team, there’s been a lot of news about corporate failure in the last few months. At the beginning of the year Carillion entered administration, calling into question the role of the auditors in the period leading up to the insolvency. The events appear to have precipitated an enquiry into the role of the FRC, the Financial Reporting Council, the government sponsored body that monitors the role of auditors and accountants. There’s a perception that certain sections of the accounting profession are reluctant to put their own interests behind the wider public interest so it will be interesting to see what emerges.
In other news House of Fraser has just agreed a CVA, a voluntary agreement with its creditors which enables the company to reduce its debts without the impact of a formal liquidation process. The principal victims of the CVA will be landlords who will be asked to compromise debts and future rental commitments in order to improve the financial viability of the remaining rump of the business. A CVA requires 75% in value of the creditors to agree the proposals. There have been a few high profile CVA’s recently involving high street businesses which probably makes landlords question the quality of some of their lease covenants. Retailers seem to have been fairly successful so far in obtaining the relevant consent but I would expect to see landlords push back on some of these proposals going forward.
Our own experiences recently have been more about enabling the orderly succession of successful businesses. Businesses with strong balance sheets may be able to fund the exit of major shareholders along with earn-out arrangements to leave management in place to continue the business. This may be preferable to a business sale in some situations, with the inherent uncertainty that a complete change in ownership entails. The concept of employee ownership is also gathering momentum and presents some interesting opportunities for owners to extract a tax free exit payment from their business. We are planning a workshop in the autumn which will look at this and other ways of creating succession within your business, so look out for that.
The summer is now upon us, so I wish you a very relaxing holiday if you’re going away and, despite one recent defeat, let’s hope for more success in the football in the coming weeks!