2012 Insolvency Outlook

How do you consider the outlook for 2012, for your business, and what are the risks which concern you most?

There is still a lot of uncertainty, due to Eurozone issues, political unrest in the Middle East and of course the UK economy which appears to be slipping back into recession. Bearing in mind that our key export markets are in the Eurozone, opportunities for growth are going to be limited - the Bank of England growth expectations for the UK economy in 2012 is just 1%.

Insolvencies in the UK increased by 6.5% last year, and we are likely to see that rate increasing further this year, especially in the retail sector, with the inevitable ‘domino effect’ hitting a wider range of trade sectors in the supply chains – your customer may be trading profitably but what if one of their key customers fail? Zavvi, the record store, failed as a direct result of the Woolworths group failure.

A recent press report quotes a business restructuring consultant who said, “The new year will trigger a round of retail insolvencies which will outstrip 2008……with VAT payments pending, rents going up and margin erosion you’ve got increasing costs everywhere”.

We’ve seen a few failures already. D2 Jeans, Sir Tom Hunter’s clothing chain, entered into Administration just before the new year. La Senza are rumoured to be planning to enter Administration and Blacks Leisure are likely to be sold in a “pre-pack” Administration.

Another company facing difficulties, and expected to file for Chapter 11 protection in the USA, is imaging giant Kodak. They are currently trying to reorganise their business, and raise capital by selling some of their Intellectual Property.

If you’re not familiar with the differences between the types of insolvency process that a company may enter, you can find detailed information at www.insolvency.gov.uk (for UK companies).

Retention of Title

If you are selling goods, as opposed to services, then your terms and conditions of sale should include a Retention of Title Clause (ROT). There are some exceptions such as fresh produce, and certain other goods which may not be easily recovered.

Essentially ROT gives you greater protection in the event of one of your customers defaulting, particularly in an administration scenario. You have the right to recover goods you have previously supplied, still held by the customer, to offset against the debt.

ROT can be ‘simple’ or ‘all monies’. The key difference is that an all monies clause gives you greater security by ensuring that you retain title to all goods you’ve supplied to the customer, regardless of which invoices they relate to.

Our policies require all monies ROT for sales to customers in the UK, for relevant business. It is not required for exports, given the difficulty and costs involved in retrieving goods from an overseas customer.

Please contact us if you’d like more advice on the subject of ROT.