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Commentary
on the Association of Business Recovery Professionals (R3) Survey -
January 2001:
Poor Management and Company Failures
Nearly one in two insolvent companies in the North East fail because
of poor management decisions - and more than half of insolvent companies
have had previous financial difficulties but not learnt from the lesson
- they still do not ask for help early enough when they hit a further
crisis.
Phil Revill, a partner at Poppleton and Appleby and a spokesman for
R3 commented -
" Poor management leads to corporate failure
and puts jobs at risk. The Government's recent report on company rescue
discusses the need for
managers to become better educated. R3 supports this recommendation
- in our opinion management education has been a low priority for far
too long.
Across the country, jobs are put at risk and creditors on average lose
85% of their debt - primarily because managers lack financial and managerial
skills. Overall company preservation rates have dropped to 18% and
in 77% of cases, help was brought in so late that there were no possible
actions which might have realistically averted failure.
Creditors get more money back if they support a rescue than they do
if they force a liquidation. A rescue can be achieved by a number of
methods, depending on the problems that need addressing and the attitude
of the company's creditors.
Managers should try and maintain communication with the firm in difficulty
to avoid uncertainty. Up-to-date financial information and a clear
and consistent credit control procedure also helps spot any potential
problems.
Insolvency law traditionally puts creditors' interest first. However,
the proposed changes to current legislation envisage a new voluntary
arrangement procedure with a stay on creditor action. This new tool
for the rescue and reconstruction of small companies means it is vital
that creditors know their rights and understand how to evaluate a company's
rescue prospects.
R3's members saved the Treasury over £200 million in unemployment benefits
and nearly £300 million in income tax by saving 100,000 jobs over the
course of the year - that's one in five jobs saved in insolvent companies.
That demonstrates how hard the business recovery
profession works at rescuing companies."
The full report can be seen at www.businessrecovery.org.uk
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