SME’s and Administrations

Judge me not, Banks need to learn a lesson. UK banks have to decide how they are going to judge businesses in the UK. Are companies that go through administration acceptable to banks as clients.

This week Lloyds Banking Group refused to lend money £1.8 million to a Small to Medium Enterprise quoting the reason that it was because of their recent administration. If that is the judgement call, then one needs to look at pre-pack and who uses them and who recommends them.

The first example is Ashwell, this company was restructured, it was one of the largest private property developers in the south-east of England, in December 2009 it got financial support from a certain Lloyds Banking Group, yet it had been though a pre-pack administration, so why did Lloyds Banking Group not apply their own judgement call, well, simple it was Lloyds Banking Group that used the pre-pack, and it is not just this case, they have done this, look at Brookgate, Admiral, Bluestone among others.

When “Financial Engineering” is deemed acceptable yet “Financial Restructuring” is not, it leads to confusion. When a bank is actively involved in “Pre-pack Administrations” and makes a financial loss which it then claims off a third party insurer that cannot be acceptable. There is no doubt whatever the criticism of pre-packs, they save jobs, they are an effective way to putting a business on a sound footing, putting businesses back on the right road, save jobs and by saving companies, and preventing job losses are good for the country. If Lloyds Banking Group is using Pre-packs, how can they judge against them.

It needs to be remembered that just because a company has been though Administration, it is not automatically a bad company, in fact in many ways, it is likely to be a better one, yes I understand the views of the Association of British Insurers, that it can leave some suppliers trading blindly, and I would like a law change, that any company signing up to a pre-pack has to declare that intent to an independent registrar confidentially, and all invoices and goods supply from that date have to be honoured, so companies cannot lose any more than they would have if the company had shut down on that day.

That change would make the process fairer, I have no issue with the existing management keeping control, I know some have concerns that the business is sold without any open marketing, but remember keeping a company trading and secured helps the local economy more than having another shut down firm. Remember, we have been though a massive financial crisis in this country, banks have been bailed out, good business have not, some great businesses have been unable to get finance, their customers have closed down leaving them with outstanding unpaid invoices, why should they not use pre-pack administration to save their business, if the law allows it, then it is legal and if it is legal it is acceptable.

Lets start backing British Business, lets get companies creating jobs because the simple fact that is good for all of us.

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CSL – John Kirby

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