In many circles, insolvency and the process of pre-packed administrations, or phoenix businesses, are seen as dirty words. They can even be viewed as slightly dodgy procedures, hell-bent on shafting the poor suppliers and causing damage to rival businesses.
Many of the major banks tend to distance themselves from phoenixes coming out of the other end of an insolvency process on the grounds of reputational risk. This is fully understandable.
If you have 20-30% market share of the SME sector, then you can assume that 20-30% of the creditors left high and dry will be existing customers of the bank and would not take kindly to the bank assisting the phoenixed business.
That said there are equal numbers of supporters of these transactions who feel the returns to creditors are not reduced, and in many cases, are actually enhanced by the process. Indeed, pre-packed administrations are only used if it provides a better result for creditors than a liquidation.
There may be the odd case of poor management or even unscrupulous directors who deliberately bust their companies to avoid payment, but the majority are honest, hard-working businessmen who have come upon hard times. Maybe they have lost a major customer, or suffered a large bad debt; understandable in the current economic climate
Additionally, there are normally other staff involved whose jobs are put at risk. They are just concerned about paying their mortgage and providing for their families like everyone else and, if by phoenixing the business they can keep their jobs, then that has to be a good thing.
By pre-packing or phoenixing the business into a new company, they preserve the value in the business, safeguard the jobs and livelihood of normal people and continue to contribute to the economy coming out the other side.
Yes, there will be losers, but the upstanding directors will no doubt be prepared to make good with their main suppliers in the new company, by paying a little bit extra on their purchase price going forward. This, at least, keeps the wheels of industry rolling.
Our attitude to phoenixes
Being owned by a mutual building society, Skipton Business Finance has a different ethos to many of its competitors. We look favourably on such cases as an opportunity to preserve jobs and create employment and wealth in the regions. They should be supported and given a second chance.
Particularly in the current environment, we are likely to see more of these transactions and we need to support the good ones if we are to get UK PLC back on track.
For more information on phoenix businesses, feel free to give our team of experts a call on 01756 694933 or see our webpage on how invoice finance can help phoenix businesses.
"Skipton Business Finance have offered excellent levels of flexibility and understanding during a tough period for our company" - Brian at a household products supplier in East Yorkshire