The Reader’s Digest, cosy standby of nervous patients in a thousand waiting rooms full of “how to” tips and jokes safe enough to tell grandmother, has become the latest victim of the recession and the internet’s effect on paper publishing. Continued…

By: Roger Mendelson

While many businesses have been able to maintain turnover levels through the economic downturn, profit margins are down and there will be a significant spike in liquidations in the coming 12 months.
 
In the year ending May 2009, Court ordered liquidations were up by 20.8 per cent over the preceding 12-month period.
 
Figures recently put out by Prushka Fast Debt Recovery stated that there are likely to be approximately 70,000 to 80,000 companies that are still trading but which are technically insolvent, where insolvency refers to a company ‘that is unable to pay its bills as and when they fall due’.

Company liquidation figures always lag behind other economic indicators because companies, like a drowning man, will cling to anything for survival as long as possible: payments to creditors are deferred, suppliers are squeezed, staff numbers drop and, in many cases, remittances to the tax office are held back.

These tactics can buy a business time but unless it can return to sustainable profitability it will not save the business in the long-term. For many companies time is running out, with many akin to ‘walking dead’.

This lag in liquidations can have flow-on effects, creating real traps for suppliers who face the risk of not being paid money they are owed.

Also, the unexpected liquidation of one company can snowball with its creditors themselves facing insolvency and so on.
 
Non-payment can happen unexpectedly and over the coming months many suppliers will not realise that their customers are in trouble until it is too late and the company is put in to liquidation.

For suppliers, the best protection against this risk is to start obtaining directors’ guarantees before continuing to do business with a company.

In fact it is advisable that suppliers extending any significant credit to a private company should make requests for directors’ guarantees their default position.

This advice is particularly relevant to businesses operating in industries involving a small number of large dollar value invoices.

In terms of liabilities, the situation for directors of companies which are technically insolvent is a dangerous one.
If a company is insolvent and continues trading, each of its directors will be personally liable to pay the debts of the company which are incurred from the date of insolvency onwards, and which are unpaid at the time the company goes in to liquidation.

Accordingly, the advice of any accountant or lawyer who has expertise in this area would be to appoint an administrator at that time, which is why companies that appear to the outside world to be trading solvent can, without warning, go into liquidation.

It is likely that there will be a significant spike in liquidations in the coming 12 month and this will present many challenges to the smaller businesses which deal with them.

Roger Mendelson is chief executive of Prushka Fast Debt Recovery and author of ‘Business Survival Guide: how to steer your business through the recession’.

By Glenn Kauth | Publication lawtimes.com

From Reuters.com

FRANKFURT (Reuters) – A Munich lawyer is interested in acquiring the assets of insolvent fashion company Escada (ESCG.F), a German weekly magazine reported on Tuesday.

Nickolaus Becker, a lawyer and former supervisory board chairman of EM.TV, is preparing, along with financial investors, an offer to buy the ESCADA brand, individual stores, and some stock, he said in an interview with Focus Money.

“We will quickly enter concrete talks with the insolvency administrator,” Becker said.

A Munich court said last week that Escada had filed for insolvency on Thursday, throwing in the towel as announced after bondholders refused to back a make-or-break debt restructuring deal. (Reporting By Edward Taylor; Editing by Hans Peters)