Last week was a painful anniversary for me - 1 August 2005 was the date my first company Red Letter Days went into administration, 16 years after I founded it.
An administration which could have been avoided had I managed to raise £2million in equity to match a bank finance offer from HBOS of £2million before I ran out of time. The company of course already had £3.3million cash at bank (most of it held in bond by Barclays which they wouldn't let us touch) so the additional injection would have given it the liquidity it needed to trade through, correct its various problems and then float on AIM.
Interesting therefore to see the latest accounts of the new Red Letter Days just filed - which show a £2.8million loss to 30 September 2007 - that's cumulative losses of nearly £10million (£13million if you exclude the £3million handed to the new owners on a plate by Barclays) since the company was acquired out of administration for the 'bargain' price of £250k.
Losses which are, of course, still being blamed on the old company, despite the fact that most of the old company's vouchers expired on 31 July 2005 and those remaining in retail all expired well before the end of the previous accounting period.
The sad fact is that pushing an ailing company through an administration process is a really tempting trap. The thinking goes: wipe the debt, take the brand and everyone's a winner - except of course the old owners.
The reality is that the administration process DESTROYS huge amounts of value.
In Red Letter Days' case, as a result of the high profile media fallout the brand was severely damaged, it caused a run on voucher claims - which the voucher owners would probably have forgotten about if the crash hadn't been so high profile - and the majority of the suppliers had to be paid out anyway because there is a finite number of experience suppliers in the UK, and these suppliers refused to honour any new bookings unless all old debts were paid.
Think how much cheaper it would have been for the new owners just to have injected the £2million equity required (which, under the circumstances, would have secured a massive equity stake), let the company recover and then sell it on a year or two later at a massive premium (our Brokers predicted, given the profile of the brand, that the float value would have been c£25million).
But then sometimes greed just gets the better of people.
An expensive mistake to make!
And a reason why I urge the government to review the current administration and insolvency laws - which often act against the growth of UK enterprise.
Showing posts with label Insolvency. Show all posts
Showing posts with label Insolvency. Show all posts
Wednesday, 6 August 2008
Saturday, 12 July 2008
Qualified by Experience
Yet another bitchy article in The Telegraph, this time criticising the Parliament's Business and Enterprise Committee for selecting James Caan, Doug Richard and myself to give evidence this week on how Britain can create a 'higher added value economy', on the basis that James and I have experienced the failure of a business and the fact that Doug has stated he admired Eos, the business class only airline which subsequently failed.
Not sure if the author Jonathan Russell has been living under a leaf for the past few months, but given the number of businesses which have already failed so far this year, and the number likely to crash and burn over the next year or so I would have thought ways to assist and support business survival would be pretty high up the agenda for any enterprise review.
Something like two thirds of all UK business start-ups fail within their first two years (with huge numbers of associated personal bankruptcies), and less than 10% of businesses will survive more than a decade. It's not only market conditions which are to blame; the current insolvency laws - which allows ailing companies to essentially phoenix themselves through an administration process, emerging next day with pretty much identical directors & shareholders, but wiped of their debt - are a huge contributor to the statistics.
How could one of the elite few entrepreneurs who has never experienced tough times in business (and believe me, there are very very few) possibly be able to give meaningful comment?
Not sure if the author Jonathan Russell has been living under a leaf for the past few months, but given the number of businesses which have already failed so far this year, and the number likely to crash and burn over the next year or so I would have thought ways to assist and support business survival would be pretty high up the agenda for any enterprise review.
Something like two thirds of all UK business start-ups fail within their first two years (with huge numbers of associated personal bankruptcies), and less than 10% of businesses will survive more than a decade. It's not only market conditions which are to blame; the current insolvency laws - which allows ailing companies to essentially phoenix themselves through an administration process, emerging next day with pretty much identical directors & shareholders, but wiped of their debt - are a huge contributor to the statistics.
How could one of the elite few entrepreneurs who has never experienced tough times in business (and believe me, there are very very few) possibly be able to give meaningful comment?
Saturday, 7 July 2007
The London Bombings - and other acts of Terrorism
Yesterday was 7 July, and as well as being the 2nd anniversary of the atrocities in London, was also a poignant reminder for me of the day that one of the last nails was driven into the coffin of Red Letter Days - the company I originally founded which went into administration in August 2005...
Earlier that year we had been diverted off course from other re-financing options, by a rescue deal offered by a major company within in our sector - accompanied by all the usual 'you can trust us' assurances.
We had 'opened the kimono' on Day 1 regarding all aspects of the Company, its financials, its problems, its contingent liabilities etc., and yet, despite having got to absolute 11th hour - with all the legals completed and ready to sign - the other side suddenly pulled out.
The CEO of said company (who I have since found out is something of a laughing stock within his industry, and I also think fancied himself as something of a reincarnation of Marcus Aurelius/Julius Caesar) initially placed the blame on a pot of 'Rachel's Organic Forbidden Fruit' yoghurt which his wife had placed in the fridge that week, which he took to be an omen of doom (yes, really).
When we tried to get the deal back on track (on vastly revised terms - of course! - why else does anyone pull out at the last minute if not to take the piss regarding deal structure and price?), 7 July unfolded.
If the pot of yoghurt had a de-stabilising effect, you can imagine what the unfolding scenes of carnage in London did for the deal.
(Didn't stop them coming back a few weeks later to suggest mounting a 'pre-pack' deal to buy the company out of administration for peanuts, but it would be cynical of me to suggest that was the real reason for reneging at the 11th hour.)
If the administration had unfolded during the week (when said company would have been contactable), and not at the weekend, he may well have got it too. Given Red Letter Days' recently filed first year post administration trading loss of £7.1million, that would have truly served the old codger right.
It's naive for anyone to think they can gain value in a highly branded business by pushing a company through an administration process to wipe the debt before acquiring it. It simply causes too much damage to the brand. But I digress...
So, back to 7 July, and all in all it was a most terrible day on all fronts, which will always remain lodged in my memory.
Here we are, 2 years on, and life is very different in so many ways, but in other respects old patterns still continue to emerge.
If you've ever been through an administration you will know that the DTI goes through an investigation process. This was particularly the case with us given that Red Letter Days had been such a high profile crash.
In fact, the Insolvency Service at the DTI put a full time solicitor on the project - who spent 18 months trying to mount a prosecution to disqualify the directors - before finally giving up and admitting there was no case.
The thing that massively counted in our favour (apart from the fact that we were innocent of course!), was getting a top legal firm acting on our behalf.
In a Director's disqualification proceedings, while each prosecution is served on the directors as individuals, typically if one is found guilty, all are guilty - there are just different levels of culpability which affect your period of disqualification.
So it is vitally important that the Directors act collectively, rather than splintering off, blaming one another and generally trying to cover their own arses.
But despite trying to coralle my co-directors, do you think this was possible? No - because no one wanted to commit to the legal cost of fighting the case. And of course, my inept co-Director who was in charge of the company's insurance policies, had not thought to ensure we had adequate Directors' Liability insurance in place to cover us for the running off period, which would have covered the legal bill.
So, while the other directors either ignored the DTI letters altogether or sent back a flimsy 2 page response (or in the case of a certain Finance Director a response which absolved himself totally while stabbing me in the back for all that had gone on), muggins here took it all a lot more seriously (I obviously had more at stake given my profile) and brought in the brilliant insolvency lawyers Ian Grier and Nicholas Hughes at SGH http://www.sghlaw.com/ to fight her corner.
Luckily I had had the foresight to retrieve 18 archive boxes full of all my copies of every Board Meeting, consultant's report, management accounts and cashflow forecasts the company had produced during the period the troubles unfolded (it is strange how things 'disappear' once the company goes into administration and you are no longer allowed access to the building - after all it is hardly in the new owners' interests for you to come out of any of it looking squeaky clean).
All of which meant that my legal team was able to put together a several hundred page response to the DTI, which covered in detail every event of the 2 1/2 year period - every supporting document, right down to copy emails, showing (in absolute excruciating detail) the lengths we (or should I say I?) went to, to try to save the business.
At a personal cost to me of something like £20k in legal fees.
And the contribution from my co-directors? A measy four hundred quid.
I learned a lesson that day, which was once again resurrected for me this week (not just through the 7 July anniversary, but via a series of other events).
When you are running a successful business, or indeed, if you have the 'tag' of being a high profile entrepreneur, everyone wants to hitch their wagon to your star. They love the status of being a 'director', they love connecting themselves to your name, but more than anything they love the thought of 'getting rich quick'.
Yet the sad fact of business is that - whoever you are, from Branson to Sugar - business is tough, there is no 'magic formula', no 'Midas touch', no 'guarantee' of success. The people who are eventually successful get there through putting in an unmitigated amount of effort, focus, committment (both in terms of time, as well as personal cash) and sheer bloody hard work.
Anyone can be a director of a business that is spinning along nicely.
It's when the sh*t starts hitting the fan that you can usually see the true colours of the spineless, penniless ones unfolding - refusing to commit time, effort or hard cash to the cause, running for the hills and leaving you to carry the can.
My advice from all this (and I promise I will get to the point of this Post very soon!) is be very careful of who you allow to hitch their wagon to your star in the first place.
The world is full of lazy passengers looking to make a fast buck, and very few people have really got what it takes to be a real success in business. Choose the wrong business partners and they will dramatically slow you down. So, unless there are very, very good reasons for you to go into business with others - or unless you find a magic person who is the exact complement to your own skills, and is as committed as you are in all respects - you will almost always find it much easier to achieve success by 'going it alone'.
And with that off my chest, I will sign off and enjoy the rest of my Sunday!
Best wishes,
Rachel
Earlier that year we had been diverted off course from other re-financing options, by a rescue deal offered by a major company within in our sector - accompanied by all the usual 'you can trust us' assurances.
We had 'opened the kimono' on Day 1 regarding all aspects of the Company, its financials, its problems, its contingent liabilities etc., and yet, despite having got to absolute 11th hour - with all the legals completed and ready to sign - the other side suddenly pulled out.
The CEO of said company (who I have since found out is something of a laughing stock within his industry, and I also think fancied himself as something of a reincarnation of Marcus Aurelius/Julius Caesar) initially placed the blame on a pot of 'Rachel's Organic Forbidden Fruit' yoghurt which his wife had placed in the fridge that week, which he took to be an omen of doom (yes, really).
When we tried to get the deal back on track (on vastly revised terms - of course! - why else does anyone pull out at the last minute if not to take the piss regarding deal structure and price?), 7 July unfolded.
If the pot of yoghurt had a de-stabilising effect, you can imagine what the unfolding scenes of carnage in London did for the deal.
(Didn't stop them coming back a few weeks later to suggest mounting a 'pre-pack' deal to buy the company out of administration for peanuts, but it would be cynical of me to suggest that was the real reason for reneging at the 11th hour.)
If the administration had unfolded during the week (when said company would have been contactable), and not at the weekend, he may well have got it too. Given Red Letter Days' recently filed first year post administration trading loss of £7.1million, that would have truly served the old codger right.
It's naive for anyone to think they can gain value in a highly branded business by pushing a company through an administration process to wipe the debt before acquiring it. It simply causes too much damage to the brand. But I digress...
So, back to 7 July, and all in all it was a most terrible day on all fronts, which will always remain lodged in my memory.
Here we are, 2 years on, and life is very different in so many ways, but in other respects old patterns still continue to emerge.
If you've ever been through an administration you will know that the DTI goes through an investigation process. This was particularly the case with us given that Red Letter Days had been such a high profile crash.
In fact, the Insolvency Service at the DTI put a full time solicitor on the project - who spent 18 months trying to mount a prosecution to disqualify the directors - before finally giving up and admitting there was no case.
The thing that massively counted in our favour (apart from the fact that we were innocent of course!), was getting a top legal firm acting on our behalf.
In a Director's disqualification proceedings, while each prosecution is served on the directors as individuals, typically if one is found guilty, all are guilty - there are just different levels of culpability which affect your period of disqualification.
So it is vitally important that the Directors act collectively, rather than splintering off, blaming one another and generally trying to cover their own arses.
But despite trying to coralle my co-directors, do you think this was possible? No - because no one wanted to commit to the legal cost of fighting the case. And of course, my inept co-Director who was in charge of the company's insurance policies, had not thought to ensure we had adequate Directors' Liability insurance in place to cover us for the running off period, which would have covered the legal bill.
So, while the other directors either ignored the DTI letters altogether or sent back a flimsy 2 page response (or in the case of a certain Finance Director a response which absolved himself totally while stabbing me in the back for all that had gone on), muggins here took it all a lot more seriously (I obviously had more at stake given my profile) and brought in the brilliant insolvency lawyers Ian Grier and Nicholas Hughes at SGH http://www.sghlaw.com/ to fight her corner.
Luckily I had had the foresight to retrieve 18 archive boxes full of all my copies of every Board Meeting, consultant's report, management accounts and cashflow forecasts the company had produced during the period the troubles unfolded (it is strange how things 'disappear' once the company goes into administration and you are no longer allowed access to the building - after all it is hardly in the new owners' interests for you to come out of any of it looking squeaky clean).
All of which meant that my legal team was able to put together a several hundred page response to the DTI, which covered in detail every event of the 2 1/2 year period - every supporting document, right down to copy emails, showing (in absolute excruciating detail) the lengths we (or should I say I?) went to, to try to save the business.
At a personal cost to me of something like £20k in legal fees.
And the contribution from my co-directors? A measy four hundred quid.
I learned a lesson that day, which was once again resurrected for me this week (not just through the 7 July anniversary, but via a series of other events).
When you are running a successful business, or indeed, if you have the 'tag' of being a high profile entrepreneur, everyone wants to hitch their wagon to your star. They love the status of being a 'director', they love connecting themselves to your name, but more than anything they love the thought of 'getting rich quick'.
Yet the sad fact of business is that - whoever you are, from Branson to Sugar - business is tough, there is no 'magic formula', no 'Midas touch', no 'guarantee' of success. The people who are eventually successful get there through putting in an unmitigated amount of effort, focus, committment (both in terms of time, as well as personal cash) and sheer bloody hard work.
Anyone can be a director of a business that is spinning along nicely.
It's when the sh*t starts hitting the fan that you can usually see the true colours of the spineless, penniless ones unfolding - refusing to commit time, effort or hard cash to the cause, running for the hills and leaving you to carry the can.
My advice from all this (and I promise I will get to the point of this Post very soon!) is be very careful of who you allow to hitch their wagon to your star in the first place.
The world is full of lazy passengers looking to make a fast buck, and very few people have really got what it takes to be a real success in business. Choose the wrong business partners and they will dramatically slow you down. So, unless there are very, very good reasons for you to go into business with others - or unless you find a magic person who is the exact complement to your own skills, and is as committed as you are in all respects - you will almost always find it much easier to achieve success by 'going it alone'.
And with that off my chest, I will sign off and enjoy the rest of my Sunday!
Best wishes,
Rachel
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