Focus, focus, focus

I was delighted to be at the Royal Courts of Justice last week for the Grant Thornton Quoted Company Awards. An unusual venue for a corporate event but a good use of the facilities that every FD would approve of as the building would probably be sitting empty after 4pm every day, instead of which the taxpayer benefits from 700 people celebrating success.

As you might know, these events are usually hosted by a newsreader type such as Sophie Raworth or Emily Maitliss so imagine our surprise when after the blaring introductory music on to the stage walks none other than Karren Brady just days after becoming MD of West Ham United; a job which you might think would take up at least 23 hours of every day.

This seemed a bit strange but perhaps it was just something to fill her time between clubs.

However, I do get a bit suspicious when business people spend more time raising their profile in the media than actually running their businesses. The worst example of this in recent years has been Lord Bilimoria who having grown Cobra Beer to become an established brand obviously felt he could afford to lose focus and engage in television programmes and conference speaking.

This isn’t a bad thing if it brings in more business for your company but I can’t believe people drank more Cobra because they saw Lord B speaking at an entrepreneurs conference. There may be no connection between Lord B spending more time away from the business and the business going into pre-pack administration leaving his creditors £75m out of pocket, but it doesn’t look good, or do his credibility any favours.

By coincidence, reading the Sunday Times yesterday the Fame and Fortune column was about, you guessed it, Karren Brady and it turns out her non-football business which includes speaking events, newspaper columns, and books is worth £82m!

If true, that doesn’t sound like a business person who has lost focus, but let’s hope that she makes West Ham as successful, at least off the pitch if not on it.

Ash Mehta
ash@orchardgrowth.com

Neither a Borrower or a Trade Creditor be

Attended a breakfast seminar, hosted by S J Berwin, entitled “January Sales! How to get a Real Bargain from a Distressed Seller.” The seminar discussed the options available to bidders and the risks and rewards associated with acquiring the business assets of companies entering administration.

One slide illustrated controversial ‘Pre-packed’ or ‘Phoenix’ administrations. Here a new company with the same secured creditors, same equity holders, same management (possibly) and of course the same assets, emerges from the flames of a failing business leaving behind the unsecured creditors with a bad taste in their mouth.

A recent example of a successful phoenix administration is the Michelin-starred restaurant chain run by Tom Aikens last October. Mr Aikens recently opened his soul to the Evening Standard expressing his guilt over the plight of his suppliers. These were mainly small businesses struggling to survive while his restaurants didn’t miss even one day’s trading. That did indeed leave a bad taste in many people’s mouths. Not however for his staff, who got to keep their jobs, and (hopefully) not for his customers who were able to continue to enjoy a Michelin-starred service. In fact, according to Mr Aiken, 80% of his suppliers have continued to trade with his new company despite writing off their past debt with him. They are, of course, supplying on a cash basis which is sound risk management and to be expected given their recent experience. It is easy to criticise the practice of phoenix administrations and the impact they have on unsecured creditors, who always seem to be the ones to lose out. However, business continuation, particularly from the point of view of employees, is arguably the best result from an administration. Unfortunately this often means that the villain of the story does not get their just desserts. For the sake of employment and continued trade this may be a small price to pay, unlike for the meals served up by Mr Aiken. Over pricing, he admits, was one of the reasons for his business failure.

Businesses seek to limit their exposure to credit risk by having a diversified customer base, carrying out due diligence on potential customers and agreeing credit terms with customers. There will always be a risk that a customer will not be able to settle their outstanding invoices. Businesses understand, accept and take this risk. The focus is often on the plight of unsecured creditors during high profile business failures.

A more worrying concern for me is the way big businesses treat their small business creditors on a daily basis. Having worked in the temporary recruitment sector I have experience of the extraordinarily long credit terms the large banks command and their inability to meet even these deadlines on time. Similarly a large supermarket chain is currently sitting on tens of thousands of pounds worth of invoices owed to a small business recruitment contact of mine. This equates to the level of his monthly payroll and can be the difference between survival and failure for his business.

There has been a lot of focus on the treatment of borrowers by the banking sector. I suggest that multi-billion pound businesses, such as banks and supermarket chains, have as big a responsibility to their small business creditors. They should be doing their part to ensure the flow of cash throughout the economy by sticking to the credit terms they have agreed. Fair trade should surely start at home.

Mark Widnall

The wonder of a Woolworths administration

It maybe just me but there is something about the current Woolworths administration that leaves a very nasty taste in the mouth. Maybe it is the cynical timing i.e. maximum stock and creditors leading up to the maximum cash generating period ensuring maximum return to secured creditors, the somewhat cavalier treatment of staff , the vulture like circling by major retail chains looking at taking on the prime store sites or the general fact that this has all the appearance of a liquidation rather than administration.

Whatever it is I think there may be grounds for an official enquiry into the whole process, from examining in particular the behaviour of the secured creditors and the administrators, to seeing if there are ways during an administration to better serve the unsecured creditors, employees, the economy and the wider community. Maybe Woolworths was an idea who time had been and gone, and that this was a mercy killing, but if that is the case I think it deserved to die with a lot more dignity that it has.