The wonder of a Woolworths administration – part three

Further to our recent blog on the challenges facing insolvency practitioners (ISPs) in the current business climate, it now seems that the corporate insolvency market is to be the subject of an Office of Fair Trading (OFT) enquiry .

Some of you will find it hard to have any sympathy for these under fire ISPs, reasoning that as they must be so rushed off their feet at present, a squeeze on their fees would not seem out of order. However it is not all sweetness and light in the world of insolvency. Yes, there may be rich pickings at the top end of the scale, which deserve to be scrutinised (Lehman Brothers anybody?) but at the lower end the picture is much less rosy. Due to the reluctance of the banks and HMRC, the two organisations most likely to put a business into insolvency, to pull the plug on businesses, ISPs, while busy, are not that busy.

Also, as so many businesses now operate on a virtual basis, there are very few, if any, realisable assets available. These barely cover the costs of insolvency never mind leave anything left to pay out to creditors.

I still have my doubts about the way the Woolworths administration was handled, but somebody has to clear up the mess that poorly managed businesses leave behind, and in that regard the insolvency profession in general still does a pretty good job.

Antony Doggwiler
ajd@orchardgrowth.com

The wonder of a Woolworths administration – part two

Rumblings persist concerning the way that the administration of Woolworths was handled, something that we raised in our blog back in December 2008. Indeed Woolworth’s former management have now added their voices to those who believe that more efforts could have been made by the administrators, Deloittes, to keep the giant store group afloat questioning whether there was a conflict of interest in their provision of advice to the company’s banking syndicate prior to their appointment as administrators. Not surprisingly Deloittes have robustly defended their actions, pointing out that the business simply ran out of money, and that they had been called in with the management’s blessing.

Nobody is pretending that Woolworths was the best run company in the world. However the negative impact of its closure on many high streets up and down the country, and the fact that newly established imitators such as Alworths and Wellworths have seemingly thrived, indicate that the general public placed more value on Woolworths than the financial community apparently did.

With an upsurge in insolvencies expected in 2010, insolvency practitioners will face even more challenges in deciding how terminal the decline of such businesses is, and how far they can go in keeping them alive, whilst not being seen to reward poor management. I wish them all the luck in the world – they are going to need it.

Antony Doggwiler
ajd@orchardgrowth.com

Look after your suppliers? No really – look after your suppliers….

The announcement yesterday that Zavvi, the music, games and DVD retailer is to close a further 15 stores, has brought home a salient point about the recession that often gets overlooked in those “top tips on surviving the recession” listings.

Nearly everybody will suggest that you imagine a scenario when one of your top customers goes bust, but very little emphasis is put on the situation when one of your main suppliers goes the same way. Yet that is precisely what has happened in this case, where the key supplier in question was Entertainment UK, which was a casualty of the Woolworths demise. Not only did Zavvi lose its key supplier at a time when it desperately needed stock i.e. the run up to Christmas, but more importantly it lost valuable credit facilities, which could not be replaced as new suppliers demanded immediate payment.

A salutary lesson for everybody – when your key supplier goes down not only do you lose products that you need for your business, you potentially lose a valuable source of finance. One to add to those key financial relationships that have to be managed.