After several high profile business failures – Is corporate governance robust enough?

Research by a provider of audit, tax and consulting services has found that only 21% of board members think corporate governance is critical for a business to achieve success.

The findings by RSM also revealed that 96 per cent of company Board members it surveyed expected to see an increase in the number of criminal prosecutions of those senior executives and organisations implicated for poor risk management.

The issue of corporate governance has been under review by the FRC (Financial Reporting Council) for some time following high-profile collapses of businesses like BHS, Patisserie Valerie, Carillion and most recently Thomas Cook.

In its most recent annual report, the FRC found that that “audit quality is still not consistently reaching the necessary high standards expected”.

More than a year ago, a review of the FRC itself led by Sir John Kingman proposed the establishment of a new regulator, the Audit, Reporting and Governance Authority, but this was not acted upon...

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The change to HMRC preferential creditor status v emphasising insolvent business restructure

The Government’s proposal to restore HMRC preferential creditor status when a business becomes insolvent is, in my view, at odds with its desire to shift the balance in the insolvency regime towards helping more businesses to survive.

In September 2018 I welcomed the Government’s newly-published proposed changes to the insolvency regime, whereby there would be a moratorium, initially 28 days, from filing papers with the courts to give still viable businesses more time to restructure or seek new investment to rescue their business free from creditor action. Consultation on this and other changes to the insolvency regime was begun in 2016.

This year, in the April 2019 budget statement, the then Chancellor Philip Hammond included a proposal to restore HMRC preferential creditor status, something that had been removed as part of the Enterprise Act in 2002. The new preferential status will apply to VAT, PAYE income tax, employee...

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Proposal to strengthen sanctions for late payments culprits

Some 18 months since the appointment of Small Business Commissioner Paul Uppal to tackle the problem of late payments to SME suppliers by larger companies it seems that the situation has barely improved.

In fact, according to research published in June by Purbeck Insurance Services late payment problems have actually got worse for 27% of SMEs with some 30% reporting worsening cash flow problems.

In the first quarter of this year Mr Uppal’s department has overseen the removal or suspension of some 17 companies that had signed up to the Prompt Payment Code (PPC) but failed to meet its standards.

The five removed altogether included BHP Billiton, DHL and GKN Plc. Signatories to the PPC pledge, among other things, agree to pay 95% of all supplier invoices within 60 days.

In its most recent completed case in May 2019 the Small Business Commissioner (SBC) was approached by an SME over the failure by G4S to pay it an invoice for £31,880.49 despite having contracted to do so...

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GDPR one year on – how well is it working?

legislation Apr 04, 2019

It is almost a year since the new EU-wide GDPR (General Data Protection Regulations) legislation was introduced and so far approaching 60,000 breaches by companies have been reported across Europe.

The UK, the Netherlands and Germany have reported the most, ranging from minor errors such as missent emails to major cyber hacks.

In the UK the ICO (Information Commissioner’s Office) oversees and takes action on GDPR breaches and has powers to impose massive fines for those found guilty.

In a speech in New Zealand the UK’s ICO commissioner Elizabeth Denham revealed that in the first six months of the new law her office was seeing “More complaints from the public – from 9,000 to 19,000 in a comparable six month period. Complaints about subject access, data portability and data security. All of our front line services have jumped by at least 100%. More breach reports – over 8,000 since the end of May when it became mandatory in some high risk...

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UK business rescue culture isn’t working and new proposals won’t work

Since the Cork Report in 1982 that led to the Insolvency Act 1986 (IA86) there have been a number of initiatives that have led to legislation aimed at promoting a rescue culture in UK.

The shift was from a penal approach to insolvency one based on a belief that saving insolvent companies by restructuring offers a better outcome for all concerned than the alternative of simply closing them down.

This can be achieved by putting the company into Administration, where an IP (Insolvency Practitioner) takes over the running of the company, including negotiating with creditors with the aim of saving the company or at least saving the business by selling it to new owners. In addition to benefitting secured creditors Administration also helps save jobs.

The alternative is a CVA (Company Voluntary Arrangement) where the directors effectively reach agreement with creditors for revised payment terms such as “time to pay” and sometimes for a write down of the debt as a condition...

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Politicians’ ignorance can have a negative impact on the global economy

economy legislation Dec 28, 2018

As 2018 draws to a close it makes sense to look at macro-economic trends that might inform our view of the future.

Economies tend to move in cycles from positive to negative and this is true for both national and global economies.

However, while it is true that the cycles rarely match simultaneously in different parts of the world, clearly a downturn in one region can have knock-on effects in another, as was the case in the financial crisis of 2008.

For some time now, various bodies, such as the IMF, have been predicting that another major global recession is looming. Some are even predicting that the next crash will be worse than 2008.

This is partly because the accepted wisdom is that the cycle tends to be over a 10-year period, but it is also because there appear to be headwinds building up.

A snapshot of the current state of global confidence, the global ECM (Economic Confidence Model) from July this year suggests that the USA may be moving into a serious high in 2020...

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Why the big four auditors are under intense scrutiny – an update

insolvency legislation Nov 23, 2018

Following the collapse of the company Carillion in February this year the role of its auditors came under the spotlight and investigations were promised, notably by the FRC (Financial Reporting Council) and the CMA (Competition and Markets Authority).

The reason for this was that the business had won several large public sector contracts, among them to build two hospitals, and also because its collapse put a number of subcontractors and jobs in jeopardy. However, primarily it was because its financial health was revealed to be considerably shakier than the directors had suggested.

The company’s annual audit had been carried out by KPMG, one of the big four auditors, and in March 2017 it had expressed no concern over reported profits of £150m, even though four months later these proved to be illusory. Perhaps they may have been reassured by the company’s ‘internal auditor’, Deloitte, which might also be looked into since it may have involved helping...

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An update on the business rates and appeals fiasco

In August it was announced that HMRC had sent in approximately 25 staff to the Valuation Office to fix the business rates appeal portal, which had been repeatedly cited by businesses as being impossible to use.

As the only mechanism now available for appealing non-domestic rate revaluation, the portal has been cited as the chief reason for an almost 90% reduction in appeals since the 2017 revaluation and just before this blog was due to be posted an article in The Times reported that a Government survey has revealed that almost nine out of ten businesses in the first stages of making an appeal using the portal were dissatisfied or very dissatisfied with the new system.

In the meantime, the numbers of business failures, particularly in the retail sector has continued to climb; many attributing the rise in rates as a factor.

Altus Group, a ratings adviser, reported in August that bailiffs had visited 81,000 businesses because of business rates arrears – an average of 222...

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Could proposed new rules on foreign investment in UK damage SME prospects?

The Government recently proposed expanding its powers to review and intervene on foreign investment in UK businesses.

Under the proposals, which are subject to consultation, the Government’s remit would cover all UK businesses including SMEs, where previously it could only review proposed deals where there were national security implications. It would include powers to block takeover deals across all sectors of the economy.

The UK’s plans are reportedly in line with efforts in the United States, Germany, France and Australia and relate to concerns that China and other rivals are gaining access to key technologies.

How does foreign investment affect the UK economy?

The UK’s current account is a measure of the economy’s health.

It is calculated by adding up the goods and services of our exports and the income earned by the UK from overseas investments and subtracting those goods and services we import, income paid overseas for investments in the UK and the...

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The new Corporate Governance Code offers lessons for SMEs

legislation smes Aug 13, 2018

The mission of the FRC (Financial Reporting Council) is stated as being “to promote transparency and integrity in business”, a message that we should all reinforce.

This, it claims, is at the heart of the revisions to its Corporate Governance Code published last month.

One of the main changes to the Code is a requirement for boards to understand and address the issues of all stakeholders, not just shareholders, and to consider the longer-term impact of their decisions.

This includes consultation on board appointments, not just with shareholders but also involvement of the workforce, where they recommend that either a director be appointed from the workforce, a workforce advisory panel be set up, or at least a non-executive director be designated to represent the workers.

It also recommends that there should be a mechanism for the workforce to raise concerns in confidence or anonymously with arrangements for “proportionate and independent” investigation where...

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