Building firm in administration - and blaming RBS

dopester

Asking prices where I'm set on buying are down about £50K from peak, with a few sales at peak.

Even if they crashed another 70% to around £90,000 and be unaffordable to the majority of people in my opinion - if they had to earn the money to buy, instead of many having seen the "value" increase through years of turbo-charged HPI.

House prices 'could drop another 55%' and leave Britain bankrupt

By James Chapman
Last updated at 12:12 AM on 12th March 2009

Daily Mail

Alan_M_2

nykmedia wrote: »

My post didn't state that debt free was the same as solvent, but my understanding of solvency is that a business (or individual or financial institution) can cover all outstanding debts when they become due and that those debts could become due at any time. If the companies (or individuals) cannot sustain, let alone repay, their [strike]debts[/strike] borrowings when recalled then they are not, in my opinion, solvent.

My comparison was loosely between a homeowner calling themselves a homeowner when their home is partially owned by a lender and a business calling itself solvent when it clearly cannot liquidate sufficient assets at any given time to meet its [strike]debts[/strike] borrowings when recalled.

Very briefly, solvent means the total value of the assets of the company equals or exceeds the total liabilities.

Those assets may not be liquid (i.e. cash) they may be buildings, machinery, stock even goodwill....none of which you can pay bills with.....that's cashflow you're referring to.

So a solvent company can go bust simply because it doesn't have enough cashflow.

Solvent/Insolvent is essentially a "paper" position....the real world is more concerned with positive cashflow, remove cashflow, you bust a solvent business.

If we're using your homeowner as an example...lets say your homeowner owns a house worth £200,000 with a £100,000 mortgage........They are an employee of a company that goes bust, they end up on jobseekers allowance and can't pay all their bills but they have secured a new job but it doesn't start for 6 months.....are they solvent...yes of course they are, they owe £100,000 and have assets of £200,000.......and in that 6 months their bank call in their overdraft if they have one and refuse to lend them anything to cover the 6 month gap....can they pay their bills for another 6 months? of course they can't...but that's not a problem right because they are solvent? Wrong...they have no cashflow and although solvent are forced to liquidate their assets (i.e the house) to cover their position.

Essentially this is what removing cashflow from a solvent business does, it closes the position, stops you trading and forces you to realise any assets (sell of stock, buildings and machinery etc)

Alan_M_2

Generali wrote: »

Is there another bank that will provide funding to you? HSBC perhaps as they are in good shape. Alternatively get your MP and the local rag involved, perhaps some negative publicity can get something done.

I've had two meetings with HSBC who were actually very understanding, right up to the point where they said they weren't taking on any new business connected in any way with the construction industry/housing market...so drew a blank there. Actually they simply didn't comprehend LloydsTSB's actions and described them as unethical...which I found mildly amusing....

I also tried the MP route but was told the banks can interpret the EFG however they wish and it's up to them who they lend to. Frankly he simply wasn't interested.

The paper thing might well be worth a shot, but I'll just be another whinging company "That shouldn't have borrowed money".

I'm currently pursuing private funding and maybe equity funding (on the grounds I prefer to own part of something rather than all of nothing).

Generali

Alan_M wrote: »

I've had two meetings with HSBC who were actually very understanding, right up to the point where they said they weren't taking on any new business connected in any way with the construction industry/housing market...so drew a blank there.

I also tried the MP route but was told the banks can interpret the EFG however they wish and it's up to them who they lend to. Frankly he simply wasn't interested.

The paper thing might well be worth a shot, but I'll just be another whinging company "That shouldn't have borrowed money".

Unfortunately for you, nobody wants to go anywhere near any business connected with house building. Imagine your reaction if you saw an ad in the paper:

Urgently wanted: Funding wanted for small company selling quality house-building/renovating related product. Genuine reason for seeking funds as bank funding withdrawn.

I suspect you wouldn't linger further than possibly to think, 'poor old bug-ger'.

You have my greatest sympathy - I've always enjoyed reading your posts on here and it looks like you may become an unfortunate victim of a wider problem.

The only other thing I can think of is to go bust and have funding in place to buy the assets back cheaply. You may be able to get a 'business angel' or other private funding placing to agree to this. This probably isn't a very palatable solution as I infer from your posts that the debt is secured on your PPR.

You should also get across to fool.co.uk. It's a bit more business minded than MSE and there may well be people over there who have good ideas for you.

Alan_M_2

Generali wrote: »

The only other thing I can think of is to go bust and have funding in place to buy the assets back cheaply. You may be able to get a 'business angel' or other private funding placing to agree to this. This probably isn't a very palatable solution as I infer from your posts that the debt is secured on your PPR.

You should also get across to fool.co.uk. It's a bit more business minded than MSE and there may well be people over there who have good ideas for you.

This is actually a distinct possibility, I personally also have ethical issues with going bust and starting up the next day....but it's perfectly legal and a position we are being forced into.

Fortunately only part of our borrowing is secured and we can probably arrange things to clear what we need to and blow the rest...which is why I really don't understand the banks stance when we're paying everything as per all original agreements and have the ability to trade on with existing facilities, it really makes no sense whatsoever.

Generali

Alan_M wrote: »

This is actually a distinct possibility, I personally also have ethical issues with going bust and starting up the next day....but it's perfectly legal and a position we are being forced into.

Fortunately only art of our borrowing is secured and we can probably arrange things to clear what we need to and blow the rest...which is why I really don't understand the banks stance when we're paying everything as per all original agreements and have the ability to trade on with existing facilities, it really makes no sense whatsoever.

It's because they don't have the manpower to look over every loan - they do some statistical analysis which sucks for you but works for them.

Seriously, don't worry about the ethics of it - if the system you're in forces you down a particular route then you have to take it. The ethical stance to take would be to lobby for a different set of rules to be in place. Bother your MP, write to the newspapers, set up a website or a petition. The rules are as they are and if they mean you have to go bust then so be it. You can always make things up to people by putting a bit of extra business their way or paying a little extra.

lostinrates

Generali wrote: »

.

Seriously, don't worry about the ethics of it - if the system you're in forces you down a particular route then you have to take it. The ethical stance to take would be to lobby for a different set of rules to be in place. Bother your MP, write to the newspapers, set up a website or a petition. The rules are as they are and if they mean you have to go bust then so be it. You can always make things up to people by putting a bit of extra business their way or paying a little extra.

I'm, reluctantly with Generali on this. I tie myself up in ethical knots and would gladly campaign to do things I've done in the past, and will in the future differently, but if this is the option you have, well, its the option. Ethically, presumably you'll be able to re-employ people and I think that so long as you remember your ethical stance and don't over self-justify or re write the history of it, well, I like to think playing by the rules won't bar one from heaven. As Gen says, you can make ethical adjustments later, but only from a stance where you are really able to.

Good luck AlanM.

Frugaldom

Alan_M wrote: »

Very briefly, solvent means the total value of the assets of the company equals or exceeds the total liabilities.

Those assets may not be liquid (i.e. cash) they may be buildings, machinery, stock even goodwill....none of which you can pay bills with.....that's cashflow you're referring to.

Thank you for this brief lesson, I am aware of the meaning of solvency and insolvency but I, personally, disagree with the concept that a company can remain solvent when its cash flow depends on maintaining or increasing it's financial liability to the bank. If that looks like happening then an attempt to liquidate a percentage of assets should be made before reaching crisis point. Perhaps it's the cashflow calculation that's wrong. Perhaps the overheads and running costs have been miscalculated and/or mis-managed, perhaps the company involved, in this case, Wrekin, hadn't counted on high penalties imposed, perhaps we could debate all day about the solvency or insolvency of a company but it still remains a fact that a good cashflow will NOT keep a company afloat if it isn't solvent at any give time.

As a business owner, running costs, assets and a high enough turnover to service all overheads and borrowings would be my main concerns, primarily to take the company out of debt as soon as possible. Crazy, yet simple, as this may sound, it's the only thing protecting a company from a panic-stricken lender. We only need to look to Woolworth's former empire to see what can happen to a company that doesn't balance assets and overheads against running costs and servicing debts.

With regards to owning/running a business, I'd scrupulously and ruthlessly analyse the overheads and running costs regularly, liquidate a percentage of assets to reduce current debt and diversify wherever possible in an effort to open up new income channels, regardless of how small. I wouldn't be looking to transfer or extend the debt unless it was a cost-cutting exercise that fell within the realms of 'solvency'. Goodwill is not a tangible asset, so it has no value in my equation.

Just out of interest, what do you do with your offcuts and discarded 'waste' products?

PS: The house scenario was interesting because I don't think that way. A house is only worth what someone will pay for it, so the £100,000 mortgage on the £200,000 house isn't relevant unless the person sells the house and releases the capital. Renting isn't so bad once you get the hang of it, especially if it means owning your own business that you know is solvent without the help of any bank.

Alan_M_2

Generali wrote: »

Unfortunately for you, nobody wants to go anywhere near any business connected with house building. Imagine your reaction if you saw an ad in the paper:

Urgently wanted: Funding wanted for small company selling quality house-building/renovating related product. Genuine reason for seeking funds as bank funding withdrawn.

I suspect you wouldn't linger further than possibly to think, 'poor old bug-ger'.

Actually that's our biggest hurdle (perception/confidence) and two months ago I would have agreed and had almost resigned myself to the fact we were closing.

However in the last month business is back to 2007 levels. I have no idea where it's coming from nearly all my customers are reporting the same increase which is puzzling but very welcome. The trouble is the bad period of the last 6 months has sucked up so much of our reserves that it could be too little too late.

Alan_M_2

nykmedia wrote: »

Just out of interest, what do you do with your offcuts and discarded 'waste' products?

We don't generate any waste/offcuts as we don't produce...we are a wholesale supplier, We supply product to the people who do cut it up.