New figures show that the number of law firms in distress has risen dramatically.

This could be made worse by the introduction of alternative business structures (ABSs) under the new Legal Services Act, according to research by Begbies Traynor.

The firm has issued its quarterly ‘red flag alert’ which shows that 163 professional services businesses were facing ‘critical’ distress in the last quarter of 2011. This is an increase of 61% compared to the same period in 2010 and Begbies Traynor says the majority of these were legal firms.

According to the alert, the last quarter of 2011 saw some non-legal businesses finalise plans to offer legal services ahead of 3 January 2012, when applications for such practices could officially be received.

However, while the Legal Services Act presents opportunities for non-legal firms, many law practices have found themselves ‘floundering’ as clients cut back on their legal fees spending, the alert adds.

Michael Bernstein, a partner at Harris Lipman, said many smaller legal firms were left wondering what to do next due to the uncertainty raised by the Legal Services Act.

He warned that this was not a viable strategy and urged firms to make a positive decision about their future, rather than simply waiting to see what happens

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The number of charities surrendering their charitable status has jumped 176% since the start of the financial crisis says Wilkins Kennedy, the 21st largest accountancy firm.

According to figures from the Charity Commission, the number of de-registrations by large charities (those with a turnover of more than £500,000) has leapt from 96 in 2007 to 265 in 2011.*

Wilkins Kennedy says that the surge in charities de-registering happened as charities closed down or merged due to the challenging fundraising environment.

The lasting effects of the credit crunch and the impact of the Government’s austerity measures have hit the two major channels of support to charities: individual donations and local authority funding.

Michelle Wilkes, Partner at Wilkins Kennedy, comments: “The economic crisis has hit the charity sector hard. The difficulty in raising money has led many charities to close down, while others have had to look at alternative business structures to cut operating costs.”

According to Wilkins Kennedy, the annual gross income of charities has slowed from 8% year on year growth in 2007, to just 2.5% in 2011.

Explains Michelle Wilkes, “Rising unemployment and inflation has affected people’s ability to donate to charities. At the same time, the Government’s public spending cuts have resulted in a decrease in grants from local authorities.”

“Many charities have seen local authorities slash their funding or, in some cases, withdraw it entirely. Local authorities have been criticised for their approach to managing their budgets, with some in the voluntary sector arguing that local authorities are passing on disproportionate cuts to charities.”

Wilkins Kennedy warns that although the Government is increasingly expecting the voluntary sector, including charities, to fill the breach left by public sector cuts, charities are struggling just to keep themselves afloat.

Michelle Wilkes says: “The Government positioned charities as being the cornerstone of the Big Society project; however, without the necessary funding, charities that provide vital services are being forced to sack staff or even shut down entirely.”

Charities that have had their funding cut include those who provide care for the elderly, like Age Concern and groups that help homeless people. Even established organisations, like Citizens Advice Bureau (CAB) are suffering – with some of the bureaux facing funding cuts of up to 50%.

Cutting costs through merging back-offices Wilkins Kennedy says that to survive, many charities have been forced to cut costs by reducing campaign budgets and staff numbers.

Michelle Wilkes comments: “In some cases, the need to a cut costs drastically has severely limited a charity’s ability to operate effectively, which has forced them to them to merge with other organisations in order to continue their charitable work.”

“In this respect, mergers can help a great deal in reducing overheads, for example, by allowing them to combine back-office roles.”

In the Autumn Budget, the Chancellor announced that not-for-profit organizations may now be exempt from VAT when using shared services.

“Despite the pain of the cuts, the Government has helped charities save some money by enabling them to be exempt from VAT when they share the costs of back office functions, such as IT and HR, with another charity.”

“We expect to see many more charities taking up this option as they attempt to balance their own books and make up for the deficit caused by the reduced levels of funding.”

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Cross-border bank transfers should become faster, cheaper and safer for EU citizens thanks to “single Euro payments area” legislation passed by Parliament on Tuesday. EU-wide rules to ensure that banks compete fairly, eliminate hidden national charges, and accelerate transfers could save up to €123 billion within six years, benefitting clients, banks, and businesses.

“This regulation really benefits citizens. It will enable them to make payments from one bank account to others all over Europe, just like a normal domestic payment. It will be possible to make all cross-border credit transfers and direct debits in the same way as normal domestic payments. A person working abroad will not need to open a new bank account in the host country, but may receive his or her salary in the home country bank account. Companies will benefit too, by not needing more than one bank account in Europe for each payment purpose”, said SEPA rapporteur Sari Essayah (EPP, FI).

The single Euro payments area (SEPA) regulation lays down common rules and standards for euro credit and direct debit transactions among banks. It would not apply to personal credit or debit card payments.

Requiring banks to comply with SEPA rules will enable their clients to use a single bank account to make euro payments to and from all SEPA countries.

To this end, the rules will ensure that euro credit transfers or direct debits that are possible within SEPA countries are also possible across frontiers between them.

The legally-binding deadline for banks to migrate to the new standards is 1 February 2014. Parliament’s negotiators insisted on a single deadline for all euro credit and debit payments to make the switch to the new system easier to understand for EU citizens.

Benefits to citizens

For EU citizens, it will no longer matter in which Member State a bank account is held. Transfers should become cheaper, faster and safer.

For example, EU citizens moving within the Union could use a single euro account, into which a salary earned in another country could be paid. They could also pay bills in one country through an account held in another.

All account users stand to gain, because international competition among service providers should drive down prices. Increased competition among banks to supply services should also help to cut today’s inflated costs, and where costs are already low, they should remain so.

Parliament’s negotiators sought to make the migration to SEPA standards easier for bank clients, by enabling banks to offer conversion services from national systems and to phase out the need to provide the Business Identifier Code (BIC) code (the IBAN international bank account number should suffice).

Another gain is a requirement to apply non-discriminatory charges to transfers, irrespective of the amount involved.

Benefits to businesses

Businesses could set up cross-border direct debits in euro between any two bank accounts anywhere in the EU, enabling them to bill customers regularly across borders.

By eliminating multilateral interchange fees on cross-border direct debits as of 2012, the regulation will enable businesses to establish their payment centres in any EU Member State.

Businesses could also organise all cross-border euro payments from a single euro account in a country of their choice in order to improve money management and speed up cash flows at lower cost.

The new legislation was adopted in the first reading with 635 votes in favour, 17 against and 31 abstentions.

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An upturn in business confidence suggests that the UK economy will stand on firmer ground from mid-2012. Although conditions remain tough – with the UK likely entering a technical recession following contraction in Q4 2011 – this downturn is likely to be shallower than in 2008-9, according to the latest Business Trends report by accountancy and business advisory firm BDO LLP.

BDO’s Optimism Index, which forecasts business confidence two quarters ahead, rebounded in January to 94.1 from 91.5 in December – the largest monthly increase since February 2011. Although the reading remains below the crucial 95.0 mark that indicates growth, the data suggests that the economy could begin to recover in the second half of 2012.

Encouragingly, the increase in business confidence is broad-based. The Optimism Index for the services sector has increased to 94.7 in January from 92.8 in December, hovering just below the growth mark. Similarly, the manufacturing Optimism Index jumped to 91.3 in January from 86.6 the previous month.

Plummeting inflationary pressures are an additional cause for cautious optimism. Inflationary expectations continued to drop in January, as BDO’s Inflation Index fell to 105.2 from 106.3 in December, returning the Index to levels unseen since last February. This trend is likely to continue throughout 2012, with inflation expected to fall back to 2.8% by March and reaching the Bank of England’s 2.0% target by the end of the year.

The short-term prospects for the UK economy overall, however, remain weak. The Output Index – measuring turnover expectations three months ahead – fell for the eighth consecutive month to 91.2 in January from 91.4 in December. The Index has now stayed below the 95.0 mark for six successive months, pointing to contraction in Q1 2012 and placing the UK in a technical recession. However, the marginal decrease of just 0.2 points suggests we will not see the depths reached at the lowest points of 2008 and 2009.

Peter Hemington, Partner, BDO LLP, commented: “Undoubtedly, prospects for growth continue to be fragile – as the UK has already very likely entered a technical recession and the situation in the Eurozone remains difficult to predict.

“However, the marked increase in business confidence is an encouraging sign pointing to better times ahead. It is particularly reassuring to see a broad based boost in optimism across key sectors such as manufacturing and the all-important services sector.

“We welcome the Bank of England’s £50 billion quantitative easing injection which will provide much needed impetus for growth – the economy looks to be on a firmer footing in the second half of 2012.”

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Male shoppers in the UK are the fourth highest spenders on Valentine’s Day gifts, online jewellery retailer Boticca has found after a global survey of its customers.

Men spend an average of £118 on a gift for their loved ones to celebrate February 14, which was only beaten in the survey by the Far East at £173, Spain at £151 and France at £120.

Lower on the list were the US at £107, the Middle East at £106, Australia and New Zealand at £94, Canada at £87, Holland at £82, Italy at £62 and Germany at £59.

More business owners are resorting to drawing on their own personal savings to keep their businesses going compared to this time last year, according to new research by Bibby Financial Services.

In a study, as part of the company’s quarterly Business Factors Index taken during Q4 of 2011, using personal savings to raise the finance needed for running their firms became the number one option for small and medium-sized business owners in the UK, ahead of bank overdrafts, loans and credit cards. Only four per cent of firms stated they had applied for funding through Government initiatives despite HSBC and Santander this week stating they had met Project Merlin objectives for 2011.

Alongside this finding, the study also revealed that two thirds (66 per cent) of UK business owners have not even applied for external funding over the past 12 months – an increase of 11 per cent year-on-year. The latest Bank of England Trend in Lending survey highlights that the increased cost of lending to businesses has also had an effect on decreasing levels of SME lending by the banks in the last quarter of 2011.

Edward Winterton, executive director at Bibby Financial Services, says: “The lack of awareness among small and medium-sized business owners of the full range of available funding options is their biggest barrier for effectively accessing the finance they need to run and grow their firms. We feel there is an urgent need to educate business owners in the UK, from start-ups to more established businesses about their funding options and how they can access the facilities most appropriate for their business’ needs.

“At the same time, it is also important that government agencies understand how invoice finance works and how appropriate it is for SMEs looking for funding to help them grow. It should be part of the portfolio of finance solutions promoted to businesses by the different government agencies. We would like to see the Government providing a platform for the industry to promote the benefits to businesses of accessing funding through invoice finance.

“Invoice finance is a flexible funding solution which helps to bridge the cash flow gap between raising an invoice and getting paid, giving businesses an immediate cash-injection and then an ongoing supply of working capital against the value of outstanding customer invoices as they are raised.

“Using an invoice finance facility, businesses also benefit from the provider’s credit management and collections service, saving them valuable time, as the provider will chase and collect outstanding invoice payments on the firm’s behalf.”

“If businesses continue to tap into their personal savings, which is a worrying trend as this source is not sustainable or designed to help business growth, then we could see insolvency figures increase further throughout the year.”

If you would like to discuss Invoice Finance, please let us know – enquiries@cbc-international.co.uk

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The Forum of Private Business argues it has come as little surprise the banks have missed their small business lending targets under Project Merlin, but says it’s a timely reminder for lenders now to refocus on financing those firms who most need their cash.

It was announced this morning that while the big four banks – Barclays, Lloyds, HSBC and RBS – have achieved their overall lending figures, they narrowly missed their pledged target to lend £76 billion exclusively to SMEs by £1.1 billion.

The not-for-profit employer organisation has said its members still routinely report problems with accessing finance from the high street lenders, with many having to seek alternate forms to aid cash flow, including credit cards and even loans from friends or family.

But it says this morning’s news proves it is now time for banks to provide more assistance to small firms by offering better value products, simplifying their lending criteria, and putting a greater focus on relationship banking.

“The banks have missed the lending targets for small firms, but not by such a huge amount as suggested by the number of small firms who still complain to us about problems accessing high street finance. This we know is still a burning issue for many SMEs,” said the Forum’s Chief Executive, Phil Orford.

“What perhaps muddies the water and makes the bank’s failure here less clear cut though is that overall demand for bank finance is down. Many companies have been simply looking to survive or consolidate over the past year rather than seeking credit to expand.

“What we need now more than anything is confidence – confidence from small business that the economy is heading in the right direction, and confidence from the banks to lend their money. Without either the economy is in danger of stagnating.

“The onus now, however, is really with the banks to get the ball rolling. They need to reach out further to business and repair the damaged relationship with firms who are essentially their core customers. Our helpline receives complaints from members every week over increasing costs associated with bank products and the removal of overdrafts – these actions don’t help.”

“In addition, we need cheaper credit, more investment in regional branches, and the restoration of lending powers to local bank managers.”

“And if the banks are unwilling or unable to deliver these core requirements, government should intervene more stringently to ensure that the do.”

But the Forum says while banks must take the lead, small firms should also help themselves by ensuring banks can find no reason to refuse them credit. Ensuring loan applications sparkle, and that credit ratings are show firms in a positive light all help in getting a ‘yes’.

“Bank lending will never be as free and easy as it was 10 years ago,” added Mr Orford.

“Banks have rightly had to tighten their lending criteria, although there’s a view that they have over-egged the pudding.

“Small firms can and should do more to help themselves though, ensuring their credit history is good and monitor it for any changes. Any mistakes should be reported immediately. Bank loan applications also need to be comprehensive and cover all angles and therefore advice and support should be sought before applications are made. If businesses can demonstrate that have regular and standardised financial information regarding their accounting, which is supported with a clear business plan, then this will also boost their chances of success, as will demonstrating their ability to repay their loans.”

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The Institute of Credit Management (ICM) has delivered a critical response to the Insolvency Service Consultation Paper on reforming the bankruptcy and compulsory winding up application processes, citing what the Institute describes as ‘a number of flaws’ in the proposed reforms.

Philip King, Chief Executive of the ICM, expressed his concern at the Consultation Paper’s apparent failure to draw some fundamental distinctions: “Bankruptcy is a very different process from a winding up petition. Unfortunately however, several of the reforms suggested in the Consultation Paper apply to both individual bankruptcy and the winding up of limited companies, indicating that the Consultation has failed to adequately recognise the significant disparities between the two.”

He says that a similar lack of proper understanding is demonstrated in relation to third parties: “Expanding the proposed debtor petition process reforms to undisputed third party bankruptcy and winding up petition processes is also, in our view, inappropriate, since the needs, processes and desired outcomes of debtors are entirely different from those of third parties and should be dealt with as such.”

The ICM questions whether the proposed application process would be enough to confirm that bankruptcy was the right decision for an applicant and hints that, if implemented, the changes could even encourage debt avoidance: “For a debtor to simply state that he or she ‘has had an opportunity to take advice’ does not, in our view, sufficiently ensure that bankruptcy is the right step for that individual, nor does it attribute proper gravitas to what ought be seen as a last resort.

“Furthermore, the opportunity to oppose and appeal against applications opens up the possibility for debtors to abuse the process and use it simply as a means of avoiding creditor action by delay and protraction.”

The ICM also harbours a number of concerns in relation to the role of the Adjudicator, questioning what qualifications or expertise that person might have and how their independence from the Insolvency Service could be guaranteed.

“We have serious reservations about whether the responses to previous consultations have been adequately and properly considered and reflected in the drafting of this latest document, and would suggest that more thought is required,” Philip King concludes. “Fundamentally, this consultation focuses on the procedural detail of the proposed changes, rather than asking the far more important question of whether the changes are a good idea at all.”

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The Civil Court Users Association (CCUA) states it has mixed views over the government response to the consultation on reforming civil justice in England & Wales.

“We are very pleased to see proposals to provide claimants with more effective enforcement in the obtaining of charging orders and the strengthening of the attachment of earnings process which should assist “ said chairman, Brian Havercroft

“We are concerned over the increase in the small claims and the government’s commitment to mediation. We have pointed out that our members do not generally sue cases where defences are raised and this is confirmed by figures from the Bulk Centre in Northampton that less than 5% of cases issued there are defended”

“With regard to small claims; cases should be considered on complexity rather than value and in the Associations’ response they highlighted the fact that the current limit is already much higher than in other jurisdictions. To many claimants £5,000 is a large amount and they should be able to have legal support without worrying that costs will not be awarded.”

Further concern has been expressed over greater involvement of litigants in person. “Generally litigants in person do not have sufficient knowledge to deal with cases and delays can occur to the detriment of the represented party. To increase the number will only delay matters to the detriment of users in general.”

The Association feels that there is a need to ensure that once a judgment has been obtained that satisfactory enforcement procedures are available and awaits the further paper on bailiff law that is due shortly.

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