With apologies to Oscar Wilde, while it's true most people think money is important, anyone running a business knows it is. This issue is all about money. As the recession scrapes along, with only occasional teasing hints that recovery may be around the corner, we take a long look at the state of business finance in the UK. How and where can you find working capital if—or more likely when—the bank says "no"?
The government has placed a lot of faith in the recently rescued banking sector acting as a driver of recovery. Almost all the key elements of its stimulus package—from the Enterprise Guarantee Scheme to the Bank of England's huge programme of quantitative easing—rely to some extent on the banks playing a part. The problem is, having just got out of intensive care, few banks are keen to jeopardise their wellbeing for others. Interest rates may be at an all-time low, but many small firms are not seeing these rates passed on.
One company that sums up these current pressures is upmarket furniture retailer Lombok. I interviewed founder Alex Cresswell-Turner a few days after his firm had been through a pre-packaged administration (or pre-pack). He was in shock, with emotions veering between relief the business had survived in some form and disappointment that it failed in the first place. Although anxious not to appear bitter, he was clear Lombok's demise came about partly because the bank had withdrawn support. It's symptomatic of a situation where banks on one hand are seen as catalysts for recovery, but on the other are under pressure to rethink their risk approach.
Lombok's story raises another crucial question: that of the role of pre-packs. Are they a mechanism to allow sickly but essentially viable businesses to survive, or a recipe that means dodgy operators can rip-off unsecured creditors, relaunch the business immediately and get away with it?
Even its champions admit the process is open to abuse. And despite new rules for insolvency practitioners introduced this year, a further tightening of the process to encourage greater transparency would be welcome. It's an issue that takes on added significance when one considers that insolvency practitioners may be busier than ever in the months ahead.
Richard Cree
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