Ministers have spoken out, including Vince Cable the Business Secretary, to ask banks to bring up their levels of support for businesses and continue to honour their lending agreements. Instead, banks have taken an even sharper interest in tightening their grip on capital and bringing their balance sheets closer to favouring themselves. To that end, mortgage lending has dramatically declined and the Bank has shown, along with the Council of Mortgage Lenders, that improvements in mortgage lending are slight at best, continuing to pale in comparison with past availability of proper funds.

The situation gets especially brutal for first time buyers who are met with extremely rigid demands from banks, including very high deposit levels of £30,000 or more. This is a major change from the £13,000 average required during past good times. This means first time home buyers are turning to their parents for financial help in record numbers, a full 85 percent turning to family in an effort to meet the sky high deposit demands. Those already in debt suffer further as they attempt to meet these demands to try to get their lives back on track.

Mortgage approvals, according to the Bank, have also improved modestly in terms of major lenders who offer funding for house purchases – nearly 3,000 more approvals in the month of May 2010 in comparison with the preceding month. However, this is down sharply compared with levels before the credit crisis which saw 49,000 more mortgages being made.

The bottom line ends up being that UK citizens will certainly want to attempt to pay down any debt they have before approaching lenders during these fragile times. Many are turning to IVA or similar debt solutions in order to bring their own personal debt levels under control.

The emergency financing was taxpayer-funded, and given to the Royal Bank of Scotland (RBS) as well as HBOS, each borrowing £36.6 billion and £25.4 billion, respectively. HBOS, which is now owned by Lloyds Banking Group, got its cash injection on October 1st of 2008 and then, less than a week later, the RBS received its boost. This came only weeks after Lehman Brothers Holding declared bankruptcy and the UK markets looked ready to nosedive. After even more loans further injections of capital this month, in excess of £30 billion for each bank, both Lloyds and RBS are now largely owned by the government. The government stake in the banks now stands at 43% of Lloyds and a shocking 84% of RBS.

The Bank of England, which made the loans, was granted indemnity by the Treasury in order to cover any potential losses caused by the emergency loans. The total amount of loans granted to these two banks alone is higher than the £49 billion spent on UK schools and larger than the national defence budget, as well. Although the banks have paid back the loans, the government continues to hold stake in both of them, causing questions to arise in light of the fact that both the HBOS and RBS were defendants in a recent court case, regarding unfair overdraft charges, which made its way to the Supreme Court.

For the past two years, the Office of Fair Trading (OFT) had been pursing HBOS, RBS and several other lending institutions because those banks were charging upwards of £20 to £50 to customers who accidentally exceeded their overdrafts. The OFT had won its case in both High Court and the Court of Appeal, with experts predicting a nearly guaranteed victory if the banks appealed to the Supreme Court. The hearing in the UK’s highest court took place in June of 2009, a mere 9 months after the government gained control of stock in both HBOS and RBS. When the shocking result, that the government’s own consumer protection agency OFT had been refused the power to investigate the overdraft charges that many customers been expecting to have refunded, many expressed speculation that the move might have been made to save the government from shelling out the £20 billion that would have been paid back to those charged unfairly.

Had that enormous sum been required, the government’s shares in the banks would have dropped and this leads many to question not only the billions in secret loans, but the swift change in court rulings, as well. An unprecedented number of UK citizens are already struggling under enormous debt loads and many had hoped to have the overdraft charges returned to them through the OFT, possibly in time for Christmas. While some had wanted to balance their budgets and take a holiday, many others needed the money to repay debts and get family finances back on track. Now these individuals will be turning to Debt Management Programmes or Individual Voluntary Arrangements since it appears that there is no chance they will be compensated for the unfair charges to their accounts.

Consumer advocate groups are expressing outrage and political speculators believe the situation could be a conspiracy simply based on the fact of who stands to benefit from not only the loans being kept secret, but the Supreme Court decision regarding the OFT’s powers. Could this be a conspiracy? Could this essentially boil down to government sanctioned predatory lending that comes at the expense of tax payers?

According to some experts, Irish banks are already changing from a soft approach to a more aggressive stance towards debtors and this is likely to increase with the coming of NAMA, but for the majority the agency’s arrival will simply mean that their loans have shifted to a different lender.

The change is not expected to be immediate due to the political and legislative process involved in the transfer of those jeopardized loans. NAMA’s role is to cleanse the banking system by handling certain troubled debt and therefore encourage the banking system to resume lending to consumers once again.

In the seven year period stretching from 2001 to 2008, Ireland went on massive borrowing spree that saw debt soar from 10 billion to 110 billion euros within that brief period largely due to loans taken out by companies in the property and construction sectors of the market. In 2010, a full 77 billion euros worth of that debt will be transferred to NAMA with 23 billion euros worth of the debt written off prior to the transfer.

Financial experts have commented that recently Irish banks have been more frugal in their lending, even in regards to credit worthy companies. The hope is that with NAMA’s intervention, the banks will once again find lending to businesses with a sound financial outlook to be a smart move due to increased liquidity in the banks themselves.

While the majority of the debt, 66 percent, is located in the Republic of Ireland, another 6% is from Northern Ireland. This has raised some alarm for that region since critics of NAMA worry that its actions may trigger a fire sale of Northern Irish assets that, in turn, wreak economic havoc in that state. The remainder of the debt lies in Great Britain (21 percent), Europe (4 percent) and finally, the United States (3%).

Certain investors in the private sector have expressed trepidation that NAMA’s involvement could mean discounting of assets before they are purchased and thus major losses for those involved, but at this time that remains speculation.

Another potential contribution NAMA may make is the release of 10 billion euro’s worth of capital to help kick start stalled construction efforts that remain stalled due to lack of funding. The effects of NAMA remain to be seen, but the impact is expected to be felt primarily within the borders of the Republic.

Irish citizens do have certain rights when it comes to challenging valuations of foreign based debt, but not such debt within the Republic’s borders.

If you would like more information on debt in Ireland, there is a website that focuses on these issues, Irish Debt Solutions.

The deal will reduce the company’s debt from £1.5 billion to £780 million through a trading of debt for equity in the company. This means that the largest shareholder in the Four Seasons will be the Royal Bank of Scotland thanks to the amount of the company’s debt it has been holding. The agreement means the bank will own 40% of Four Seasons.

According to top executives at Four Seasons, the company will begin working toward a long range solution to paying off its remaining £720 million debt. This is crucial because that debt comes to maturity in September 2010.

In 2006, Four Seasons was purchased by Three Delta, a Qatari-backed investment fund. Three Delta paid £1.4 billion in a complicated arrangement that involved securitisation, 11 tranches of debt and a syndicate of lenders including over 30 parties.

Troubled subprime lender Cattles, agreed to sell one of its smaller subsidiaries for £70m to pay towards its total £720m owed in bad debts. The company discovered the bad debt on its books earlier this year and sees the sale as a way to get itself back to financial health.

Cattles Invoice Financing (CIF) was expected to be sold and does show some effort to pay down the bad debt that was discovered to the shock of Cattles’ board. Since debtholders now control the group after the findings that bad debt provisioning policy was not applied properly to the doorstep lending business of Cattles, the company lost seven executives. An assortment of bank covenants have ended up being breached and interest payments owed on bonds have not been paid and as a result, the debt has been trading to levels as low as 20p in the pound.

AnaCap, a private specialist equity house out of London, is buying CIF for a price that will mean Cattles gains £8.4m, only £2m below the net value of CIF, after repaying inter-company loans and transaction fees. Although the deal require a vote from shareholders, given the company’s status as essentially in default due to the halt in its shares being traded, this should be a mere formality.

In actuality, the sale of CIF is only a minor step forward for Cattles and its new executive, Margaret Young. Their doorstep lending unit, Welcome Financial Services, is still subject to a City regulator’s investigation so the main focus for the Cattles’ board is resolving competing claims regarding Welcome’s substantial income from bank lenders and bondholders.

In February of 2009, Welcome ceased lending operations but even as it gradually closes out its loan book, monthly cash income is said to be standing at around £50m and £60m. Cattles has filed a lawsuit against Welcome with the support of its debtholders to get legal clarity over whether the banks lending to Welcome or the bondholders of Cattles plc have first call over the cashflows of Welcome. This battle and the efforts to restructure the company will most likely lead to court involvement until well into the Fall and are not likely to be resolved in 2009.

£2.6bn in loans and outstanding bonds are believed to be held by Cattles, currently.

Insolvency: A Danger Small Businesses Face

Since so many small businesses operate from very tight budgets, cash flow is an issue they must stay aware of every single day. In this article we will attempt to explain a little bit about Small Business or Sole Trader Debt as it relates to those involved in a small business.

When the assets of your business are worth less than your debts or if you are unable to pay your business debts when they become due, then your business is considered insolvent. Bankruptcy or winding up can be the result of failing to pay your small business or sole trader debts quickly enough. While Bankruptcy applies to individuals, sole traders or small businesses that have given personal guarantees for loans, winding up and liquidation applies to companies. Becoming bankrupt often involves restrictions but for individuals whose small businesses or sole traderships have failed through no fault of their own, the situation is somewhat less trying. Most of these individuals are discharged from bankruptcy within a year but their credit ratings can be effected for a longer period of time.

Due to this, the need for small business debt advice is in demand as never before. Plenty of people who are sole traders or run limited companies (LTDs) and small businesses are strongly attached to their businesses and, as a result, have become short sighted to the point that they often fail to recognize the growing debt problem that they have right before their eyes. Some businesses create so much loss that they survive only because their owners use personal credit cards and loans to prop the business up financially. Due to the freedom that running one’s own business offers, many of these folks would rather run up debt being their own boss instead of working for someone else.

In order to find the best solution for your business when facing insolvency, you will want to consider your options. Do you want to head back to employment? Are you looking for a fresh start in business? Do you want to retire or would you like to save your business?

You have plenty of options when you face insolvency.

You can learn about Individual Voluntary Agreements (IVA).

You can learn about Bankruptcy.

You can learn about Debt Management Plans.

Whichever option you choose, your best bet is to look online and find a place that will connect you with people who offer quality advice over the telephone.

Restaurants

Plenty of restaurant owners opt for limited company status since it offers them lower financial liability because it establishes a separate legal entity. Sole traders and partners, however, are held personally liable for their business debts. It’s widely known that 10% of all new restaurants either fail or close their doors at some point during the first year of trading and face insolvency as a result.

Bars and Pubs

One of the most volatile industry sectors in the UK is Bars and Pubs. Not only is this market well known for its ease of setting up a business, but also for the common occurence of closures and changes in ownership.

This bar and leisure sector is divided into these segments:

* Independent high street bars

* Branded chain bars

* Bar food restaurants

* Hotel bars

* Upmarket, Chef/patron restaurant / bars

The borders between these markets continues to become increasingly blurred. For example, some bars sell high quality food, pubs that are closer to being a bar and “free house” bars.

Hotels traditionally held their bars to be a necessary service, but typically a loss leader that they did not expect to profit from. This trend is shifting, though, and in the last decade hotel owners have developed some very successful bars.

The shifting bar industry sector and its ever changing commercial landscape has led to an increase in insovlences, bankruptcies and company liquidations.

Closing Down a Bar

Once you have decided to close your bar business, you need to inform various individuals and organisations of this decision, telling them the time frame involved. This could involve a great deal of planning and organizing depending upon the size and type of your bar business. There will also be details that differ depending upon your business status: partnership, sole trader or limited company. If there are multiple owners or investors involved, closing you bar business can be especially stressful.

Closing a Nightclub

When your club or nightclub has mounting debts and fails, owners often end up facing the prospect of company and personal insolvency.

Since being a limited company offers financial liability by establishing a separate legal entity, most club and nightclub owners choose LTD status. Those who are willing to be personally liable for their business debts choose to be sole traders or take on partners.

It is commonly known that 10% of all new clubs will fail or close down within the first year of their trading and as a result, face insolvency. Depending upon the status that the club owners have chosen to trade under, such as Sole Trader, Partnership or Limited Company (LTD), the method of treating this insolvency will be different.

“CVL – Liquidation” is the most common insolvency procedure for an LTD and is often referred to as “Phoenix”. As a director of an LTD, this liquidation allows the company’s unsecured debts to be written off so that you can start again.

Closing a Pub

Upon the opening of any new pub, the owners must make a decision about the pub’s legal status and carefully consider the issues involved. In this section we will look at the main choices available, including limited company (LTD), partnership or sole trader. We will also look at the impact that this choice will have should the business close or face insolvency.

The majority of those who open a pub have worked their way up from a position as bar person to running a pub of their own. This career structure is most effective because it means the manager has experience and therefore has a higher chance of having developed both a strong business and management skill set.

Dealing with the Alcohol License

The majority of A3 premises have a license which allows them to sell alcoholic beverages on site. This license gives the the club the right to serve alcohol up to certain times and it is crucial to protect this license in order to maintain the validity of the establishment itself.

By making an application to the Magistrate’s Court for a protection order a business can obtain temporary permission to sell alcoholic drinks pending full transfer of the license. A protection order lasts either transfer sessions of approximately three months or a maximum of two periods.

It’s important to keep in mind that an application for a transfer order usually triggers visits by  environmental health officers and fire officers. These individuals hold the power to demand work be carried out in order to bring the club up to acceptable standards. When considering a decision to continue trading, you want to take into account this potential capital expenditure because it can involve significant sums of money.

Case Study of Restaurant Business Failure

This case involves an unnamed individual we will call Mr. Durano, an Italian who moved to the UK in 1994. He had worked for a reputable restaurant in London for 10 years as a Head Chef and had always had a strong desire to open his own restaurant. When the opportunity to make this dream come true arose in 2004, he and his brothers opened a restaurant in Middlesex that focused on fine Italian dining.

The Durano brothers had to sign personal guarantees to cover the risks posed by finance companies in order to acquire funding and finance to pay for the catering equipment. After forming a Limited Company, they began trading but they were forced to close down after only 18 months when the property freeholder decided to redevelop the land the restaurant’s building stood on.

Mr. Durano had to initially arrange to liquidate the company by opting for a “Creditors Voluntary Liquidation (CVL)”. In both England and Wales, a CVL is the most common form of liquidation used and it brings the operation of the company to an end. This method is employed for companies that are simply not viable any longer, companies that have run out of cash and can no longer afford to pay their liabilities at the scheduled times.

Unfortunately, the assets of the Duranos’ restaurant were not valuable enough to eliminate the debt owed by the finance companies and that meant those companies turned to Mr. Durano himself in an attempt to recover the outstanding £35,000 debt. Instead of the bankruptcy that was being threatened, Mr. Durano sought advice from a qualified Insolvency Practitioner (IP) and ended up choosing the far more flexible and less stressful Individual Voluntary Agreement, a sensible alternative to bankruptcy.