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These types of businesses tend to have high overheads in salary and wage costs and find it difficult to react quickly in a downturn because of the costs and complexity of making redundancies. They also tend to have expensive and long property leases.
The value of client goodwill and continuity is also very important to these businesses. It can mean that a possible solution maybe a Pre-pack Administration or perhaps a Company Voluntary Arrangement.
These businesses rely on speculative high value sales with the fee only coming in on completion. This can be many months after the work has been done. Salary costs tend to be high as do premises and advertising costs on the likes of Rightmove.co.uk. A loss of confidence in the housing market can turn a profitable business into one making large losses very quickly. We all know the UK housing market is cyclical.
Firms that offer residential lettings management do have a steadier income stream but must be very careful to not allow deposits and tenants rent to get mixed into the office bank accounts. Deposits paid by tenants need to be paid over and registered with a licensed Tenants deposit Scheme.
We have dealt with several insolvencies where the agents have kept and spent tenant’s money with dire consequences leading to personal bankruptcy, wrongful trading or even criminal action by the Police and a custodial sentence.
Lettings business to tend to sell well in insolvency and have a good value if the records are good and all the funds are intact.
These firms are heavily regulated and monitored by the Law Society and Solicitors Regulation Authority (“SRA”) as they handle substantial amounts of client money. In the event of an insolvency permission will be needed from the Law Society to sell a practice to a new owner and this is often done by a pre-pack Administration so the transfer from the old owner to the new owner is seamless from the client point of view.
The SRA will want to make sure all the client funds are in tact and have not been misused or mixed with office money.
The SRA also want to make sure that important client files and documents are kept safely and handed onto the successor practice.
If the SRA are concerned about the state of the solicitors practice and feel not enough is being done they can use their powers of intervention. This means they appoint a panel approved legal firm to take over the running of the practice.
It can sometimes be difficult for a legal practice run as a company to just go into liquidation unless all the client files and funds have been transferred beforehand. A solicitor’s partnership can use Administration or a Voluntary Arrangement to try to achieve a better outcome than just closing.
These types of practices/businesses have the issue of selling sophisticated financial products to the public and so are heavily regulated and monitored.
We have dealt with several IFA’s over the years usually who have got into financial problems for ‘miss selling’ a financial product that was once fashionable to sell but has become toxic.
These businesses are Financial Conduct Authority registered, so they need to be kept informed of any planned formal insolvency. Any loss to customers may be covered by the Financial Services Compensation Scheme (“FSCS”) or the firms Professional Indemnity insurance so creditors and clients need to be categorised and treated carefully.
Sometimes it is the IFA network that gets into trouble – this the umbrella organisation that deals with compliance for smaller firm IFA’s in exchange for a percentage of income generated. Often this is because of claims being made by customers for miss-selling.
It can be quite hard to save a network or an IFA business and if the business is worth saving this can mean a pre-pack Administration. If it is not worth saving, then the outcome will usually be liquidation.
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Licensed Insolvency Practitioner