What are 'Mediation Services' and how do they help?

Having supported businesses for over two decades, initially specialising in helping those with tax arrears via our sister business?www.taxdebtshelpandadvice.com ?– we knew that Directors needed more support.

We understood that suddenly, for a Director to be talking to an Insolvency firm, having just had a two minute call from their accountant, with earth shattering news, would scare anyone. So, we extended our range of services to what we felt and hoped were the areas of support a Director may need.?

Our strategic partners are the best in their respective fields and our own highly respected and knowledgeable advisors brought experience to the table that we knew would help others.

Things have grown since then, but our philosophy remains the same, we are here simply to help others keep trading.

During the pandemic the levels of UK debt owed rose significantly. The Bank of England have reported that corporate debt rose by ￡79bn between the end of 2019 & the first quarter of 2021.

The average debt of SMEs rose by a quarter, which has created a growing number of businesses in financial difficulties and under extreme financial pressure to meet ends meet.

The Bank of England also noted that lending remains precautionary and that many SMEs will have set money aside to tackle arrears, such as HMRC liabilities and supplier debts. This doesn’t give a great picture of the UK corporate debt issues. Those funds that may have been put ‘on one side’ may ultimately not be used for the intended purposes and as businesses struggle further, those funds are potentially being used just to survive – leaving debt issues unresolved and escalating.

• The number of SMEs with any debt has more than doubled. Around 757,000 companies (out of the approximately 2m that have UK bank accounts) now have some debt, compared to 305,000 before Covid.
• 33% of SMEs have debt levels more than 10 times their cash balance, or their cash balance is negative (ie they are using an overdraft). This has increased from 14% before Covid.
• 18% of SMEs have monthly debt repayments that are more than 15% of their income. This has increased from 3% before Covid.
• 10% of SMEs have both high debt levels and high debt repayments.

The Bank did observe some “early evidence of stress” from the withdrawal of government support schemes and the end of temporary insolvency protections. For example, it said an increasing proportion of SMEs reported concerns about their ability to make debt repayments (7% in the second quarter of 2021, compared to 4% before the pandemic).

These statistics only show the tip of the iceberg, in so far as debt issues are concerned. Many businesses are still struggling to keep afloat.

A survey for Make UK, an organisation representing UK manufacturers, reported that 45% of manufacturers responding to the survey had more debt in October 2021 than before the pandemic.

• 37% of manufacturing companies reported a worse cash position in October 2021 than prior to the pandemic.
• Debt servicing was ranked the least threatening of 10 risks to cashflow explored in the survey.
• 34% of respondents said their business’ debt or tax liabilities would pose an operational threat in the coming two years.

So how do Mediation Services help in these instances?

Firstly, this gives a business the chance to look at reducing contractual payments to ease cashflow concerns.

Alongside lending solutions, Research & Development (R&D) claims & HMRC arrears assistance, there are two main areas where we help our client’s via mediation services.

The definition of Mediation Services (also called conciliation) refers to process of using a third party called the "Mediator" to resolve issues such as debt arrears, or an Over-Drawn Directors Loan account by coming to a common agreement acceptable for all included parties. Mediation is often held in private and is allowed under law.

It's?a way to mend relationships when there is a disagreement or to seek a solution to unresolved issues, such as debt. It is there to help the parties talk through the issues, negotiate, and come to a mutually agreeable solution. Mediation is a flexible and confidential process.

There are a number of 'types/styles' of Mediation that different firms may include within their practices.

One of which is - Facilitative Mediation

This is the style of mediation that may be most familiar to people.?Facilitative mediators are appreciated for the ways they adapt based on the parties’ dynamic needs.?They may use techniques from both evaluative and transformative approaches. Using a facilitative style, a mediator asks questions, normalises perspectives, and validates both parties’ points of view.

There are two packages that Directors Help & Advice provide under our Mediation Services’.

• Business Debt Assistance
• Directors Loan Accounts

Business Debt Assistance - Negotiating on your behalf (https://www.tdhaexperts.co.uk/)

Legally a limited company is a separate entity from the Directors and shareholders involved in it. In most cases the Director or shareholders are not personally liable for the debts due under the limited entity. However, it is important to note that in some cases personal guarantees are in place.

We can help you with your cashflow and look at all options surrounding re-payment of the companies’ debts.

Working through a cash flow lets you break down each and every element on a money in, money out basis and although this may be a forecast it can help you consider affordability towards the debts that need paying.

You may also be able to apply for a moratorium, which provides your company formal breathing space to put a rescue plan together. These normally last for around 20+ business days and offer you some form of protection against legal action by some creditors.

Mediation Services - Directors Loan Accounts

When a company goes into liquidation, sadly, some Directors find they have no support.

With so many businesses struggling from the pandemic, there are staggering numbers of over-drawn Director’s loan accounts (DLA) some of which have unfortunately been calculated following the miss-use of Bounce Back Loans etc.

Although these can come as a complete surprise when you are having to close your business, it needs urgent attention. In most instances, you may be able to come to an agreeable plan to rectify this position. However, you may need support from a specialist advisor.

Ultimately if any company goes into a form of Insolvency and the DLA is still outstanding, the appointed liquidator or supervisor will look to recover the debt for the benefit of all creditors. Legal action could be taken against you personally to recover these sums, including potential bankruptcy.

Our mediation service gives you, the Director support in these scenarios.

Don't let business debts be a burden, the earlier you speak to someone the better.

• 5.7 million?SMEs in the UK in 2019, accounting for over 99% of all businesses.
• 78%?of UK SMEs that are owed money are being forced to wait at least one month beyond their agreement terms before being paid.
• 40%?of UK SMEs that are owed money claim that large businesses are the worst late-paying offenders.

In the worst cases, late payments can contribute to business insolvency. A recent survey found that?24% of UK businesses?report late payments as a threat to their survival, the highest reported level across Europe.

• 1 in 7?small business owners have been left unable to pay employees because of cash flow issues. This equates to a huge 2.2 million people in the UK not being paid on time.
• 38%?of small business owners who have suffered cash flow problems have been left unable to pay debts
• On average, small business owners lose a whopping?￡26,000?by turning work because of insufficient cash flow

“Cash is oxygen for small businesses and without it they cannot breathe. The combination of chasing invoices and bad payment practices mean small businesses run out of accessible cash. This has a real impact on their ability to take on new work, pay suppliers, their employees or themselves on time”

• 52%?of small business owners have used personal savings or borrowed money from friends and family to keep their businesses alive
• 26%?stated their physical health would be better if debt was no longer an issue
• 43%?admitted that late payments affected their mental health, causing sleepless nights
• 27%?felt that they would be in a stronger position to grow their businesses if arrears could be under control again.