17 December 2015: BRI's Southampton office is based in Ocean Village. Nearby is the spot where King Canute reproved his Courtiers in the year 1028. The story is often misreported. King Canute did sit in his royal chair on the seashore as the tide was coming in an attempt to order the waves back. However, that was to highlight the poor advice he was receiving from some sycophantic members of his Court. Those advisers were attempting to flatter their royal master to secure rich rewards for themselves by telling him that not only was he the King on land but the sea, also, would do his bidding. Canute took advantage of the opportunity to show how foolish they were.
At BRI, the businesses in financial difficulty that need our advice do so for a wide variety of reasons. However, a common theme that helps to create cashflow pressure is the failure to take proper professional advice when making a key business decision. Some recent examples of this that we have seen are:
- Using a relative, who was a retired Architect, to draw up plans that were used for a newly built property. In view of the length of time that had passed since the relative retired, the plans did not comply with current Building Regulations and the property required significant, costly rectification work to make it structurally sound. The relative's professional qualification had lapsed and he had no PI cover in place to provide compensation for the poor quality of his work.
- Taking legal advice on the purchase of a business, but only in connection with the acquisition of the freehold premises that it traded from. The buyer did not seek any input from their Solicitor on the commercial aspects of the transaction, particularly in connection with employees. As a result the purchaser inherited a number of long serving staff under the TUPE Regulations with a whole host of historic issues relating to their performance that took a significant amount of management time and money to address.
- Forming a Company online via the cheapest route. Some investors came together to develop a new product. They did not enlist the help of their existing Accountants and Solicitors to establish the venture and failed to put a Shareholders' Agreement in place as a result. This error created problems when one of the founders decided to leave the Company but insisted on an unrealistic price for the sale of their shares. The subsequent dispute delayed further investment from the others involved that was necessary for the Company to continue.
In each of these examples there is sense of false economy. The advisors weren't motivated to provide incorrect advice by the potential rewards that could flow to them from doing so in the way that Canute's Courtiers were. However, these cases do show the risk in knowing the "price of everything but the value of nothing" and choosing the cheapest option. In each situation, Insolvency was a possibility because the individuals concerned did not take sufficiently experienced professional advice at the right time.
The management team at BRI has many years' experience in advising businesses that are struggling financially. If you or one of your clients are facing the issues outlined above, please contact us to explore the options available.