Suppliers are the big losers when retailers go into administration, maintains one businessman with first-hand experience.
I am saddened to watch the demise of , which has put 11,000 jobs at risk and led to questions about the responsibility of the owners.
But while the press accuses certain individuals, there’s another big point that needs to be made. Surely this is now the time to put an end to farcical and unfair administration laws.
Having lost £1m to high street multiples going bust, unfortunately I speak from experience.
In a case that affected me, Mark Brafman was allowed to buy back fashion retailer MK One even though he had insufficient funds and was a disqualified director.
The Department for Business, Innovation and Skills undertook an investigation, finally leading to the imprisonment of Brafman, but it took six years of the government department’s hard work.
In administrations, retention of title is usually a waste of time and in hindsight suppliers need an “all monies” retention of title.
In these situations, administrators will earn money while creditors may have to look on, horrified as their goods are sold. This is legal.
Suppliers might end up only getting back 0.05p in the pound and it can take years, possibly more than a decade, to be paid.
Ironically if a creditor’s company ceases to exist at the time of the dividend, they forfeit the dividend. This is quite simply unfair.
Additionally, too many companies are sold back to former owners for a small fee over a weekend period so it doesn’t disrupt trading. It’s an opportunity to clear debts and sometimes unscrupulous directors can line their pockets even further.
Some unscrupulous owners are taking insolvency practitioners’ advice to learn every trick and ensure they do not break the law. However, the law is insufficient and allows many unethical acts. Suppliers need complete transparency.
The administration laws need urgently to be updated and become more stringent. They are weak, abused, debated and delayed for years without important necessary improvements being implemented.
An inquiry should be set up and future abuses when businesses collapse eradicated.
That inquiry board should consist of people such as myself and not just insolvency practitioners. The laws must be set out to protect the honest business person.
For retail suppliers, margins are squeezed, orders are cancelled without legitimate reason, credit terms are constantly extended and backdated credit notes insisted upon “to assist improvements”.
But the biggest curse is the administration laws.
- Clyde Lester is chief executive of a fashion accessory company