South: Directors 'put in own money to keep afloat'

The fine line between corporate and personal insolvency is being crossed by increasing numbers of company directors pumping their own money into struggling businesses say insolvency practitioners in the south.

A straw poll taken at a regional meeting of the insolvency trade body, R3, revealed that the vast majority of practitioners believe directors are increasing levels of personal debt in order to help their businesses survive.

Latest Insolvency Service figures show that a record 35,242 people were declared insolvent in England and Wales during the third quarter of 2009 – a 28% year-on-year increase.

Commenting on the correlation between corporate and personal insolvency in SMEs and owner-managed businesses in particular, R3 regional chairman Andy Beckingham of BDO cited Christmas as the straw most likely to break the camel’s back.

“Experience shows that directors who are using their own cash to prop up an ailing business often do so without the knowledge of other family members,” he said. “They have every intention of paying themselves back but end up ploughing more and more money in without doing the sensible thing which is to seek professional advice.

“Personal expenditure then goes on credit cards and debts start mounting up at home too, particularly when other members of the family are kept in the dark and carry on spending as normal.”

A national survey of R3 members indicated that the majority of insolvency practitioners believe both corporate and personal insolvencies are still to peak at some point in 2010.

“The old saying that pride comes before a fall is painfully true,” concluded Beckingham. “Many directors who get themselves into these sorts of situations are desperately trying to make things right for both their employees and their families but, in reality, they are doing just the opposite.

“The harsh reality is that when their businesses finally hit the buffers, personal insolvency may not be far behind.”

R3 members in the south also reiterated the need for any distressed business to seek the advice of a qualified insolvency specialist sooner rather than later in order to have the best chance of survival.