Plea to tighten laws on rogue traders

Figures supplied by Leeds University Business School show an alarmingly high number of failures among Yorkshire restaurant businesses in recent years, as the sector has been forced to contract dramatically as consumers cut their spending.

Robert Smith of Sykes House Farm, which is based in Wetherby, said his company had lost £60,000 due to restaurants folding unexpectedly over the last year.

The family firm supplies beef, lamb, chicken, pork, venison and game to restaurants around Yorkshire.

The company, which has 38 staff, turned over £5.5m last year.

Mr Smith said: “There needs to be some form of legal system that any failing business must go through to prove the failure is legitimate.

“We see so many just walking away or just ceasing to trade under one name and starting with another.

“In a recent case, we have not seen any paperwork, nor have had anything in writing, and yet they are hoping we will just let them walk away with £7,000. But what can we do about it?”

The data supplied by Professor Nick Wilson, an expert in credit management, revealed that 13.18 per cent of Yorkshire’s 724 restaurant businesses were declared insolvent in 2009.

Last year, 8.12 per cent of the 446 restaurants registered in Yorkshire became insolvent.

Professor Wilson said that, apart from insolvencies, the reason for the large drop in the number of restaurants registered in Yorkshire last year could be because many firms hadn’t submitted accounts when the business school compiled its statistics.

By contrast, in 1999, 3.88 per cent of the 232 firms registered in Yorkshire’s restaurant sector became insolvent, according to the business school’s research. Professor Wilson said there appeared to have been an over-supply of restaurants in recent years, which had been generated by the long boom period.

Professor Andrew Robinson, a professor in accounting and finance at Leeds University Business School, said: “It is interesting to bear in mind that the average level of insolvency for companies as a whole is about 1.8 per cent, while those for the restaurant sector in Yorkshire are substantially higher.”

Mr Smith said Sykes House Farm’s “big hits” came when banks called in debts on customers. He said the company also lost out when directors put companies through pre-pack administrations, wiping out debts and re-emerging with new businesses.

He said a recent customer ceased trading under one name and started again the following day with no paperwork or apparent involvement from administrators.

Mr Smith said some business operators do not seem to understand the mechanics of running a business and have no concept of cash flow and/or duty to pay suppliers. The lack of understanding also means that the HMRC is losing out, he added.

Mr Smith said: “It is far too easy, and common, for directors of limited companies and sole traders alike to walk away from failing businesses, write off their debts and start again with apparent carte blanche to fail to meet their obligations to their suppliers in the process.

“We are not suggesting draconian measures as some businesses are bound to fail, especially in this climate and especially in our sector, but it should not be so easy for business operators to simply close their books without going through a statutory procedure to ensure all is fair and legal.

“For all we know, some of these directors could have taken all they can out of the business and used the credit from their suppliers for their own gain and left nothing to clear the debts. Trying to track down sole traders who simply walk away from their debts, even when we have a court judgment, takes up valuable time and effort and often for little reward.”

John Roche, a Leeds-based insolvency partner at law firm Walker Morris, said there had been long-standing concerns about ‘phoenixism’, in which entrepreneurs relaunch their business with creditors left high and dry.

He added: “It’s important to have a system that encourages honest entrepreneurs but identifies and penalises rogue operators who try to hide behind, and unfairly benefit from, limited liability companies to the detriment of employees and creditors.”

Robert Adamson, deputy chairman of insolvency trade body R3 in Yorkshire, said: “Business in general is a risk and one of the risks is that a customer doesn’t pay you.”

A spokeswoman for the Insolvency Service said it could not intervene at any stage if a company is in dispute with its creditors.

However, if a creditor believes there has been wrongdoing on the part of a company or its directors, they can call the Insolvency Service Enforcement Hotline on 0845 601 3546.

Resorting to the courts

according to the Insolvency Service, a creditor needs to prove in court that a company has not paid its debts.

If a company owes you money and has refused or neglected to pay the debt, you may apply to wind it up by presenting a petition to court for that purpose.

A winding-up petition is usually presented by a creditor on the grounds that the company cannot pay its debts and this has to be proved to the court.

More details can be found at www.insolvency.gov.uk