We picked up this story that ran on Retail Week earlier today and, in light of Sovereign Finance chasing alleged debts from small businesses, such as the repairers that carried out service work on behalf of MFI, it seemed very fitting that it should be published here.
Bear in mind as you read this story that many small repair businesses, mostly family owned and ran or sole traders were not left out of pocket once by this debacle, but twice. Now, to add insult to injury the administrators for MFI are chasing payments for spares used to carry out that service, a third time around loss for many.
It is not inconceivable at all that this could well lead to the closure of some small businesses through no fault of theirs whatsoever.
The fact of the matter is that this work was done on behalf of MFI’s customers and MFI were to pick up the tab for that work. Even insured products have led to a loss with some insurers refusing to settle invoices for their customers as they say they had a deal with MFI. The spares for which payment is being sought now would almost exclusively have been used to repair faulty appliances that were under warranty to MFI or an insurer that MFI had some sort of deal with. Irrespective, the fact is the people that actually did the work have not been paid for it!
Now, in the worst recession since the 1930’s these small businesses get another kick in the teeth from the administrator and could possibly be forced or tricked into paying money to them that they cannot afford in the current climate.
It seems to have now emerged however that the practices used in this affair are being called into question by MPs.
According to Retail Week, a report by the Business & Enterprise Committee into the actions of the Insolvency Service has found that public confidence in insolvencies would be damaged “unless prompt, robust and effective action” is taken to ensure pre-packs are “transparent and free from abuse”.
The MPs have highlighted “Phoenix” pre-packs in particular, this is the term used to describe where an existing management buys back the business normally following private negotiations with an insolvency practitioner.
The management of MFI bought back the business from administrators last year only months later, leaving creditors (many small businesses) out of pocket with virtually no hope of ever recovering the losses.
The report found that these kind of administrations lead to “understandable concerns about illegitimate, self-serving alliances between directors and insolvency practitioners”. It said the Insolvency Service is at risk of “real reputational damage” if the situation is not addressed. In other words, the practice is at best immoral and, if not illegal then it should be made to be so.
The Committee found unsecured creditors, where the creditor has no insurance on the debt, fare worse during a pre-pack, recovering 1 per cent of their debts on average, compared to 3 per cent as part of a standard business sale.
In January, the Government imposed a more transparent regime for phoenix deals, but the Committee warned if it does not prove effective, it will be necessary to “take more radical action, possibly by giving stronger powers to creditors or the court”.
The Insolvency Service is an executive agency of BERR, primarily funded by fees for its services. It is designed to administer and investigate the affairs of bankrupts, of companies and partnerships wound up by the court, and establish why they became insolvent.
Meanwhile threatening calls are being made to small businesses around the UK that owed any money to MFI seeking payment by a company called Sovereign Credit Management, or so we believe who we assume are working for Zolfo Cooper, the administrator.
The full story as it unfolded, blow-by-blow is available in the trade only forums but you will need trade access to view this area of the site. Also in this thread is a healthy amount of help and advice in dealing with this debt management company.
For those of you that do not have access to the trade areas the advice is very simple. Do not pay this company any money at all, do not discuss matters over the phone with them and do not agree any terms whatsoever with them. Only deal with them in writing so that there is a written record that can be presented in court should the need arise.
Letters have been sent to Zolfo Cooper, the administrators, by some repairers and no response has yet been received, since January. Except that is for perhaps a threatening phone call from their collection agency.
We will of course keep everyone advised as best we can as information becomes available.
We have to wonder however just how much of this affair is actually legal and above board as it were. After all, when you consider the way in which MFI collapsed and then the events that have taken place since and, still are, who is receiving the money that is being demanded by these debt bullies? And, how many people are to suffer or businesses forced into administration due to their behaviour?
We don’t think what these companies are doing is legal. We don’t think that they are acting within the legislation on debt collection, certainly threatening phone calls are a no-no. And, some of the information being given by this company is just plain wrong, it’s misleading and intended to intimidate.
We openly challenge Zolfo Cooper and/or Sovereign Credit Management to communicate with the small companies that they appear to currently be persecuting.