Wilsons of Kinver - merged topic

[magpie patrick]

These two sentences sum up the entire problem perfectly.

 

They run out of cash because they borrow too much because they have been convinced by / have persuaded / their accountants that their assets are worth more than they really are.

 

The assets should have been valued at what they will fetch in a liquidation - which would simultaneously remove all the stigma from those who buy from liquidators.

 

In another thread you asked that we praise you when you got it right

 

Nail, head, hit firmly with hammer, will that do?

[Ally]

Not sure anyone has actually defended them as such, just pointed out that we don't know all the facts, and perhaps therefore should not judge.

[sebrof]

In another thread you asked that we praise you when you got it right

 

Nail, head, hit firmly with hammer, will that do?

 

Robin's head? Yes, fine.

 

A lot of businesses that are now teetering on the brink made investments five years ago that looked perfectly sensible at the time.

 

If businesses don't invest, where will employment come from?

 

We all rely on entrepreneurs taking risks, and sometimes, as now, those risks will turn bad, without there necessarily being any incompetence or dishonesty on the part of the owners.

 

If it were not for people being prepared to take risks, we'd all still be in caves - and there certainly wouldn't be any canals.

 

Not sure anyone has actually defended them as such, just pointed out that we don't know all the facts, and perhaps therefore should not judge.

 

It seems most appropriate to have an ally called Ally!

[Ange]

These two sentences sum up the entire problem perfectly.

 

They run out of cash because they borrow too much because they have been convinced by / have persuaded / their accountants that their assets are worth more than they really are.

 

The assets should have been valued at what they will fetch in a liquidation - which would simultaneously remove all the stigma from those who buy from liquidators.

 

I don't know enough about this particular company to comment on the specifics but I would like to make two points on the back of this post:-

 

Firstly, accountants do not make up asset valuations, because they are persuaded by their clients. There are very clear rules which dictate the value of assets on the balance sheet that accountants have to adhere to. I didn't study for five years and take copious amounts of exams merely to roll on my back and wave my legs in the air when a client "persuades me" of an asset value. I will tell them what the rules allow - that's it, end of story. The other suggestion, that accountants would convince their clients to inflate their asset value, baffles me. Why would they do that?

 

Secondly, if the suggestion is that a company's assets should be valued at liquidation value, when that company is a going concern, it is so ludicrous I can't even begin to explain why.

Edited June 23, 2011 by Ange

[cotswoldsman]

You do talk a lot of nonsense at times.

 

Companies only ever go broke for one reason - they run out of cash. They may have plenty of assets (as Rolls-Royce did when it was forced into liquidation in the '60s), but if you can't stump up the cash an impatient bank can put you under.

 

On a winding up, the assets typically realise much less than they would have done if the company had continued to trade. Work in progress, for instance, might be a significant asset for a business, but on a winding up it will make vastly less than the value it had while the company was trading. Half-built hull, anybody? A piece of plant, made specially for the company, or the fixtures and fittings, will often be worthless.

 

That is why, so often, there is so little left for the creditors.

 

I have no idea what the underlying facts are concerning Wilsons, but I do know that you, on the evidence shown, know less than nothing about this subject. You might be right to assume incompetence or skullduggery, or whatever is festering in your little mind, but you don't KNOW, and you should stop pretending you DO. The facts may well be very different from your wild imaginings.

 

Also, we are in the midst of a major economic downturn. There are lots of companies out there, employing staff, giving business to other tradesmen, paying taxes. They naturally try to keep going as long as possible, rather than throwing in the towel at the first sign of trouble. These people need our support, not your nasty whingeing.

 

I know company directors who are not sleeping well at the moment, and in some cases their biggest concern is the prospect of having to make loyal staff redundant. Not all business owners are the villains you think they are.

 

Seems like you do not like what I have said and that is fair enough as this is a debate. No I am not an accountant but I did run a business and unfortunately during that time had to put up with some bad debts.

 

Firstly I will deal with the issue of the Wilson figures as filed with company house.

 

The assets on the day of liquidation were £113,980 as per balance sheet (some of these assets were already pledged in other words secured by bank or finance companies) the liquidator has valued the assets available to non secured creditors at £62,259 against amount owing to non secured creditors of £297,821.

The filing with Companies House covers 8 pages and yes I just picked the headline figures for my post as I was not going to re type 8 pages.

 

I don't think I have said there was skulduggery my anger is direct at laws that allow this sort of thing to happen.

I do not think there was a big bad debt before liquidation partly by the nature of the business being retail.

According to the filing work in progress was only £800 this does seem very low but as we know certainly from another post on here it would appear that some of the work in progress appears to have been completed by another company (new company) I am not again saying skulduggery but a bit of a mystery how another company ended up with the templates from a order placed with Wilsons.

I am fully aware we are in a major economic downturn and I am sure that the creditors of Wilsons will be even more aware of this fact.

Again I do not think I have ever said that all business owners are villains I know they are not.

I am also aware that cash flow is king when running a business but as Wilsons were only carrying just over £10,000 in stock at the time of liquidation I can not imagine this was the problem in this case.

[cotswoldsman]

 

I have no idea what Cotswoldman's business experience is, but he didn't seem to learn a lot along the way. He sees no irony in gloating over having purchased trucks at a knock-down price in a liquidation sale, and then waxing indignant about Wilsons not having many assets left upon liquidation. Can he really not see the connection?

 

I suggest we get Messrs Brooks and Gibbo to examine his wiring.

 

Maybe I did not learn along the way but I managed to sell the business as opposed to going into liquidation. I did not gloat I stated a fact that I had bought trucks at auction from Butchers the one thing I did learn was that buying trucks cheaply was good business. Just as a side most of these trucks were owned by finance companies where the finance company had not been paid by the company in liquidation.

[cotswoldsman]

Yes, but maybe there WAS a massive bad debt one month earlier, which had been written off - perhaps because another company went under.

 

You just don't know, and it is disgraceful that you pretend that you can infer anything from the liquidators' figures.

 

You know NOTHING about this, so please desist from your almost fraudulent speculations. Fraudulent, in that you are pretending to have knowledge and expertise that in fact you don't.

 

By all means talk generally about failed companies starting up again, but leave Wilsons out of it until and unless some real facts emerge.

 

 

 

 

 

I do not know if there was a massive debt but just seems unlikely as this was a retail business and had a bad debt been written off this would be done in the year end figures.

I can certainly infer things from liquidators figures as they are fairly detailed and cover 8 pages.

Not sure how quoting figures available in the public domain means I have committed Fraud!!!!!

I am happy to talk about failed companies generally but this is a thread about Wilsons. No I am not aware of all the facts about Wilsons starting up again but I am aware of Wilsons templates being passed on to another company.

[Robin2]

It's hard to concentrate for laughing ... These are just two of many possible quotes ...

 

 

Robin 2, all businesses are always valued on a going-concern basis because, unless and until they fail, that is the most accurate valuation. Why, incidentally, do you think it is so right to acquire assets at less than their value, and thus further disadvantage the creditors?

 

 

Do you not see the contradiction in what you say. This going concern rule is nonsense. The things a company buys to support its business are costs. Most of them have no value to anyone else. By pretending they have a value in excess of their liquidation value businesses trick themselves into thinking they are wealthy. Cash is the only thing. If everything was paid for in cash by every business we would not be having this discussion.

 

 

I merely to roll on my back and wave my legs in the air when a client "persuades me" of an asset value. I will tell them what the rules allow - that's it, end of story.

 

 

You paint such a be-witching picture. To be more serious, how about accountants examining the value of their own rules? But then accountants, like every profession, have a vested interest in the status quo.

[cotswoldsman]

Following sebrofs posts I took the big step and big investment of £1 and purchased the last filed accounts of Wilsons dated 30 June 2010 to compare them with the figures filed for the liquidation. Again I can not cut and paste them. I have in this case just selected the figures that are of interest to me in this discussion.

 

Stock in hand 30 June 2010 £77,466 this is against stock in hand on liquidation £10.475 seems a big difference

Debtors on 30 June 2010 £47,780 against debtors on liquidation £30,247 so doubtful they had a big bad debt especially if you balance this against stock on liquidation.

Creditors 30 June 2010 £219,690

 

 

Robin 2, all businesses are always valued on a going-concern basis because, unless and until they fail, that is the most accurate valuation. Why, incidentally, do you think it is so right to acquire assets at less than their value, and thus further disadvantage the creditors?

 

 

 

On the point of assets Wilsons balance sheet for 30 June 2010 shows a valuation of goodwill of £53,627 I excluded this from my figures as it is completely meaningless as an asset and again an example of why the law needs changing. How can anyone come up with a figure of £53,627 as goodwill and then include it on a balance sheet. Again for the sake of clarity I am not having a go at Wilsons as this is perfectly legal but is a figure that means nothing until someone buys the business and then decides what they want to pay for the goodwill. This is a figure made up by an accountant and in the case of a liquidation is worth NIL

[sebrof]

Following sebrofs posts I took the big step and big investment of £1 and purchased the last filed accounts of Wilsons dated 30 June 2010 to compare them with the figures filed for the liquidation. Again I can not cut and paste them. I have in this case just selected the figures that are of interest to me in this discussion.

 

Stock in hand 30 June 2010 £77,466 this is against stock in hand on liquidation £10.475 seems a big difference

 

Yes, this is what happens when a business goes into liquidation. Half-completed work will have been valued at cost in 2010, and is now worth almost nothing.

 

This is the point that you still seem incapable of grasping. Liquidation values bear no relation to going concern values.

 

A good example is a commercial lease. While the business is running, the rent is charged to the accounts as it arises. But in a liquidation, the full liability for the remainder of the lease has to be recognised. Such liabilities are referred to in a note to the accounts, but they do not form part of the balance sheet while the company is continuing to trade.

 

On the point of assets Wilsons balance sheet for 30 June 2010 shows a valuation of goodwill of £53,627 I excluded this from my figures as it is completely meaningless as an asset and again an example of why the law needs changing. How can anyone come up with a figure of £53,627 as goodwill and then include it on a balance sheet. Again for the sake of clarity I am not having a go at Wilsons as this is perfectly legal but is a figure that means nothing until someone buys the business and then decides what they want to pay for the goodwill. This is a figure made up by an accountant and in the case of a liquidation is worth NIL

 

You are so obtuse it's laughable. The goodwill figure was not made up by an accountant; it was created, most probably, when Wilsons bought

another business, and paid more than the value in the balance sheet. This happens all the time when companies are bought, because a profitable company is usually worth more than its assets, sometimes hugely more. The difference is goodwill. You actually acknowledge this yourself in the part I have put in bold above.

 

Goodwill doesn't stay on the balance sheet for ever. It is written off over a period, perhaps five years. If you invest another pound, and look at an earlier year, you will almost certainly see a larger figure. And if you look at the notes to the accounts you will see what they are doing to write the goodwill off.

 

God knows how you became a company director because your understanding of accounts, and of the role of accountants, and of directors' responsibilities, is frankly lamentable. As a director, it is your legal duty to understand these matters.

 

Robin, the reason companies don't write off all their expenditure to zero as they go along is that then they would have no idea whether they were making any money or not. Simplifying massively, expenditure is treated in one of two ways. A salary, or an electricity bill, for instance, has no ongoing value, so it is written off in the P&L account immediately. However, a welding machine, say, will be given an expected life-span (maybe five years), and then written off over that period.

 

So it will show up in the balance sheet at 80% of its cost in the first year, 60% in the next year, and so on. And that same 20% will appear as a cost in the P&L account.

 

If you fully wrote off the welding machine in the first year you would be understating both the profit made and the company's value.

 

When assessing the risk of doing business with a company, and granting them credit, you look at whether they are properly financed. If they are profitable and paying creditors on time and have cash in the bank (or other good, liquid, assets), then they are a reasonable risk. But unless they have a balance sheet rich in property assets, you usually take the actual balance sheet value itself with a pinch of salt because you know that it would be worth massively less if the business were to be wound up.

 

Coming back to you, Cotswoldman, I am sorry you chose to talk about Wilson's accounts, because there is a valid discussion to be had on the way in which liquidators perform their duties (a liquidator's auction may be quick, but it's not necessarily fair, as somebody suggested earlier. Selling an item like a truck at below market value is unfair to the unsecured creditors).

 

There is also a valid discussion to be had on the Phoenix syndrome, and I very much sympathise with your stance on this. In my view, a director of a failed company should automatically be barred from both being a director AND managing a business until he has demonstrated to a tribunal that he was not at fault.

 

This (disqualification and barring) has happened in the case of one of the HBOS directors, I believe, though (IMO) it should have happened to all of them. People such as Fred Goodwin and Andy Hornby (not to mention Brown) have cost every man, woman, and child in the country thousands of pounds. In fact, they are probably responsible, ultimately, for the plight of Wilsons. Following the collapse of the banking system, the rate of business failures in the UK soared, and will continue to run at a high level for at least the next couple of years.

 

I'd also like to see bank directors having to be qualified bankers. Neither Goodwin nor Hornby knew anything about banking, as soon became clear.

[alan_fincher]

The goodwill figure was not made up by an accountant; it was created, most probably, when Wilsons bought another business, and paid more than the value in the balance sheet. This happens all the time when companies are bought, because a profitable company is usually worth more than its assets, sometimes hugely more. The difference is goodwill.

Would that be the a figure taken from the last time they went out of business, then started a new company then ?

Edited June 23, 2011 by alan_fincher

[Robin2]

 

This is the point that you still seem incapable of grasping. Liquidation values bear no relation to going concern values.

 

 

Robin, the reason companies don't write off all their expenditure to zero as they go along is that then they would have no idea whether they were making any money or not. Simplifying massively, expenditure is treated in one of two ways. A salary, or an electricity bill, for instance, has no ongoing value, so it is written off in the P&L account immediately. However, a welding machine, say, will be given an expected life-span (maybe five years), and then written off over that period.

 

So it will show up in the balance sheet at 80% of its cost in the first year, 60% in the next year, and so on. And that same 20% will appear as a cost in the P&L account.

 

If you fully wrote off the welding machine in the first year you would be understating both the profit made and the company's value.

 

 

I am not an accountant but I do have a general understanding of the subject.

 

The problem I have is that you continue to illustrate your argument with just the contradictions that totally undermine it.

 

The reason liquidation values bear no relation to going concern values is because the going concern values are wrong. The liquidation values are decided by the market (usually at an auction). The going concern values are "made up" by the company and its accountants.

 

You know you are making money if, after you have paid for everything, you have more cash in the bank at the end of this year compared with last year. You do NOT know if you are making money if you are comparing the progress of estimated values year on year. For example I would be surprised if you could sell the hypothetical welder for 80% of its cost price on the day after you took delivery of it - never mind 12 months later.

 

If all of the accounting was done on a cash basis with no thought for going concern values the shareholders could expect a nice surprise on liquidation - when they got an unexpected £200 for the welder. A sharp contrast to the current situation.

Edited June 23, 2011 by Robin2

[cotswoldsman]

 

 

 

You are so obtuse it's laughable. The goodwill figure was not made up by an accountant; it was created, most probably, when Wilsons bought

another business, and paid more than the value in the balance sheet. This happens all the time when companies are bought, because a profitable company is usually worth more than its assets, sometimes hugely more. The difference is goodwill. You actually acknowledge this yourself in the part I have put in bold above.

 

Goodwill doesn't stay on the balance sheet for ever. It is written off over a period, perhaps five years. If you invest another pound, and look at an earlier year, you will almost certainly see a larger figure. And if you look at the notes to the accounts you will see what they are doing to write the goodwill off.

 

 

 

I am perfectly aware of those two points. My point is that goodwill is a figure that is meaningless and should not be allowed in the balance sheet. If you decide to buy a company and pay a multiple of the EBITDA figure then the difference should not be in the balance sheet as an asset. If anything it becomes a liability until such time as you have traded out of that extra amount paid.

 

 

Coming back to you, Cotswoldman, I am sorry you chose to talk about Wilson's accounts, because there is a valid discussion to be had on the way in which liquidators perform their duties (a liquidator's auction may be quick, but it's not necessarily fair, as somebody suggested earlier. Selling an item like a truck at below market value is unfair to the unsecured creditors).

 

There is also a valid discussion to be had on the Phoenix syndrome, and I very much sympathise with your stance on this. In my view, a director of a failed company should automatically be barred from both being a director AND managing a business until he has demonstrated to a tribunal that he was not at fault.

 

This (disqualification and barring) has happened in the case of one of the HBOS directors, I believe, though (IMO) it should have happened to all of them. People such as Fred Goodwin and Andy Hornby (not to mention Brown) have cost every man, woman, and child in the country thousands of pounds. In fact, they are probably responsible, ultimately, for the plight of Wilsons. Following the collapse of the banking system, the rate of business failures in the UK soared, and will continue to run at a high level for at least the next couple of years.

 

I'd also like to see bank directors having to be qualified bankers. Neither Goodwin nor Hornby knew anything about banking, as soon became clear.

 

Yes what assets are sold for by a liquidator is a discussion that can be had but my argument is that company law in this country allows companies to trade when they have no chance of ever paying creditors.

 

I seem to remember that we had a member on this forum at one time called PAV he was having a boat built by I think by Severn Valley Boats he paid them over £20,000 (I think that was the figure) for the next stage of work to be carried out and I think that figure included the engine. The company went into receivership the day after his cheque cleared and caused him all sorts of problems. That is the sort of thing I am angry about.

[sebrof]

I am not an accountant but I do have a general understanding of the subject.

 

You're not an accountant and you have absolutely no idea what you are talking about.

 

The problem I have is that you continue to illustrate your argument with just the contradictions that totally undermine it.

 

The reason liquidation values bear no relation to going concern values is because the going concern values are wrong. The liquidation values are decided by the market (usually at an auction). The going concern values are "made up" by the company and its accountants.

 

The purpose of a company is to make money. The purpose of accounts is to tell the owners how much money they are making, NOT what the company would be worth if liquidated. Try to get your head around that simple fact.

 

The owners employ accountants to prepare accounts and appoint and pay auditors to check them. Whether you, as an outsider, like the way accounts are produced is utterly irrelevant. It's nothing to do with you, unless you are an owner. And accountants don't make up numbers. Assets in a balance sheet are stated at cost less depreciation, or net realisable value (as a going concern) if lower.

 

You know you are making money if, after you have paid for everything, you have more cash in the bank at the end of this year compared with last year. You do NOT know if you are making money if you are comparing the progress of estimated values year on year. For example I would be surprised if you could sell the hypothetical welder for 80% of its cost price on the day after you took delivery of it - never mind 12 months later.

 

This illustrates your total lack of understanding. Life is much more complicated than your shallow and facile assertions suggest. You are not producing accounts for creditors, you are producing them to tell owners how much money they are making, and if a welding machine has a life of five years it is appropriate to charge 20% of the costs to the P&L every year.

 

If all of the accounting was done on a cash basis with no thought for going concern values the shareholders could expect a nice surprise on liquidation - when they got an unexpected £200 for the welder. A sharp contrast to the current situation.

 

The present sophisticated methods of accounting have developed over many years because more intelligent people than you have found that simple cash accounting doesn't work for anything more than a whelk stall.

 

And by the way, people don't start companies in order to put them into liquidation.

[cotswoldsman]

 

And by the way, people don't start companies in order to put them into liquidation.

 

Now that could be a another discussion!!!!!!!!

[WotEver]

Now that could be a another discussion!!!!!!!!

MG Rover anyone?

 

Drat! Now I'm going to have a post removed

 

Tony

[cotswoldsman]

MG Rover anyone?

 

Drat! Now I'm going to have a post removed

 

Tony

 

Please do not get me started on that one......................

 

Edited to say that is a company that was brought for £1 and showed £3 million as goodwill at the time of receivership!!!!

Edited June 23, 2011 by cotswoldsman

[sebrof]

I should just like to mention that notwithstanding my rather trenchant criticisms of Cotswoldman's posts, he has sent me a very courteous PM.

 

Your accounting knowledge may be a little suspect, John, but you are a gentleman, Sir!

Edited June 23, 2011 by sebrof

[HelenF]

I agree with Dor's sentiment.

Why sympathise with any trader who liquidates the business then sets up again straight away having taken advantage of its 'limited liability' status?

My sympathy would lie with any creditors who have not been paid. This may include me, as a taxpayer if the VAT & PAYE haven't been paid over.

 

Interesting that their old website makes no mention of the 'limited' company status, yet they are listed as such on canaljunction. BTW companies are obliged to state their full trading name and status on their website.

 

Well done cotswoldman for the FACTS!

[Ange]

I am not an accountant but I do have a general understanding of the subject.

 

 

 

I am an accountant and you clearly have no understanding of the subject.

 

Sebrof's post explains why eloquently enough - I've got nothing more to add.

 

Life's too short.

[WJM]

Assets of £62k, debts of £333k - including a whopping £185k to the revenue!!! That is not just getting it wrong, that is getting it wrong big time!!! I struggle to think how a business that size could possibly manage to run up unsupported debts like that. It looks like serious management incompetence over a long period. If the original management are still involved then perhaps people should take their business elsewhere.

[deletedaccount]

Robin's head? Yes, fine.

 

A lot of businesses that are now teetering on the brink made investments five years ago that looked perfectly sensible at the time.

 

If businesses don't invest, where will employment come from?

 

We all rely on entrepreneurs taking risks, and sometimes, as now, those risks will turn bad, without there necessarily being any incompetence or dishonesty on the part of the owners.

 

If it were not for people being prepared to take risks, we'd all still be in caves - and there certainly wouldn't be any canals.

 

 

 

It seems most appropriate to have an ally called Ally!

 

It's not much of a risk if you can simply bail out owing a ton of money you never have to pay back, is it?

 

Risks my arse.

Edited June 23, 2011 by deletedaccount

[carlt]

I wonder what happens when you're in a thread, during a thread merger?....

 

...It's like 'The Adjustment Team'

Edited June 23, 2011 by carlt

[dor]

Assets of £62k, debts of £333k - including a whopping £185k to the revenue!!! That is not just getting it wrong, that is getting it wrong big time!!! I struggle to think how a business that size could possibly manage to run up unsupported debts like that. It looks like serious management incompetence over a long period. If the original management are still involved then perhaps people should take their business elsewhere.

 

It would be interesting to know what the directors' pay and benefits were in say the last year.

[carlt]

It would be interesting to know what the directors' pay and benefits were in say the last year.

They probably took no salary in order to try and save the company.