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By Tom Winnifrith | Tuesday 16 December 2014
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
What is it like being Laurence Moorse, the FD at Quindell (QPP) as it goes down the swanny. I asked a gentleman now FD of a successful AIM listed company but who in a former life was parachuted into a quoted entity that he pretty soon realized was a can of worms, to explain. The experience still haunts him. His recollection will give you some idea of what life is like in Fareham right now.
What would my life be like? In a word, Shit! Actually 3 words. Unbelievably fucking shit. What would I be doing with my time? Simple, I would be focused on 2 areas (broadly defined and mutually overlapping) but here goes:
The Day Job
What do I mean by this? I mean the humdrum boring (compared to making acquisitions and dealing with ‘the City’) job of getting reliable information so I can manage cash. Not just regular board strategic forecasts but real down and dirty cash flows done every day (or more frequently if real crap is going down), looking at how I could gain cash flow advantage from every situation and rob Peter to pay Paul (occasionally picking the pockets of both in the process) just to survive.
Boring compared to coke and hookers in London but it does have the habit of keeping the lights on, paying staff and protecting shareholders and creditors. I would be obsessed with my debtor book and how any contracts could yield cash flow. Not just cash from timing issues (although that does help) but real cash. For cash flow forecasting could I rely on my accrued revenue? Well possibly but only if I was sure that the contracts were tight and that I had a predictable and reliable basis for predicting cash conversion from accrued revenue to hard cold cash. I would be exerting maximum pressure on my credit control teams (threats and rewards in equal measure) to try and sweat the asset.
Similarly I would be looking at my creditor and the extending tail. At that point who cares about the overall ledger, its what I need to pay this week (or today) to keep the lights on. Would be beating the crap out of my purchasing managers to extend terms, palm people off with promises of payment, anything, anything to keep the show on the road. Obviously those taking legal action would get to the top of the queue, particularly if I couldn’t find a way to dispute or them. Bonus points to any creditor who has issued a Statutory Demand (if debt is > £750 can apply to have the company dissolved if not paid in 21 days), that would certainly get them to the top of the list. I would be praying that HMRC (in these days of real time payments) would not be looking to enforce against any amounts owed, and that if I had arranged for a time to pay deal with them that I could keep them sweet. HMRC is like a social worker with an agenda, there is no reasoning and they simply don’t give a shit if they wind up a business and put 4000 people out of work.
The Living Nightmare (aka saving my arse
Coming home at night, few drinks to calm my nerves before getting home and logging on (don’t want to as only more shit to ruin my evening) but cant help myself despite the pleas of my family. What’s going through my mind (as I dream in spreadsheets with falling graphs on cash flows), then wake at 2am…….
How on Earth do I get the company (and more importantly myself) out of the mire?
I would look at all the information I had supplied to the board, bankers, auditors, NOMADs etc to see if there was any doubt as to its validity. Genuine uncertainty in a business is a given but is there anything I know was either negligent or misleading by act or omission in the information I had provided?
I would look at every email I had sent and would ask myself was this morally right? I would review every bit of financial information I had been provided with and had provided and every judgment call I had made. How would they look in the harsh light of an administrator or even worse in front of a hostile QC?
I would take some comfort if I knew I had been transparent, after all shit happens in a business and provided I had done my directors duties I would know I was relatively safe. However if I had skeletons in the closet I would be breaking out in cold sweats and reaching for the beta blockers, particularly if a forensic review was underway (and they will get you these forensic bastards, no concept of ‘materiality’ like a pushover auditor, they look for every single item they can find).
(2.45am) If I knew that I had been up to no good, would my team protect their reputations and whistle blow or would they wait to take their moment of vengeance? If the CEO to carry out anything had put me under pressure dodgy I would certainly be looking at this opportunity to come clean and save my own skin, fuck him, the cunt has made far, far more than me and I (or my family) will end up paying for the wanker.
Remember at this point (3.35am) my mind is starting to think of the worst, charges of false accounting, fraud, market abuse, Institute disciplinary committee (not involving my preferred form of spanking……) etc. I would be looking to see that if I had informed the NOMAD, audit committee, auditors of these issues (and they had chosen to do nothing) that I had at least tried to do my bit, that would at least give me a good defence (or at least better chance of one if I whistle blew to the Crown). Had I lied to the auditors on the letter of representation, had I not told them the whole truth, god forbid I hadn’t as it is criminal justice time?
Wrongful Trading. Fraudulent Trading (4.47am). The four (well technically three) words which keep floating around my head and could cost me my house and/or liberty. If this motherfucker goes bust am I on the hook to creditors? I would have insisted I would have taken formal insolvency advice (either from an IP or certainly from my lawyers). Whilst I may have no realistic net assets (let’s ignore good will as I cant make payroll with it) and cant pay my debts fall due (or anything like due) am I wrongfully trading?
Well not necessarily, the lawyer says that even if these are the case, if there is a reasonable chance that creditors can avoid an insolvent liquidation we can keep going. They said that for instance if the company was being sold and due diligence was underway then that realistic prospect existed and I was OK on wrongful trading. Even if the deal fell away, courts would usually see that a management team who tried to do the right thing and look for an alternative would have a couple of weeks to try and get something else in place, after all it is in the public interest for creditors and staff not to be shafted as in a liquidation. The lawyer of course covered Wrongful Trading (i.e. if we knew we were shafting our creditors), I just hoped that my pleading emails with some of them hadn’t gone to far….
Its now 6.15 am. I am dog tired. Need to get up in 15 mins. Been like this for months. Need to relax, Mrs is lying there…. I really want to but with all this stress it just doesn’t work like it used to……
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