Is the UK in or out of recession?
Well, we seem to have escaped a triple-dip recession: GDP for the two quarters has risen by 0.3%. If the economy had shrunk again in the first quarter of this year, that would have plunged the UK into its third recession in the past five years, an unprecedented triple-dip. However, this is hardly dynamic growth so lenders should remain alert to signs of insolvency. The below are some of the earlier indicators:
- A breach of one or more financial covenants in the facility agreement between the borrower and the lender;
- An overdraft that constantly languishes at (or above) its limit;
- A delay in the auditors signing off on the annual accounts (perhaps because the auditors wish to include an emphasis of matter or, more seriously, feel unable to sign off the accounts on a going concern basis);
- Late or missed repayments;
- A request to reschedule or restructure the facilities.
If the problem is not addressed there will inevitably follow the receipt by the borrower of court claims, judgments in default, statutory demands, the threat of winding up and perhaps winding up itself. The general rule is that the more proactive the lender in reacting to the warning signs (by for example commissioning an independent business review) the better it will safeguard its position. So please do not hesitate to get in touch if you have concerns regarding a borrower in your portfolio.
For further details on any of the issues covered in this update please contact Angela Stallard, Partner in Corporate and Commercial Department on 020 7583 2222 or firstname.lastname@example.org
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