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Bad management blamed for 56% of corporate insolvencies
Wednesday 14th July 2010Incompetence or bad management of company directors causes 56% of corporate failures, while nearly 40% of businesses could have been saved if professional advice had been sought earlier, according to a poll of insolvency experts carried out by insolvency trade body R3.
Commenting on the results of the poll, R3’s President Steven Law said:“Regardless of the economic circumstance, no business will survive with poor management in place. I have seen a good workforce let down and sometimes laid off due to management which do not admit and correct their mistakes.”
R3’s research also reveals that a further 60% of insolvency practitioners think the UK’s insolvency regime is overly forgiving towards directors who fail and over half think all directors should receive mandatory financial education before they even open a business.
However, R3 members believe there are some lessons that can be learnt from the experience as 74% of insolvency practitioners believe corporate failure can drive directors to be more successful. A staggering 84% of IPs also believe it can heighten business acumen.
Steven Law added: “For some directors, the experience of failure can clearly drive them onto greater successes, but I would share concerns that the current regime is, if anything, too forgiving to directors who have failed. Clearly it would not be practical to educate every director before they are appointed, but there must be enough checks and balances to ensure that directors of failed companies should not put creditors and jobs at risk if they are allowed to repeat their mistakes.”
Melanie Giles, insolvency expert and director at Philip Gill & Co, agreed with the findings of the poll, saying: “In my experience, it is the inability of management to adapt to changing marketplaces, coupled with an inability to explore new opportunities, which is a leading contributor to corporate failure. This is particularly apparent in owner/managed or traditional family businesses, where directors refuse to acknowledge or adapt to change – often at the expense of profit, and ultimately creditors and employees.
“Business failure is said to be part of an ongoing education which can add strength to managers and directors in new ventures – and it is clear that hard lessons can be learned at the coalface, which will benefit a resurrected or new-styled venture. This must be balanced, however, with harsher penalties and closer ongoing monitoring of repeat offenders.”
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