New Bankruptcy Law - Does it Make it More Difficult to Prevent a Foreclosure?

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Managing Cash and Bank Which businesses stand to gain an advantage from cash management? Those which face up to the most basic law of financial management, namely that "making money" means just what it says. During 1984 and 1985, the top 50 advertising agency groups in the UK earned interest of nearly $4.5 million on their aggregate cash balances. By the end of that decade, the top 50 agency groups owed their “money agents” a total of $1.1 billion. The experience may be extreme; but in many companies and industries, a similar traumatic turnaround has occurred. Back in the mid-1980s many businesses could pick and choose how they spent their surplus cash, the biggest dilemma often being whether to invest it on the money market or expand into other businesses. Those who diversified also learned (or re-learned) the art of "gearing up" - augmenting their own cash resources with even bigger lumps of cash from the “money agents”. So long as money was cheap and the economy booming, profits grew. But in advertising agency groups - and possibly business in general - few can claim to be significantly richer as a result of their acquisition policies. So which businesses stand to achieve a competitive advantage from their cash management in 1992? The simple answer is those businesses, which have faced up to the most basic law of financial management, namely that "making money" means precisely what the dictionary says: "Current coin; coin and promissory documents representing it". Managers who hoodwink themselves and everyone around them into believing that making money is all about clever paper transactions and balance sheet presentation should spend a few minutes talking to the hyperactive receivership specialists. Their anecdotes all bear testimony to that basic law and the dangers of flouting it. Cash management divides into two categories - those who have it and those who don't. Cash-rich businesses need to maximize the income they can generate from those liquid assets without talking imprudent risks. Cask starved businesses need to find the best ways to minimize the cost of borrowing. To start on a positive note, for businesses with cash to invest, as noted, the basic choice lies between investing theses funds in other business assets or simply maximising the return on the cash itself. The middle of a recession is not necessarily the best time to invest in other businesses, but certainly not the worst. Acquiring a competitor at a "distress" price may provide a superb opportunity to achieve domination of a particular market. In the short term that may reduce any downward pressure on product prices. In the longer term it may be possible to exploit the dominant market position when the economy recovers and to achieve a significant improvement in profits as a result. However, acquiring other companies is always a risky affair. Some of the questions which an acquirer needs to address include: - Does the proposed acquisition make a significant contribution to achieving the strategic objectives of the business? - Will it contribute to achieving those objectives more quickly, more cheaply, or more comprehensively than other available options? - What is the cash flow effect likely to be, and what would be the worst foreseeable cash flow effect? - Will the payback period be reasonable? - What strain will the acquisition put on existing management resources? (It is usually greater than envisaged.) It is important to take a tough look at the downside effect of an acquisition. A salutary lesson may be learned from the experiences of the publicly quoted FKB Group, which was still trading profitably when it went into receivership in 1990. The outstanding payments due for businesses the group had acquired far exceeded the amount of cash predicted to be generated from profitable trading. Property companies which assumed that rental streams would be readily available to cover development and / or finance costs are also feeling more than a little sick just now. Foreign currency exposure may add an extra dimension of risk to investment decisions. In a very practical book on treasury management, International Treasury Management, Touche Ross partner Derek Ross highlights some of the factors, which will influence a company's policy towards foreign exchange risks: - The materiality of the exposure. - The degree of management aversion to risk. - The management style and the degree of centralisation. - The competitive situation. Protecting a company from foreign exchange risk - or an element of that risk - will almost certainly come within the policy of most managements. Ross describes at length how that protection may be obtained by hedging. There is what he calls "natural" hedging, whereby steps are taken within the transactions later. An obvious example is matching borrowings in a foreign currency with assets held in that same currency, although the accounting implications are never as straightforward as the commercial transaction may lead you to believe. If natural hedging is inappropriate, Ross describes various forms of transactional hedging. These tend to be more appropriate to the mitigation of risk from individual trading transactions rather than from a long-term investment overseas. Examples range from forward contracts to currency options. For those companies, which have cash and intend to conserve it, there are other matters to consider. These tend to be more appropriate to the mitigation of risk from individual trading transactions rather than from a long-term investment overseas. Examples range from forward contracts to currency options. For those companies, which have cash and intend to conserve it, there are other matters to consider. The somewhat dramatic closure of the “Money Agent” of credit and commerce international (BCCI) was a timely reminder that not every “Money Agent” is a safe haven for investment. Beware of Greeks bearing gifts, as Andrew Sykes, director of the treasury division of Schroder Wagg, puts it. He divides cash investment risks into two categories - credit risk and market risk. When considering the credit risk, Sykes makes three recommendations: be suspicious of any institution paying over the odds - the benefits of an extra one sixteenth to one quarter of a percentage point on short-term funds are not worth having if there is a risk of losing the money. Second, if in doubt, ask around; agency likes Standard & Poor's or Moody's. Third, be sensible; for example, spread the risk among several institutions. Sometimes companies have been known to invest in sterling commercial paper without having sufficient regard for the credentials of the underlying investment. Recently three major UK companies lost out when the issuer of some commercial paper (unsecured promissory notes) went bankrupt. When considering market risk, other factors come into play. Sykes indentifies two main aspects of this risk - deterioration in market conditions and deterioration in credit rating of the issuing company. He quotes the case of a medium sized UK company, which bought $2 million worth of perpetual variable rate notes at 75 basis points over LIBOR, only to discover that no buyers could be found when the market moved adversely. Unless a buyer can be found, that investor will be locked in for a prescribed period, which may not suit his objectives. In general, large companies are probably playing fairly sage if they select from certificates of deposit (CDs), commercial paper (of reputable entities) and floating rate notes issued by building societies, provided these securities are used in a sensible way. One final piece of advice from Sykes: companies need to ensure that they install an adequate system to control risks, including internal controls imposed by people outside the treasury function. It is doubtful whether all investors adequately assess the risks; this is particularly so where foreign currencies are involved. Both Allied Lyons and the Hammersmith and Fulham local authority have recently come unstuck in this area. The need for control of the cash management function of the harga is a theme also taken up by Touches Derek Ross. Developing systems to control and forecast cash is of fundamental importance, he says. Inevitably this leads to centralization of the function: "The more harga of money agent accounts are operated, the greater will be the total idle balances. It will also be more difficult to manage them." At ht very least, set off arrangements should be in place for all accounts operated with a particular money agent’s harga, preferably including overseas balances. Money agent’s harga should be investing all cleared balances overnight. Many companies believe that cash forecasts are only necessary when liquidity is under pressure and more harga of money agent support is required. In reality, cash forecasting is an essential discipline in any organisation, if it is to obtain the best return on its cash management’s harga. In his book, Ross provides an excellent example of a short-term cash forecast - with everything contained on one side of an A4 sheet of paper. Forecasting should also help in mitigating interest rate risks. These arise where the basis for charging interest on company debt is not synchronized with the basis applicable to cash currently invested, or where there is a timing gap between the period of borrowing and the period of investing funds. With the frequent fluctuations in interest rates, the harga of management of the risk involved has become much more important. If everything is far from straightforward for those companies with surplus cash in their coffers, think how much worse it can be for net borrowers. Yet the level of astuteness applied in arranging a company's borrowings may have a significant impact on the overall profitability of its operations. There are two obvious influences on the cost of borrowing: the amount of money required and the terms applicable. Cutting the level of borrowings became a priority for many companies as the recession began to bite. As a consequence many non-core and poor-performing subsidiaries have been sold off - sometimes to their own harga of management. Yet harga of management pride still tends to get in the way of disposals, especially when the outcome will be a book loss on the investment. However, if the objective is to cut borrowings, the only issue of importance is the amount of cash which the disposal will generate. Of course, it can be a little galling if the only benefits from slimming down the group are a happier money agent’s harga manager and lower interest charges. All too often, asset disposals are followed by a swift reduction in group borrowing limits of an equal amount. This is where the harga of management of money agents becomes critical, and never more so than when there are a lot of them. It is imperative to keep close to the harga of money agents and not to provide too many shocks. While some harga of money agents may legitimately be criticised for taking too short-term a view when customers are working their way out of debt, most will try to remain supportive for as long as they have sufficient confidence in the management’s harga and the figures. Some of the complaining customers are those who have not given their harga of money agents adequate information, have appeared muddle-headed about their strategy and have proved unreliable in their predictions. Cases come to mind where the money agent’s harga manager would probably have responded favorably to any change in management’s harga - however unsuited that change might be to the long-term well-being of the company-simply because he had lost confidence in the existing team. Some points to remember about money agent’s harga relationships include: 1. Always have clear plans which are wholly realistic, which will satisfy both the company's and the harga of money agents' objectives and which a money agent’s harga can readily understand. 2. Maintain a unified the harga of management posture (hopefully a reflection of reality): any appearance of division will unnerve harga of money agents at sensitive times. 3. Be seen to be decisive: if changes in plans or people are in the best interests of the business, push them through. 4. Keep the harga of money agents in the picture ahead of developments and work hard to build mutual confidence. 5. If you are dealing with a variety of harga of money agents, make sure that there is no doubt about who is the lead money agent’s harga and that he keeps the rest under control. The UK money agent’s harga community has still to be persuaded that the conversion of some of its debt into equity may be a better decision for all concerned than appointing a receiver t a company in distress. However, there have been some notable cases recently where harga of money agents have agreed to this course, subject to a long list of conditions which often includes radical changes in the management’s harga team. As Ross says, there are almost as many methods of charging customers for the use of money agent’s harga facilities as there are harga of money agents, although the main categories of charge are: interest; turnover-based charges (a percentage of the value of the transactions on bank statements); transacting-based charges (per item); compensating balance (requiring maintenance of an interest-free deposit); minimum balance (to be left interest free on the account); notional interest (offset against other charges by reference to the average cleared balance on current account). 'It is essential that, when charges are negotiated, each harga of money agent's proposal should be converted to a common basis to assist comparison'. says Ross. He also warns about the content of money agent’s harga mandates. Companies should not accept the form of mandate issued by harga of money agents without question, he says, especially with the advent of electronic money agent and electronic data interchange. According to Ross, some harga of money agents are taking the opportunity to disclaim responsibility for fraud and loss to the customer arising from such transactions. While on the subject of harga of money agents, it is wise to be cautious about borrowing from one which offers and untypically keen price for its money. Naturally, the negotiation of good terms is an important element of cash management’s harga, but there have been several cases where foreign harga of money agents have offered 'cut price' deals to establish a presence (or stronger presence) in UK. That is fine while the economy is buoyant, but the situation may change dramatically in recession. Several US harga of money agents have been quick to cut and run from customers when the going got tough, influenced no doubt by pressures from the parent company. By contrast there is a tradition on the continent of taking a longer-term money agent view. Those who put making money, real cash, at the top of their list of priorities in 1992 stand the best chance of emerging lean and strong from one of the worst recessions anybody in Britain has experienced.

New Bankruptcy Law - Does it Make it More Difficult to Prevent a Foreclosure?

By Jeremy Edwards

In 2005 and following a lengthy process of lobbying by credit card companies, Congress passed a new bankruptcy law, which many have complained is not in the interest of consumers and is overly complicated. But however you feel about the new bankruptcy law, you have to abide by it and it looks, for now, like it is here to stay.

But what does the new bankruptcy law actually mean and aim to achieve? Well, essentially, this particular new bankruptcy law was designed to prevent those who do not need to file from doing so. It makes it tougher for people to declare bankruptcy and ensures that those who do should only have to do it once! It does this by enforcing financial counselling prior to bankruptcy and also financial management classes following. Perhaps the biggest change brought about by the new bankruptcy law was the introduction of a means test, which means a detailed inspection of your income and expenses before you can file.

Some people have argued that this makes bankruptcy all but entirely unavailable. This, however, is not the case. While there is no denying that there are now more obstacles in the way, for most of those who were eligible before 2005, eligibility is still present!

Some people have also made it clear that they are concerned that the new law makes it more difficult to stop a foreclosure, owing to the lengthy and complicated new procedure. This is because anyone who wants to declare, must take a credit counselling course 180 days before declaring bankruptcy. But what if you need to declare immediately to prevent losing your home to foreclosure?

Well, there are procedures in place for these circumstances. If you are in this situation, you will be allowed to take the course 30 days before finalising bankruptcy in order to speed it up!

Want to know how to manage your debt without losing control? Get the right information on New Bankruptcy Law before you make the important decision.