Spat Over Woolworths

One year on from the demise and collapse of Woolworths the former Chairman, Richard North and former chief executive Steve Johnson, publicly criticised Deloitte's handling of the collapse.

They noted that Deloitte's acted as both adviser and administrator to Woolworths, and cited that this was a potential conflict of interest.

North and Jones feel that Deloitte's didn't back an emergency rescue plan by Woolworths' management team, because of its interest in the higher fees it would earn as administrator.

Deloitte's have been quick to fire back, they are quoted on City AM:

"Woolworths failed because it was losing money and had no cash.

It was the directors themselves, not the banks, who appointed Deloitte as administrators, based on the realisation that the company had run out of money and could not continue trading on a solvent basis.

We are never driven by the fees available but simply by the pure economics of the options for the creditors."

They have a point, re who appointed them.

I would ask why the directors, if they were concerned about a conflict of interest, appointed them in the first place and are only raising this issue now?

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Woolworths In Administration

As expected, Woolworths is now in administration. Deloittes, who are acting as administrators will keep the stores open and pay staff in the period up to Christmas; there are expressions of interest in the company.

However, this sorry state of affairs could have been avoided if certain lenders had not blocked the company's plans for selling the retail unit to Hilco.

The lenders who blocked the plans included Barclays, and Bank of Ireland subsidiary Burdale Financial.

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The Price of Dithering

The FT reports that Chancellor of the Exchequer, Alistair Darling, is considering a new plan to help resuscitate the housing market by allowing banks to swap new mortgage assets for government bonds.

The Treasury is formulating a plan to extend the Bank of England scheme, where high quality outstanding mortgage backed securities are exchanged for gilts to incorporate new mortgage lending.

Sir James Crosby, the former chairman of HBOS, is expected to propose the idea tomorrow when he delivers his interim report on the mortgage market.

It is a pity that it takes Labour's meltdown in the polls and the disastrous Glasgow bye election to motivate them to tackle this open sore. Had they moved with alacrity, in the final quarter of 2007 and at the beginning of 2008, the liquidity crisis could have been better contained.

Regrettably the government dithered, the result being that Deloittes are now warning that the economy is heading into recession, and may face a slump on the scale of the early 1990s.

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Administrations Jump

Deloittes have published figures that show a 26% jump in UK business administrations, when comparing 2006 with 2005.

Neville Kahn, reorganisation services partner at Deloitte, said:

"Many businesses have shown signs of distress over the past year. Our research shows that the worst hit were in the financial services, hospitality & leisure and recruitment and business support services sectors. The overarching theme of increased costs appears to have hit a large number of the businesses.

In the financial and recruitment sectors we have seen an increased regulatory burden and in hospitality & leisure - a typically high cost environment – we have seen businesses punished by their thin margins when volatility occurs. Overall, the figures suggest the economy is not as healthy as it might seem on the surface."

The main sectors which saw increases in administration levels from 2006 to 2005 are:

-Recruitment and business support services saw an increase of almost 90%
-Hospitality and leisure businesses saw an increase of over 50%
-Financial services businesses saw in increase of nearly 50%

Lee Manning, reorganisation services partner at Deloitte, said:

"The costs associated with running an independent financial advisory business, such as FSA regulation and professional indemnity insurance, have increased significantly in recent years making it more difficult for the smaller businesses to absorb these costs."

Whether the culling of small firms is good news for the consumer is questionable.

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