FTOs - rumour vs. libel
Arse covering. As explained above.
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Pah...b@llocks. I coughed up my £95 for my annual membership at one place, next week it had folded. Never did see that money again. What about protecting potential "investors" hmmm....? I'd say that was tantamount to theft seeing as someone KNEW the **** was going to hit the fan...how can they not have known?
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It's rarely that clear cut Kalleh.
It is a fact (supported by widespread practices within the more aggressive parts of the debt collection business) that the vast majority of businesses that sink, with debts unpaid, were trading while insolvent prior to folding.
This makes the debts enforceable against the Directors, incidentally.
Not a lot of creditors bother because it's not worth doing for less than a few k (this will suggest how smart crooks get away with it over and over... basically you make sure you don't owe any one creditor more than that
).
There is an ethical argument about how far one should trade while knowing the debts cannot be paid of.
My position is that it is morally wrong to run a business, at any time, such that ALL creditors cannot be cleared. But few will agree, taking the more common position that creditors are taking a risk when extending credit and they know it, etc. I think this is bollox
But then, from the 30 years I've been in business, there is not one person who will say I treated them like ***t, and I quite like being in that position. If I took somebody for money, he will spend the rest of his professional life badmouthing me - just like happens to so many of the "colourful" characters in aviation.
If I was running a school I would put client deposits into a separate account and make sure there is always enough liquidity to refund all not yet delivered training.
It is a fact (supported by widespread practices within the more aggressive parts of the debt collection business) that the vast majority of businesses that sink, with debts unpaid, were trading while insolvent prior to folding.
This makes the debts enforceable against the Directors, incidentally.
Not a lot of creditors bother because it's not worth doing for less than a few k (this will suggest how smart crooks get away with it over and over... basically you make sure you don't owe any one creditor more than that
).There is an ethical argument about how far one should trade while knowing the debts cannot be paid of.
My position is that it is morally wrong to run a business, at any time, such that ALL creditors cannot be cleared. But few will agree, taking the more common position that creditors are taking a risk when extending credit and they know it, etc. I think this is bollox
But then, from the 30 years I've been in business, there is not one person who will say I treated them like ***t, and I quite like being in that position. If I took somebody for money, he will spend the rest of his professional life badmouthing me - just like happens to so many of the "colourful" characters in aviation.If I was running a school I would put client deposits into a separate account and make sure there is always enough liquidity to refund all not yet delivered training.
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IO540
I agree, I just wanted to add another perspective to the discussion. It could be that englishals business took his money out of greed and mischief, but it is also likely that they were just fighting to stay alive and made bad decisions on the way.
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A very fine line, Kalleh.
It isn't actually very hard to run a business so the creditors can be paid off, prob99.
A charitable situation is where the company has just one or two big debtors (customers), both on credit accounts, and one goes bust. Then paying off the suppliers could get a little tricky... But flying schools don't work like that. Their "debtors" are students (or renters) paying cash that day. So, practically, anybody in that business who goes down without paying off creditors has been financing their business using money borrowed from creditors, which is legal (to the extent that one cannot and should not outlaw the concept of a limited company) but IMHO unethical. And it's widespread - almost every school that shuts down has taken student deposits with it.
It isn't actually very hard to run a business so the creditors can be paid off, prob99.
A charitable situation is where the company has just one or two big debtors (customers), both on credit accounts, and one goes bust. Then paying off the suppliers could get a little tricky... But flying schools don't work like that. Their "debtors" are students (or renters) paying cash that day. So, practically, anybody in that business who goes down without paying off creditors has been financing their business using money borrowed from creditors, which is legal (to the extent that one cannot and should not outlaw the concept of a limited company) but IMHO unethical. And it's widespread - almost every school that shuts down has taken student deposits with it.
Hovering AND talking
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My position is that it is morally wrong to run a business, at any time, such that ALL creditors cannot be cleared.
Cheers
Whirls
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My position is that it is morally wrong to run a business, at any time, such that ALL creditors cannot be cleared.
In an ideal world this is true, however there is a clear distinction between reckless trading and those who trade fraudulently. Some businesses who find themselves in difficult circumstances will try valiantly to trade their way out of trouble, perhaps suffering from an overdose of optimism believing that recovery is within sight.
Those who trade fraudulently have a more sinister premeditated motive.
In either case it is difficult see the full picture until the company has folded.
Understandably this becomes an emotional issue particularly in the case of an FTO whose creditors include private individuals who can sometimes feel the loss more personally than would a trade creditor.
To return to thread, and notwithstanding the above, most if not all FTO's are struggling to survive through a global economic crises. I believe that as members of the aviation fraternity we should act responsibly by ensuring that rumour about the financial health of an organisation is not circulated unless clear evidence is present. Who we select to receive our hard earned cash for initial and further training can in part be based on the excellent references gleaned from this forum in relation to instrucor quality, aircraft condition, customer service etc.
Once that selection is made, prudent payment terms for services rendered will eliminate or seriously reduce any potential losses should the worst come to pass.
In an ideal world this is true, however there is a clear distinction between reckless trading and those who trade fraudulently. Some businesses who find themselves in difficult circumstances will try valiantly to trade their way out of trouble, perhaps suffering from an overdose of optimism believing that recovery is within sight.
Those who trade fraudulently have a more sinister premeditated motive.
In either case it is difficult see the full picture until the company has folded.
Understandably this becomes an emotional issue particularly in the case of an FTO whose creditors include private individuals who can sometimes feel the loss more personally than would a trade creditor.
To return to thread, and notwithstanding the above, most if not all FTO's are struggling to survive through a global economic crises. I believe that as members of the aviation fraternity we should act responsibly by ensuring that rumour about the financial health of an organisation is not circulated unless clear evidence is present. Who we select to receive our hard earned cash for initial and further training can in part be based on the excellent references gleaned from this forum in relation to instrucor quality, aircraft condition, customer service etc.
Once that selection is made, prudent payment terms for services rendered will eliminate or seriously reduce any potential losses should the worst come to pass.
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Not just immoral; illegal.
It can be difficult to establish whether a business is insolvent. Moreover, there may be very good reasons for believing the company can recover.
Indeed, for that reason many companies are given legal protection while trying to re-structure their affairs.
Hovering AND talking
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Yes Fuji, a simplification but true nevertheless. If a company has a "negative" balance sheet; that's insolvent. There are grey areas inbetween granted, but trading with the knowledge that you can't pay your debts is illegal. Simples.
Indeed, it's called Administration.
This is what I do for a living after all
Cheers
Whirls
Indeed, for that reason many companies are given legal protection while trying to re-structure their affairs
This is what I do for a living after all
Cheers
Whirls
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If a company has a "negative" balance sheet; that's insolvent.
However, it may be insovent because it cant pay back its bankers or directors who are never the less happy to proceed under security of a PG or take the risk they may never see their money again.
It may have an excess of assets, but be unable to manage its current liquidity - just as serious as being totally insolvent.
It may also be solvent on a going concern basis, but just wait until the break up value of the IP, goodwill, stocks, debtors and FA has been realised.
There is a danger in allowing forumites to believe that assessing the state of health of a company is as simple as you suggest.
I have seen businesses that have traded successfully for 50 years or more eventually throw the towel in for reasons beyond their control and which they could not have reasonably forseen. They paid their taxes, they employed 100s of people, they ran a sound business - immoral that they went bust and owed some money - I dont think so - illegal - certainly not.
Hovering AND talking
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Thanks for your valuable insight. 
Things I never knew 
"Circumstances beyond a directors control" does NOT equal "trading with knowledge that debts cannot be repaid".
If any forumite gets a set of Statutory Financial Statements from Companies House, and those accounts show a negative balance sheet, then it is not unreasonable that he or she can come on to this forum and say that that company is in financial difficulty. I can't see the danger there and it's a damn sight better than the "I heard from my mate's second cousin that they saw a Cessna chained up".
Cheers
Whirls
Things I never knew "Circumstances beyond a directors control" does NOT equal "trading with knowledge that debts cannot be repaid".
If any forumite gets a set of Statutory Financial Statements from Companies House, and those accounts show a negative balance sheet, then it is not unreasonable that he or she can come on to this forum and say that that company is in financial difficulty. I can't see the danger there and it's a damn sight better than the "I heard from my mate's second cousin that they saw a Cessna chained up".
Cheers
Whirls
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Quote - If any forumite gets a set of Statutory Financial Statements from Companies House, and those accounts show a negative balance sheet, then it is not unreasonable that he or she can come on to this forum and say that that company is in financial difficulty.
It is not unreasonable to come to such an informed personal conclusion assuming of course that one is inclined to go to such lengths. But is it truly reasonable to share your conclusions with the wider world, and what purpose does that serve?
Many businesses will trade in and through difficult circumstances during their lifetime and a lot of them will survive and thrive. Putting sensitive information into the public domain only increases the pressure at a difficult time and may in fact thwart a company's ability to plan and execute a successful recovery.
If the motive is to alert potential customers then this only makes matters worse. Does the wider world have a right or indeed a need to know? I believe not. You draw your own conclusions based on personal visits, testimonials etc. It has been stated many times before on this forum that the onus is on the customer to conduct business with any FTO in a manner which reduces their exposure to an accepable level, and which is commensurate with their personal circumstances.
This is taking responsibility for one's own actions and conducting business in a prudent manner.
I also suspect that from a legal perspective the information gained from companies house would be discounted successfully by any lawyer in pursuit of a libel/defamation claim.
In short there is no real measure available to the general public to indicate the ability of an organisation to proceed as a going concern. Using best judgement at all times and staying risk averse is not a bad strategy.
It is not unreasonable to come to such an informed personal conclusion assuming of course that one is inclined to go to such lengths. But is it truly reasonable to share your conclusions with the wider world, and what purpose does that serve?
Many businesses will trade in and through difficult circumstances during their lifetime and a lot of them will survive and thrive. Putting sensitive information into the public domain only increases the pressure at a difficult time and may in fact thwart a company's ability to plan and execute a successful recovery.
If the motive is to alert potential customers then this only makes matters worse. Does the wider world have a right or indeed a need to know? I believe not. You draw your own conclusions based on personal visits, testimonials etc. It has been stated many times before on this forum that the onus is on the customer to conduct business with any FTO in a manner which reduces their exposure to an accepable level, and which is commensurate with their personal circumstances.
This is taking responsibility for one's own actions and conducting business in a prudent manner.
I also suspect that from a legal perspective the information gained from companies house would be discounted successfully by any lawyer in pursuit of a libel/defamation claim.
In short there is no real measure available to the general public to indicate the ability of an organisation to proceed as a going concern. Using best judgement at all times and staying risk averse is not a bad strategy.
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The basic point in "management accounting" (a term many "proper" accountants utter while spitting ) is that a company can be solvent but not have enough cash.
A pretty common scenario.
Such a company is vulnerable because a supplier can (in general terms) get a winding up petition, or simply a CCJ.
But the company is still solvent, so this way of trading is not illegal.
) is that a company can be solvent but not have enough cash.A pretty common scenario.
Such a company is vulnerable because a supplier can (in general terms) get a winding up petition, or simply a CCJ.
But the company is still solvent, so this way of trading is not illegal.
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IO540
Exactly.
Whirlygig
I am pleased to have been able to enlighten you.
So let me see. Consider IO540's earlier scenario when a large debtor goes bust - at that moment the directors may well have knowledge the debts cannot be repaid, but given a little time, there may be better alternatives than placing the company into receivership.
Based on abbreviated accounts probably at least 8 months out of date? Hmm.
It is never black and white - which is why you do what you do - give sound advice, rather than dogma.
Exactly.
Whirlygig
Thanks for your valuable insight. 
Things I never knew
Things I never knew
"Circumstances beyond a directors control" does NOT equal "trading with knowledge that debts cannot be repaid".
If any forumite gets a set of Statutory Financial Statements from Companies House, and those accounts show a negative balance sheet, then it is not unreasonable that he or she can come on to this forum and say that that company is in financial difficulty.
It is never black and white - which is why you do what you do - give sound advice, rather than dogma.
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The information from Companies House is actually of very little use. Small businesses dont have to file audited accounts for a start. Also the accounts tend to be well out of date. Therefore a satisfactory position 12 months ago might be something totally different now.
Some accounts look wierd because several compnaies might be interelated with cross loans/liabilities which only a forensic accountant could unravel.
As a result it is hopeless placing reliance on companies house information.
Some accounts look wierd because several compnaies might be interelated with cross loans/liabilities which only a forensic accountant could unravel.
As a result it is hopeless placing reliance on companies house information.
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The other reason why the balance sheet can be an all but meaningless guide to solvency is that a company which is borrowing money is much more likely to be fattening up its accounts by doing minimal writedowns, and generally overvaluing assets - to impress the bank.
Whereas, ordinarily, the name of the game in a business is to maximise cash generation while minimising profits (because profits are taxed) and thus one writes off everything under the sun to the maximum extent allowed, and any useless assets are promptly scrapped.
So, the kind of company which is most likely to go bust due to lack of cash is also the one which most likely was running dodgy (if legal) accounts.
Whereas, ordinarily, the name of the game in a business is to maximise cash generation while minimising profits (because profits are taxed) and thus one writes off everything under the sun to the maximum extent allowed, and any useless assets are promptly scrapped.
So, the kind of company which is most likely to go bust due to lack of cash is also the one which most likely was running dodgy (if legal) accounts.
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"I consider PPRuNe private property (though I don't know the owner) so while here, I'm either a guest under conditions, or a trespasser"
Pilot DAR.
P-DAR, while I don't disagree with your broader sentiments, the website may well be privately owned (like many non listed companies), and may even be able to choose its customers (users) and source of advertising revenue, but it is very, very firmly in the public domain and likely to be viewed as such from a legal perspective, much like a newspaper for example.
Which probably explains BRL's caution on libel issues.
Pilot DAR.
P-DAR, while I don't disagree with your broader sentiments, the website may well be privately owned (like many non listed companies), and may even be able to choose its customers (users) and source of advertising revenue, but it is very, very firmly in the public domain and likely to be viewed as such from a legal perspective, much like a newspaper for example.
Which probably explains BRL's caution on libel issues.
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My understanding (and I'm happy to be proved wrong) is that the definition of insolvency is not that liabilities exceed assets but that the company is unable to meet its debts as they become due.
So for example a company that has a bank loan of 100k, trade debtors of 200k and assests of 150k has liabilities (300k) that exceed its assets (150k). However providing its cash flow allows it to continue to meet its debts as they become due then the Directors are not commtting an offence by continuing to trade.
So for example a company that has a bank loan of 100k, trade debtors of 200k and assests of 150k has liabilities (300k) that exceed its assets (150k). However providing its cash flow allows it to continue to meet its debts as they become due then the Directors are not commtting an offence by continuing to trade.
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Always a judgement call for mods.
Let's say multiple witnesses see chained props - fair game.
Public domain such as our present thread on the Indian airline not paying hotel bills and having a fuel company take action against them - all grist to the mill.
A new sign up making non specific allegations fires up the mods tingling spider senses whereas a regular reporting redundancies or changes of conditions for instructors at set bases and supported by other regulars is watched carefully.
All basic day to day stuff around the site. And hard won experience as well.
When the well known school SFT went bust they had spent the previous 10 days telling us nothing was wrong. Many fingers burned financially then and at other times. Those of you who have been around a while will be able to reel off 10 establishments without effort that have done the same to those who have paid very large sums up front.
Rob
Let's say multiple witnesses see chained props - fair game.
Public domain such as our present thread on the Indian airline not paying hotel bills and having a fuel company take action against them - all grist to the mill.
A new sign up making non specific allegations fires up the mods tingling spider senses whereas a regular reporting redundancies or changes of conditions for instructors at set bases and supported by other regulars is watched carefully.
All basic day to day stuff around the site. And hard won experience as well.
When the well known school SFT went bust they had spent the previous 10 days telling us nothing was wrong. Many fingers burned financially then and at other times. Those of you who have been around a while will be able to reel off 10 establishments without effort that have done the same to those who have paid very large sums up front.
Rob
My understanding (and I'm happy to be proved wrong) is that the definition of insolvency is not that liabilities exceed assets but that the company is unable to meet its debts as they become due.
"at some time before the commencement of the winding up of the company, [the Director] knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation,"
Thus the definition of "insolvency" as a term in isolation is moot.
Towers and BRL, thanks for your comments, and I for one appreciate the fine line you tread in allowing PPrune to create its value as a communication forum while protecting those who are unfairly targeted.
