COMPANY directors are taking a bigger hit if their business collapses than ever before, according to Sheffield insolvency expert Andy Wood.
Mr Wood, regional chairman of the insolvency professionals' body, R3, and a partner in the Sheffield-based P&A Partnership, says far more directors have given personal guarantees for loans than was the case during the last downturn.

"There are many more personal guarantees out there this time which means that directors are taking far more of a personal knock if their business fails," says Mr Wood.

"This will have the inevitable consequence that many business people will be reluctant to start another business after this downturn."

Mr Wood is also warning of increased instances of fraud and legal claims against valuers and accountants.

"Downturns typically lead to increased instances of fraud, and this one is no exception," says Mr Wood.

"We are seeing some businesses issuing invoices for 'fresh air' so they can claim payment under invoice discounting contracts. Factoring companies are carrying out more stringent checks on invoices as this is becoming a significant issue.

"We expect professional indemnity claims to start being made against valuers and accountants because a lot of lenders' securities are now proving hard to establish.

"Accountants who have audited larger businesses may be at risk if they approved the accounts with an over-optimistic valuation when markets were falling or already in turmoil.

"Anyone signing off accounts now needs to double-check valuations and ensure they can be justified in the current market."

According to R3, banks and insolvency practitioners are becoming more creative than ever in order to avoid distressed sales of properties.

The organisation says that, with a growing number of property developments facing insolvency, banks are considering alternatives to sales, including putting tenants into newly built apartments where the owners have defaulted on their loans, and using property management services companies to manage the lettings.

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