Business English Sara Helm

MARKETLEADER

Accounting and Finance

Helm

Accounting and Finance

MA

RK

ET LEAD

ER

MARKETLEADER

Accounting and Finance

B1-C1

www.pearsonlongman.com www.ft.com

We recommend the Longman Business English Dictionary to accompany the course.

Accounting and Finance is one of a range of new specialist titles designed for use on its own or with the Market Leader series. Ideal for students who need to learn the language of more specialised areas of business English, the book focuses on the reading skills and vocabulary development required for Accounting and Finance.

It includes:

• authentic reading texts from the Financial Times© and other sources

• a glossary of specialised language

• two ‘Check Tests’ designed to help assess progress

Other titles in this series include:

• Marketing

• Business Law

• Human Resources

• Logistics Management

• Working Across Cultures

For more information on the Market Leader series go to:www.market-leader.net

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3

Accounting and fi nance in a changing world

1 Developing global professionals 4

2 Establishing the profession worldwide 8

3 International Financial Reporting Standards 12

Reporting on performance

4 Annual fi nancial statements 16

5 Company performance 20

6 Accounting for banks 24

Finance and investment

7 Overseas investment 28

8 Start-up capital 32

9 Options trading 36

Corporate environmental, social and governance issues

10 Green accounting 40

11 Responsible investing 44

12 Corporate governance 48

Risk management and failure

13 Investment credit rating 52

14 Company insolvency 56

15 Banking – a risky business 60

Auditing

16 Scary audit jargon 64

17 Auditor liability 68

18 A clean report 72

Check Tests 76

Answer key 80

Glossary 89

Contents

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56

14unitCompany insolvency

This unit looks at how a UK company’s directors should proceed when their business is experiencing fi nancial diffi culties.

before you read

Discuss these questions.

1 Doyouknowofanycompanieswhichhavegonebankruptinyourregionoranotherregionyouareinterestedin?Explainwhathappened.

2 Whatdoyouthinkhappenstoacompany’sassetsinthissituation?Whatriskscantherebeforacompany’screditors?

reading

A understandingthemainpoints

Read the article on the opposite page and answer these questions.

1 Whatsortofbusinessdoesthedirectorinthisarticlerun?

2 Whyishisbusinessexperiencingfinancialdifficulties?

3 Whichparticularproblemsisheconcernedaboutinrelationtohiscompany’scurrentsituation?

4 Whoisheldresponsibleifabusinesstradeswheninsolvent?

5 Ifacompanylookslikeitisgoinginsolvent,whoshouldthedirectorsprotectasafirstpriority?

6 Whoshouldthecompanydirectorsgetadvicefromiftheythinktheymightbegoinginsolvent?

7 Whatimportantfeatureofthecompanyshouldtheyalsoprotect?

8 Inthissituation,whatshouldtheyalsodoonaregularbasis?

B understandingdetails

Read the article again and answer these questions.

1 Whatthreepenalties,or‘remedies’,couldcompanydirectorsencounteriftheytradewhileinsolvent?

2 Whichtwodocumentsprovideinformationonhowcompanydirectorsshouldconducttheirbusiness?

3 Whichfinancialdocumentsdocompanydirectorsusetoassessthefinancialhealthoftheircompany?

4 Besidesthecompanyitself,whoshouldcompanydirectorstakeadvicefor?

5 Iftheyfeelthatthatthecompanywillbeunabletorepayfuturedebts,whichtwothingsmustcompanydirectorsnotdo?

6 Whoshouldcompanydirectorsmakesuretheydon’tshowpreferencetowhenexperiencingfinancialdifficulties?

7 Whatspecificactionsshouldcompanydirectorstakeduringmeetingsiftheircompanyisexperiencingfinancialdifficulties?

Whenacompanyisunabletopayitsdebtsandgoesoutofbusiness,weoftensaythatithasgone bankrupt.Officially,inastrictlegalsense,thistermonlyappliestoindividualsintheUK,whereasintheUSitcanapplytobothindividualsandcompanies.

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unit14 •• companyinsolVency

57

A responsible approach to insolvency

by Jonathan Moules

Simon Longfi eld, restructuring partner at Grant Thornton, an accountancy fi rm, answers the following question about company insolvency.

A I am a director of a small retail business. My accountant has recently warned me that, following a sharp downturn in trading, the

5 business is unlikely to be able to survive much longer. I am worried about my responsibilities and my fi nancial liabilities if the business becomes insolvent. So what should

10 I be doing right now?B As soon as the directors of a com-

pany foresee, or even become aware of the possibility of, an administration situation, they need to act carefully to

15 avoid the business trading insolvently, as the penalties for doing this can be severe. These ‘remedies’ may include personal liability for creditors’ debts, disqualifi cation as a company

20 director and, in extreme cases, impris-onment where fraudulent trading has taken place.

C So, as a director, how do you protect the company and yourself from such

25 risks if insolvency is possibly immi-nent? The principal steps include fulfi lling the normal duties expected of a company director, which are set out in the constitution (articles) of the

30 company and the Companies Act. Most importantly, the interests of the compa-ny’s creditors must become a priority.

D Firstly, the directors must understand the company’s current fi nancial situa-

35 tion, assess the prospects for its future viability and act quickly on the position they judge the company to be in. They should use the following information to arrive at a judgement of the compa-

40 ny’s current position: up-to-date statu-tory accounts, management accounts and forecasts based on the company’s latest order book.

E After that, if the directors decide that 45 their company is moving towards an

insolvency position, they need to take independent professional advice from a specialist or licensed insolvency practitioner and, additionally, take

50 advice for themselves personally, if necessary.

F Next, they need to ensure that the assets of the company are always pro-tected and secure and not sold for less

55 than their value. In addition, as well as making sure that they do not take on new supplies or lines of credit that they know the company cannot repay, the directors must be able to show at all

60 times that they are acting in the best interests of all of the company’s exist-ing creditors. This last measure is essential to avoid any accusation of special or preferential treatment of

65 specifi c creditors.G Finally, directors should hold

regular meetings and keep minutes of the discussions they have and the key decisions they make. If there is any

70 doubt about this, they should detail the circumstances that justify continued trad-ing. If they are convinced that the business will be able to ‘ride out the storm’, then the company and its direc-

75 tors can continue in the normal way.H However, as soon as they identify

that their business is likely to become insolvent, the directors need to act quickly to seek the protection that an

80 insolvency (administration) procedure can offer. It is the job of a licensed insolvency practitioner to help com-pany directors put in place the most suitable procedure – if the business can

85 continue to trade in any way.

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vocabulary

A Definitions

1 Match these words from the article (1–4) with their meanings (a–d).

1 insolvency a) whenacompanywhichisexperiencingfinancialdifficultiesisreorganisedbyanindependentspecialistwiththeaimofcontinuingsomeofitsactivities

2 liquidation b) whenacompanythatisbankruptisputunderthecontrolofanindividualbythecourts

3 administration c) whenapersonorcompanydoesnothaveenoughmoneyorassetstopaytheirdebts

4 receivership d) whenafailingcompanystopsoperatinganditsassetsaresoldtopayitsdebts

2 Match each word or phrase from the article (1–8) with one which has a similar meaning (a–h).

1 smallretailbusiness a) penalties

2 sharpdownturn b) shop

3 financialliabilities c) bigdrop

4 remedies d) intendingtodeceive

5 disqualification e) theamountowedtoothers

6 fraudulent f ) notallowedtocontinuedoingsomething

7 minutes g) theplacewhereagreedfuturesalesarerecorded

8 orderbook h) notesofwhatisdiscussedoragreedduringameeting

B Wordpartnerships

Match the verbs (1–8) with the phrases (a–h) to make expressions similar to those in the article.

1 totake a) minutesofmajordiscussionsanddecisions

2 tobecome b) independentprofessionaladvice

3 tofulfill c) directors’duties

4 toassess d) thecompany’sfinancialsituation

5 tounderstand e) theprospectsforthecompany’sfutureviability

6 totrade f ) inthebestinterestsofallofthecreditors

7 tokeep g) insolvent

8 toact h) insolvently

C sentencecompletion

Use words and phrases from Exercises A and B to complete these sentences.

1 Wheneconomicconditionsbecomedifficult,businessescanexperiencea intrading.

2 Whenacompanycannotpayitscreditors,itbecomes .

3 Thecompanystoppedtrading,anditsassetsweresoldtopayoffitscreditors.Itwentinto .

4 Thedirectorswerehidingfinancialproblemsinthecompany,andafteraninvestigation,theirdealings

werefoundtobe .

unit14 •• companyinsolVency

58

over to you

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over to you

5 Asaresult,thedirectorsweresubjecttosevere .Theywenttoprison.

6 Inadditiontothis,theysuffered ascompanydirectorsforseveralyears.

7 Itwasdiscoveredthatsomeimportantitemsintheirmeetingshadnotbeenwrittendown

inthe

8 Theyhadalsoenteredfalseitemsintotheir ,tomaketheirbusinesslook

moreviablethanitactuallywas.

D understandingexpressions

Choose the best explanation for each phrase from the article.

1 ‘Assoonasthedirectorsofacompanyforesee…’(lines11–12)

a) predict

b) experience

2 ‘…ifinsolvencyispossiblyimminent?’(lines25–26)

a) goingtohappenverysoon

b) goingtohappenatsometimeinthefuture

3 ‘…fulfilling thenormalduties…’(line27)

a) increasing

b) carryingout

4 ‘…mustbecome apriority.’(line32)

a) takefirstplace b) beignored

5 ‘…theprospectsforitsfutureviability…’(lines35–36)

a) realisticexistenceasabusiness b) findingnewwaystodobusiness

6 ‘…willbeableto“ride out the storm”,…’(lines73–74)

a) payaslittleaspossible b) survivethebadperiod

unit14 •• companyinsolVency

1 Canyouthinkofanyreasonswhycompaniesfail?Thinkofeconomies,markets,management,competitors,customersandsuppliers.Discuss.

2 Ifaverylargecompanystartstoperformbadlyandlookslikeitmightfail,whatsortof‘spin-off’problemscanoccur?Thinkofthenationalorlocaleconomy,thedirectors,theemployees,thecustomersandsuppliersandthecreditors.Writeashortreportdetailingyourideas.

3 Thefollowingsequencingwordsandphrasesareusedinthearticletoorderthestepsacompanydirectorshouldtakeinthecaseoffinancialdifficulty:

First After that Next Additionally In addition Finally

Usethesetogiveashortpresentationonthesubject.

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