Director Duties

You need a licence to drive

 

It is often said, to drive a vehicle on the roads you first need to pass a test, which demonstrates you understand the laws of the road.  You also receive a driving licence as evidence of passing.  This goes with many professions where you need to achieve certain qualifications and probably receive a certificate as evidence.  However, to be a director of a company, it is a simple case of filling in a form and filing that at Companies House with no question of whether you understand the statutory burden that office imposes.

 

As an employee you will either gain knowledge or acquire qualifications and you are employed for that service under a contract of employment.  However, add the label of “Director” to that employment and you immediately become a company officer that carries duties beyond a simple employment contract.

 

The principal duties of a director are laid down in the Companies Act 2006 and generally state a director shall:

 

  • Act within their powers
  • Promote the success of the company
  • Exercise independent judgment
  • Exercise reasonable care, skill and diligence
  • Avoid conflicts of interest.

 

In most cases, the true implications of these duties may never consciously arise.  But what if your company is experiencing financial difficulties?  All too often directors ask can I pay this person, or can I repay a loan where I have given a personal guarantee?  Alternatively, directors may decide to continue trading in the hope that something good is around the corner.  Unfortunately, it is often something that is far from good that awaits around that corner and that can occasionally lead to personal liability and/or director disqualification.

 

In any circumstances where a company requires restructuring or, is facing closure, it is always the directors who are at the end of the criticism, whether that is from The Insolvency Service or creditors who face debt write off.  It can be of little surprise that directors who have taken advice from an early stage and follow that advice find the criticism (and other ramifications) minimised, or even extinguished.

 

Should you have an issue of financial difficulties then please contact a member of the Team at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to info@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

Company Voluntary Arrangement (“CVA”) and HMRC’s approach to post approval tax liabilities

PBC Business Recovery and Insolvency are the Supervisor of several CVAs approved by creditors prior to the pandemic.  These CVAs are primarily based on contributions being paid from profit over a number of years.  In the majority of CVAs HMRC will be a substantial creditor.   If post appointment taxes are not paid, this would be a (potential) breach of the CVA which, if not remedied could lead to the failure of the CVA and the company being placed into liquidation.

Whilst the CVAs we are dealing with are continuing to trade, some are still facing difficulty paying post appointment taxation like many other companies in the UK.  However, it is becoming evident that HMRC are being more amenable at present, accepting time to pay agreements where in previous circumstances they would have refused.  This would appear no different when a company is subject to a CVA, allowing agreements to be reached and avoiding the failure of the CVA.

If you or a client have any questions surrounding the use of company voluntary arrangements and whether the process would be suitable, or there is need of assistance in trying to reach an agreement with HMRC please contact PBC Business Recovery and Insolvency on 01604 212150 or 01234 834886.

 

Bowled Over

It was a pleasure to invite friends, colleagues and contacts to an evening at KINGSTHORPE BOWLING CLUB LIMITED(THE) to enjoy a relaxing, but competitive, night of bowling challenges.

A special mention to Will Amos ACA and our very own Nicole Anderson who bowled away the competition and left the rest of us green with envy.

Thank you to all those that attended and the hospitality of the Bowling club for putting up with a bunch of amateurs.

Thomas Cook directors avoid disqualification

Sky News are reporting no further action shall be taken against the directors of Thomas Cook under the Company Directors Disqualification Act.

Andrea Leadsam, the then business secretary at the time of the liquidation, sought an enquiry as a priority given the significance of this case and its implications for thousands of customers and employees.  She added,

“I ask that the investigation by the Official Receiver looks, not only at the conduct of directors immediately prior to and at insolvency, but also at whether any action by directors has caused detriment to creditors or to the pension schemes.”  Labour MP, Rachel Reeves added, “Its directors had exhibited a lack of challenge in the boardroom as the company piled up debt and Thomas Cook management missed opportunities to reduce debt levels and give the business a viable future”.

“Will I be banned?”

A question we, at PBC, get asked constantly by directors.

 

Like most high-profile companies, the Thomas Cook demise was subject to significant media attention.  However, regardless of the media reporting or the size of the company that enters into an insolvency event, it all comes down to what was the conduct of the directors?  In the case of Thomas Cook they engaged with the creditors, they took independent advice throughout and, when they were advised their efforts were going to be to no avail, they followed that advice and took what is an incredibly difficult decision.

At PBC we have an immense level of respect for every person that contacts us for advice.  It is often a period of heightened emotion and, at times, can feel intimidating.  However, taking that advice generally dismisses the “Pub talk” stories and can open up options to address those issues that are keeping you awake at night.

Taking early advice helps to control the situation, provides more options being available and helps avoid directors doing things that could see them getting embroiled in issues where disqualification and possible personal liability are a real threat.

Should you have an insolvency-related issue then please contact a member of the team at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to info@pbcbusinessrecovery.co.uk.

Lies, Damn Lies and….

PBC Logo

Most readers are probably smirking as they finish the quote in the heading.  However, talking statistics, The Insolvency Service has released the latest statistics relating to registered company insolvencies in December 2021. Commentary – Monthly Insolvency Statistics December 2021 – GOV.UK (www.gov.uk)

 

In total there were 1,486 companies that registered as insolvent during December.  Of these 1,365 were voluntary liquidations, which is 73% higher than December 2019.  What is probably more concerning is that the principal rescue procedures of administration and company voluntary arrangement only numbered 79 companies, being 49% and 67% down respectively on December 2019 figures.

 

The remaining 42 companies all fell into compulsory liquidation, which is a 75% fall in numbers as compared to December 2019.  However, this is understandable as a moratorium over most winding up petitions was introduced by the Corporate Insolvency & Governance Act (“CIGA”) and, new tapering measures were introduced from 30 September 2021 when the moratorium was to be lifted.  This will continue to have a direct impact on post CIGA moratorium winding up petitions for the interim.

 

To add to the above numbers, two new procedures were introduced that were designed to assist safeguarding businesses.  However, in the 6-months ended 31 December 2021 the company moratorium numbered just 15 while the restructuring plan only 10 of which two concerned parts of the Virgin Group of Companies.

 

No doubt there will be plenty of analysts who will draw their own conclusions as to why there seems a disproportionate number of liquidations as opposed to rescue procedures.  At PBC we have considered this and summarise our opinion of the key reasons as:

 

  1. There is not a viable core business to save.
  2. The secondary preferential status, now enjoyed by HMRC, acts as a block to any opportunity of a return to the general body of creditors.
  3. Creditor frustrations are at such a level they will not entertain proposals for restructuring/saving the business.
  4. The procedural costs are sometimes prohibitive when compared to the company liabilities.
  5. Due to various legal and technical reasons, it is more constructive to look at a “Phoenix” and start afresh,

 

Much of the cause for the above issues also stems from that long-running problem of directors not taking early advice.  At PBC we fully understand it is a very difficult step to take in calling our offices and seeking help, but it cannot be a coincidence that those early callers generally find they have more options available to them and invariably matters can be addressed in a more orderly  & positive manner.

 

Should you have an insolvency-related issue then please contact a member of the team at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

Welcome Ian Cooke

ANNOUNCEMENT

PBC Business Recovery & Insolvency are delighted to announce that Ian Cooke has joined the already highly experienced team and will be based in the Northampton office.

Ian, himself, has over 29 years’ experience and is very well known in the business community of Northamptonshire, having spent the past 22 years at another local practice.

Managing Director, Gary Pettit said,
“Ian is a fantastic addition to the PBC Team and his arrival is indicative of our commitment to provide the business community and advisors with the best service available.” On joining, Ian said,

“I am really looking forward to joining the PBC Team and working with Gary again after some 12 years. Whilst the insolvency profession widely anticipates that corporate insolvency numbers will rise as a result of the Pandemic, I would urge early advice is sought from PBC to discuss all available options. The potential recovery of an insolvent business has always been at the forefront of my mind when advising and I know this is also PBC’s ethos – to always first try and avoid those we advise being included in insolvency statistics going forward”

Should you have an insolvency-related issue then contact Ian at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to iancooke@pbcbusinessrecovery.co.uk or access our website at https://lnkd.in/ehKHz4K

Formal crackdown on directors who dissolve companies to evade debts

The Insolvency Service has been granted new powers to take to task directors who dissolve companies to avoid paying company debts. This is as a direct result of directors dissolving companies to avoid repaying Government backed loans put in place to support businesses during the Coronavirus pandemic.

The new legislation now extends the Insolvency Service’s powers to investigate and disqualify company directors who have been deemed to have abused company dissolution processes.

Previously the Insolvency Service had these powers to investigate directors of companies that entered formal insolvency such as liquidation and administration. It is also understood that the Insolvency Service may also be instructed to investigate live companies where evidence has been brought to their attention of wrongdoing.

In addition, the new legislation also allows for the Insolvency Service to apply to court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour.

Should you be a director and are concerned re the new legislation then please do make contact with Gary Pettit, Ian Cooke or Jamie Cochrane (01604 212150) to understand your obligations and responsibilities

garypettit@pbcbusinessrecovery.co.uk

iancooke@pbcbusinessrecovery.co.uk

jamiecochrane@pbcbusinessrecovery.co.uk

Deal or no deal?

People Sitting around a table discussing

Are you a commercial tenant who has accrued rental arrears during the COVID-19 pandemic?  Alternatively, are you a landlord who is thinking about what action you can take against a non-paying tenant?

Since 21 March 2020 it has been reported that over £7 billion remains unpaid in respect of commercial property rents.  Landlords have been prevented from taking enforcement action under the Corporate Insolvency & Governance Act, where the moratorium against landlord enforcement has been extended to 25 March 2022.

The Government has been concerned of the post-pandemic debt enforcement bubble bursting to the detriment of the economy. As a result, various measures have been implemented to ease businesses back into some form of normality with the threat of debt enforcement being phased back in a more controlled manner.

One of these measures is the Commercial Rent (Coronavirus) Bill (“The Bill”) which is aimed to promote a swift resolution of commercial property rent arrears accrued during the pandemic and is currently going through Parliament with a view of becoming law on or before 25 March 2022.

There has been a steady promotion towards alternative dispute resolution in the UK, as opposed to litigating disputes through the courts.  The Bill is further demonstration of that drive to avoid court intervention and both tenants and landlords need to be aware of the mentality being adopted.

The Bill will only relate to rental arrears that fall between 21 March 2020 and the period when “The date when specific restrictions were last removed for the relevant sector” (“The Ringfenced debt”).  The Government code of practice in support of the Bill schedules the latter date for each industry sector and country within the UK.

Once the Bill becomes law it will introduce an arbitration facility where the decision is binding in law.  Both tenant and landlord are encouraged to reach a mutually acceptable resolution on how the ringfenced debt is to be repaid and whether that is paid in full or at a compromised figure.  If a settlement cannot be reached, then either party can unilaterally apply for an arbitration hearing.

Some of the key points recommended by the Bill include:

 

  1. The two parties are expected to share the pain by considering rent reductions or payment plans. However, no agreement can be made where it results in (or creates a real threat of) insolvency for either tenant or landlord.
  2. The parties will each need to provide evidence of viability in support of any offer (or counter-offer) put forward.
  3. Both can either agree to a public hearing or allow the appointed arbitrator to decide on the terms of resolution based upon the documentary evidence before the arbitrator.
  4. An application cannot be made for arbitration if either party is already subject to insolvency proceedings.
  5. The rent repayment agreement cannot exceed two years in duration.

 

The Government continues to urge businesses that can afford to pay their rent to do so.  Indeed, it would appear the conduct of the tenant (in terms of refuse to pay versus unable to pay) will be taken into consideration.  This draws up the key question of viability and some specific areas that can be expected to be considered, including:

 

  • If the inability to pay was due to the tenant adopting “Unjustifiable steps to alter the financial position” (e.g. the payment of excessive dividends) the arbitrator will have the option to disregard these transactions when assessing the award.
  • Where a tenant can prove the business is viable, but it is unable to pay all the rent arrears, the tenant should be entitled to a concession that does consider the balancing exercise between landlord and tenant.
  • Any concessions must be affordable to both tenant and landlord, in terms of financial impact on the landlord.
  • To assist determination of viability and affordability the arbitrator is expecting to receive relevant financial information.
  • It is not expected that tenant viability would include restructuring, borrowing, or the taking of further debts.

 

It is made clear in the Government guidance to the Bill that arbitration ought to be the last resort and that both tenant and landlord are encouraged to reach an agreement without arbitration. This does appear to suggest the arbitrator will look at the reasonableness (or otherwise) of any dissenting party, although that is only my assumption.

While it is likely the Bill will be subject to some minor revisions, the key message is clear whereby the Government are expecting both tenants and landlords to act in a manner that promotes the protection of businesses and their employees. A refusal to compromise or to approach this issue in a transparent and fair manner are not options on the agenda and are likely to expose the dissenting party to penalties, including cost consequences.

However, what is most likely to be the most difficult area for an arbitrator is the analysis of financial data and the reality check on viability of either tenant or landlord.  If a party to the arbitration get this information wrong or, if the message is unclear, it is likely to result in an award being made based upon a misinterpretation of the information available.  This could be damaging to the viability of the tenant or landlord, or both.

The message is clear for both tenant and landlord.  Be transparent, fair, reasonable but, most of all, take a commercial view that promotes saviour of the business and its employees.  The key area will be the viability check and PBC can provide such a report for either party of the negotiation surrounding the ringfenced debt (and non-ringfenced debt if applicable) as this will promote the chances of proposals being considered as both a fair and commercial compromise.

Should you have an insolvency-related issue then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

What is in a (Company) name?

 

 

Can a director be held personally liable for the debts of their company?  The immediate reaction will probably be, “No” although that is not entirely accurate.

 

Generally, a director can be found personally liable for:

  • Debts where they have given a personal guarantee.
  • They have borrowed company money for personal use, creating an adverse loan account.
  • They are found guilty of malpractice (which causes a loss to the company) including any actions that place company assets out of the reach of creditors.

 

However, a question that often arises is when directors are looking to re-start trading with a new company and whether they use the current company name for their new enterprise.  As we all appreciate, the company name can be your brand, it is what your customers are attracted by and so therefore may carry a value.

Section 216 Insolvency Act 1986 (“The Act”) states that the name of a company in insolvent liquidation becomes a prohibited name.  That also goes for a trading name or a name that is so similar that it may cause confusion to the public.  This restriction only applies to those people who were directors (or “shadow” directors) of the liquidated company in the 12 months leading to liquidation AND who become directors of a company with a prohibited name within 5 years AFTER the liquidation date.

Section 217 of the Act then gives rise to personal liability following contravention of re-use of a prohibited name, as well as criminal sanctions including potential imprisonment.

 

In the recently reported case of PSV 1982 Ltd v Langdon [2021] EWHC 2475 (Ch) it was held:

  1. the effect of section 217 of the Act is that establishing the company’s liability (through proceedings or otherwise) makes a defaulting director automatically responsible. It is not necessary to bring separate proceedings against a defaulting director; and
  2. ‘liability’ as defined in section 217 means an obligation to pay a sum of money. The relevant liability was incurred when the contract was breached, at which time [the director] was in breach of section 216 and therefore personally liable.

 

The Claimant in the above case (PSV) were seeking recovery of some £1.4 million inclusive of costs and interest and, while the decision is likely to be appealed on a couple of technicalities, it serves as a stark warning to directors.

So, if a director was planning to start afresh what should they do when it comes down to the name?  Well, they can always steer clear from the prohibited name completely.  While this may cause some communication issues with customers, it certainly avoids any threat of breaching section 216 of the Act.

However, if the name (or something very similar) is needed then there are exceptions where permission can be obtained (prior to using the name) and readers are advised to take independent advice from an insolvency practitioner and/or solicitor who practices in the insolvency field to ensure you (a) meet the requirements for an application to use the name and (b) what the defined steps required consist of to ensure you do not become another Mr Langdon.

The number of “Phoenix” insolvencies is increasing and, it therefore follows, so does the exposure to breaching section 216 of the Act.  That company name could be seen as a precious commodity.  However, it is clear it can also become an expensive and personal liability.

 

Should you have an insolvency-related issue then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk