HMRC – Preferential financial recovery in insolvencies, but at what cost….

Analysis has found that HMRC has received an extra £14.4 million in tax owing from insolvencies since it regained its ‘preferential creditor’ status in December 2000.

The preferred status enables HMRC to be paid from a formal insolvency process ahead of unsecured creditors, which is effectively the general body of suppliers to that business. Given the forbearance from HMRC during Covid, the level of HMRC debt we often see with insolvency matters is significant, meaning asset realisations will need to be significantly greater to enable a return to the general body of suppliers.

In many instances, there will be no financial return at the bottom end and the best suppliers can hope for, if they don’t have bad debt insurance, is VAT bad debt relief on the sum not payable.

In our opinion, the preferential position HMRC find themselves in has the following consequences:

  • Some banks reducing the amounts they can lend to business and increasing the interest rates they offer on business loans.
  • Banks looking to mitigate exposure by way of invoicing discounting facilities, fixing their debt against the sales ledger. This is more costly than “normal” bank lending products, squeezing margins and reducing HMRC gain from corporation tax recoveries going forward from a viable business.  
  • Banks even more so, looking for personal guarantees from directors for business borrowings because if the ship goes down, they want a life raft to jump on to.  

In the overall scheme of things, the sum received through preferential status since December 2000 is not substantial for HMRC and we have no doubt that these funds would be far better off in the pockets of unsecured creditors as a whole. Indeed, it would be more beneficial if HMRC’s preferential status was abolished altogether, as it was in 2003, which, in turn, will allow greater lending opportunities for companies to recover, potentially avoiding a formal insolvency process while also increasing future tax receipts.

If you need any advice or assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Will I be banned from acting as a director?

It would be wrong to imply HMRC simply agree to TTP upon application. PBC Business recovery and insolvency practitioner

A common question we, at PBC, are asked by directors who are facing the tough decision of closing down their business.

It is understandable when the media report profile disqualifications, such as ex-England and Liverpool midfielder, John Barnes, being disqualified for 3 ½ years from April 2024.  However, dig into that story and you hear that his company went into liquidation owing HMRC £190,000 following a complete failure of addressing the tax affairs.

In order to answer the headline question, we must first look at some context.  In the 14 years ending with the Insolvency Services report for 2022/23 there have been in total 16,440 director disqualifications – an average of 1,174 disqualifications each year.  Over the past ten years, available records show the average number of corporate insolvencies stands at 16,724 per annum.

The above statistics may provide a degree of comfort, but if you end up being one of those disqualified, that is no consolation.  So, what must you avoid to ensure you do not join the likes of John Barnes?

The Insolvency Services have two primary duties to consider before deciding whether a director ought to face disqualification proceedings, namely

  1. Is it in the public interest?
  2. Does the conduct of a director merit allegations of being unfit?

Unfit conduct’ includes:

  • allowing a company to continue trading when it can’t pay its debts
  • not keeping proper company accounting records
  • not sending accounts and returns to Companies House
  • not paying tax owed by the company
  • using company money or assets for personal benefit

The reported numbers for 2022/23 amounted to 932, of which 812 were directors giving disqualification undertakings and only 120 being court orders.  Some of the headline figures are:

  • 185 treated HMRC unfairly (as opposed to other creditors).
  • 147 – Accounting matters.
  • 41 – transactions to the detriment of creditors (e.g. selling/transferring assets).
  • 459 – COVID-19 financial support abuse (primarily, inappropriate bounce back loan applications or the use of the funds when received).

A director (or the board of directors) should never be shy in taking advice, whether that is from the company accountant or solicitor.  Alternatively, if directors believe their company is insolvent, or likely to become insolvent, they should be consulting with an insolvency practitioner who can advise, based upon both current issues and experience.  In short, directors should never to assume but seek advice early.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Unlicensed Insolvency Practitioners – wound up!

A week or so ago, we posted about being careful taking advice from unlicenced insolvency advisors. As they say, timing is everything, and on 15 July, The Insolvency Service published details of such an advisor being wound up by the court in the public interest.

https://www.gov.uk/government/news/court-winds-up-manchester-firm-offering-unlicensed-insolvency-practitioner-services

At PBC, we are aware some directors fear approaching an insolvency practitioner as they hear stories of the ramifications a director faces.  To the contrary, an insolvency practitioner will advise you of your options, duties, and will discuss potential issues with you.  Those who chance engaging an unlicensed advisor merely promote the likelihood of allegations of a breach of duty where personal liability for any loss suffered may arise.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Thank you PBC!

Whilst we advise, and are formally appointed over companies that are insolvent, we also undertake a significant number of formal appointments of solvent liquidations, known as Members’ Voluntary Liquidations (“MVL”). Below is a quote received from directors on a MVL we dealt with showing their appreciation.

“May I also take this opportunity to express our gratitude to Ian who has been very helpful and put our minds at ease during the period. Greatly appreciate the wonderful and helpful PBC team. Also, it goes without saying that Grace has also been most helpful and very proficient”

MVL is a process for solvent companies, enabling shareholders to wind-up the company’s affairs and receive cash or assets in the company after all debts have been paid.  This provides the shareholders with a more tax efficient way than just receiving dividends over an extended period.

If you need any advice or assistance on any MVL,  corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

#solvent #mvl #northampton #milton keynes

Beware the unlicenced insolvency advisor

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How willing are you to place your company assets in the hands of a “Faceless” unqualified advisor, while also exposing yourself to personal liability?

Unfortunately, the phrase, “Desperate times lead to desperate measures,” can mean directors will easily be attracted by online offers to “take the stress away” allowing you to simply walk away.  Invariably, it is not a matter of walking away but one of abandoning your statutory duties and being penalised for a breach of duty.

Recently, the Government published their annual (insolvency) report.  That report cited the number of appointment-taking insolvency practitioners has reduced to just 1,257, which further emphasises how specialised insolvency is and the importance of getting right advice.

In addition, The Association of Business Recovery Professionals, have warned about the risk of using unlicenced insolvency advisors and produced a very helpful guide which can be found on the following site;

https://www.r3.org.uk/media/documents/get_advice/business/R3-unregulated-adviser-guidance-business.pdf

The problem of unlicenced advisors is not a new one but something that has grown over the last few years. The guide highlights some of the common marketing phrases these firms use, including:

  • We act for you, not your business’ creditors
  • Don’t take advice from an insolvency practitioner, as they only act for your creditors, whereas we act solely for you
  • We can offer you an alternative way to close down your company, leaving you free to launch a new business debt-free
  • We have a way to allow you to continue trading, keep your assets and yet benefit from writing off all your debts

What they do not tell you is a director has various statutory and fiduciary duties, including:

  • To act for the company creditors as a whole.
  • Exercise reasonable care, skill and diligence.
  • Avoid conflicts of interest.

These unlicensed advisors will also fail to point out if the company was eventually wound up it could lead to a director being pursued for personal liability.  Saying you did not know you needed to instruct a licensed insolvency practitioner carries no weight.  The court says ignorance is not a defence.  Indeed, the court will say throughout the insolvency legislation reference is made to the official receiver or an insolvency practitioner – there is no reference to any unqualified advisors.  The simple reason being, a licensed insolvency practitioner is held out as an officer of the court and must act accordingly.  They are also regulated, must hold professional indemnity and take out a specific insurance bond on each appointment they accept.  That protection is not afforded to directors by unlicensed advisors.

At PBC, we are aware some directors fear approaching an insolvency practitioner as they hear stories of the ramifications a director faces.  To the contrary, an insolvency practitioner will advise you of your options, duties and will discuss potential issues with you.  Those who chance engaging an unlicensed advisor merely promote the likelihood of allegations of a breach of duty where personal liability for any loss suffered may arise.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Abusing a Winding up Petition

Woman sitting at desk with PBC logo on the screen

As everyone in business will appreciate, the phrase, “cash is king,” rings very loud when it comes to keeping your business going.  With many businesses across the UK fighting to get debts paid, it has resulted in recovery threats increasing. But just how far can you press a customer for payment?

In one case PBC were instructed to advise directors of a company that was literally days away from crashing into administration, following a threat of, “if you do not pay our client by 4.00 p.m. Friday we shall commence winding up proceedings.”  After some checking it turned out the client supplier had refused to supply the goods until they were paid for in advance.  After we pointed out the goods had not even left their client’s building, the threatening solicitor withdrew their threat.

A malicious winding up petition is one that has been presented wrongly.  It maybe the petitioner knows the debt is not due or payable, or it is disputed, where a more appropriate judicial process ought to be followed.  In short, it is designed to pressurise a payment that may not lawfully be due and this is regarded by the courts as an abuse of process.

Another action that is considered an abuse is when the petitioner advertises outside the parameters of the insolvency rules.  For example, emailing a copy of the endorsed petition to the respondent company’s bankers on the day the petition was presented can result in the petition being dismissed and, potentially a subsequent legal action against the petitioner on grounds of malicious prosecution.

There are two key messages, here, namely:

  1. As the creditor, you need to consider whether you have an enforceable debt and, if so, what is the most appropriate route for collection.  It also helps if you can put the emotion to one side and consider the outcome of your actions and whether there are better alternatives that will maximise recovery.  If in doubt, seek legal advice or, where an alternative insolvency procedure has been put forward by the debtor, consult with an insolvency practitioner for their views on that alternative.
  • For the debtor, at the first sign of experiencing difficulty in meeting your debts when they fall due, take advice from an insolvency practitioner.  Do not leave it until you have frustrated your creditors so much that they become focussed on seeing your business wound up and you investigated for potential misconduct.

It is all too simple to tell someone who is owed money not to become emotional, but threatening winding up when that is inappropriate or even malicious can come back and haunt you.  Yes, there is a desire to recover debts as quickly as possible, but beware of not falling into the malicious trap.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Solvent liquidations – an end to tax clearance

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PBC sign

Solvent liquidations - an end to tax clearance


The most frequent appointments insolvency practitioners have had in recent times are as liquidator of solvent liquidations (“MVL”). Most MVL are where a company’s purpose has drawn to a close, having paid all known liabilities, and the balance of funds are distributed to the shareholders.

In the pre-MVL preparations the company accountant will normally obtain tax clearance. Perhaps an anomaly is the MVL liquidator has also needed to obtain tax clearance before concluding the MVL. This requirement has resulted in many MVL being held open for long periods of time.

However, with effect from 6 December 2023 the requirement for tax clearance in MVL has been abolished. In a statement within their guideline, HMRC made it clear:

“Insolvency legislation requires directors to make a sworn declaration of the company’s assets and liabilities, confirming liabilities plus costs and interest can be met in full in the next 12 months. Directors need to be satisfied that the company’s liabilities, including tax liabilities, are stated accurately in order to confidently make this sworn declaration. Liquidators, company financial advisors, directors and shareholders customarily work closely together in MVL cases to ensure the company’s affairs are wound up as efficiently as possible.”

It is clear HMRC shall rely heavily on the accuracy of the declaration of solvency and the penalties available should it prove to be a false declaration. Therefore, any directors considering entering their company into MVL must ensure all potential liabilities are identified and paid (or secured) beforehand.

If you require any advice or assistance on any insolvency or solvent -related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Successful Sale via Administration

business-insolvency corporate insolvency practitioner northampton milton keynes

This year PBC were engaged to consider the restructuring of a large group of companies where the primary operations involve vehicle insurance, rescue, and repair.  Our advice has resulted in the sale, as a going concern, of the trading operations that includes safeguarding 75 jobs and protecting almost 40,000 insurance policies, that are currently in force.

PBC are dealing with the Administrations of the three principal trading subsidiaries and, whilst this has been a highly challenging assignment where the protection of almost 40,000 road users was the priority, it is indicative of the quality of the PBC Team that we successfully rescued the businesses. It is also a reflection of the recognition PBC holds when it comes to assignments of this scale.

Should you have a specific question then please send it to enquiries@pbcbusinessrecovery.co.uk.

If you require any advice or assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 (Northampton) or 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. 

Promotion Announcement

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Promotion announcement

PBC are delighted to announce that both Nick Bonser and Ian Cooke accepted invitations to become directors.

Many in the business community will know Ian, who has been working within the insolvency industry for almost 30 years and after starting with the Insolvency Service, moved to an insolvency practice before bringing his knowledge and expertise to PBC in December 2021. 

On the other hand, after 35 years working for a major clearing bank, Nick joined PBC in January 2019 bringing his wealth of commercial knowledge and expertise in operational and financial matters to the company.

Director, Gary Pettit said,

“In terms of the future growth of PBC Business Recovery & Insolvency, to say I am over the moon both Nick and Ian accepted my invitation is a massive understatement.  Achievement and desire equate to reward, and both deserve their promotion. For me, this is a positive move towards reaching our longer-term goals.”

If you require any advice or assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Why should you negotiate?

Who remembers the scene in “The Life of Brian” where the trader insists the proposed buyer must haggle, rather than pay the price being requested?  That scene reminds our own Gary Pettit of what it can be like in dispute resolution matters, whether that is in relation to a financial claim or a dispute in management.

Taking legal action is a risky business for various reasons but, more so these days as the courts are demonstrating their preference to disputing parties avoiding court intervention and resolving their issues by way of alternative dispute resolution (“ADR”).  It does not matter how strong you believe your position is; the failure to engage in ADR could lead to a pyrrhic victory as you may win, but that ADR failure results in you being on the wrong end of a costs award.  In one reported case, the respondent won (as they confidently (and, as it turned out, correctly) stated in pre-court correspondence their liability amounted to £10,000) but, because they refused to entertain ADR, the court ordered them to pay some £200,000 in adverse costs!

The stance adopted by the courts is understandable.  At every stage of a litigious matter there is an opportunity to reach a negotiated settlement.  Yet, all too often a dispute deteriorates into a war of words and accusations where (particularly in management disputes) the original cause of the dispute can be forgotten.

The real danger of management disputes is, almost without fail, warring directors focus on the emotions of the dispute and forget they still owe statutory duties toward the company.  That oversight can often lead to more serious consequences for those directors, including personal liability.

As a CEDR accredited mediator, Gary Pettit of PBC says.

“A key problem with any dispute is that the parties argue.  I appreciate that sounds like I am stating the obvious, but they argue rather than listen or look at the reality of the potential consequences of the failure to consider ADR may cause.  It cannot be a coincidence that when I ask parties what it is they actually want, together with getting them to understand the potential consequences of not reaching a negotiated settlement more often than not, the dispute gets resolved.”

If you require any advice or assistance on alternative dispute resolution or any insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 (Northampton),  01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.