The following is a blog written by Pete Miller of The Miller Partnership which we at PBC felt should be shared to readers of our website.

When the details of the Finance Act 2016 were first published, new measures such as changes to the Targeted Anti Avoidance Rule (TAAR), were met with a fair degree of interest by company owners.

However, as the months have gone by and these changes have started to bed in, what was initially just a talking point has become a cause for concern for many of the businesses I talk to.

The TAAR was introduced by the Government to prevent what is known as “phoenixing” – the process whereby shareholders receive capital distributions on the winding up of company then go on to run a similar business in another form, such as carrying on the same business as a sole trader after winding up the company, or continuing the same trade through another company.

If you are caught by the TAAR then you could see your capital distributions being taxed as dividends at an income tax rate of up to 38.1 per cent – and not as capital gains tax which may attract entrepreneurs’ relief at the much more favourable rate of 10 per cent. The rules make quite a difference.

The crux of the matter lies in whether or not you are trying to avoid paying income tax by phoenixing the company, which is something only you, or the clients you are advising, can decide.

Many people I have spoken with worry that the anti-phoenixing rules will catch them.  In many cases, the TAAR is not a problem; clients just need reassurance that they are 100 per cent commercial.  But there are cases where we need to look more closely at the rules and their application to the particular situation.

Crucially, businesses should note that the TAAR can only apply if you are liquidating and not selling your business.  We may be able to help you with opportunities to sell the company as a money-box, instead, so if this might be helpful, please call or email us at once.

Although the anti-phoenixing rules are still fairly new, The Miller Partnership has many years’ experience in advising on such motive-based tests in taxation law.  The chances are, the rules won’t apply to you, but if you think that they might, please talk to us. We can help.

Even in wholly commercial cases, HMRC might decide to enquire into the situation, because they think that the TAAR might apply.  Those cases will also need careful handling, to ensure that we are able to convince them of the commerciality of the winding up.  The evidence will be a major factor in HMRC’s decision, so call us if you are thinking of winding up your company, and we’ll help you make sure that you have all the proof you will need.

The changes to the transactions in securities rules mean that, apart from considering the TAAR, if you are planning to wind up or liquidate your business, you must get tax clearances from HMRC first. It’s vital you do so and I cannot stress this course of action strongly enough.

Readers will often see phrases such as ‘Provide the best advice, no matter what the fee consequence…’. However, how often do you hear someone add to that, ‘and what it is you want’?

Personally, I fail to see how you can receive the right advice without first understanding what you, the potential client, are hoping for, because is that not the basic principle behind managing expectations?

Many have an (understandable) perception that all insolvency practitioners do is administer insolvency estates and in many cases that may be correct. That is not all we do at PBC.  Yes, we can (and do) accept appointments on the whole spectrum of insolvency types, including some challenging tasks which have included setting a legal precedent in 2016 when we questioned the validity of an administrators’ appointment.

At PBC our services also include:

• Advice to professional advisors when they are, in turn, advising clients.
• Advice to (and representation on behalf of) creditors on both their rights and the problems they are facing.
• The ability to refer people to the right advisors, whether that is legal, accountancy-based or specific, such as involving personal guarantees.
• Mediation services – at the time of writing, and as the practice’s CEDR accredited mediator, I have successfully settled every dispute where engaged as the mediator.
• Probate services where Gavin Bates is a qualified person for handling (and/or assisting on) deceased estates.
• Two nationally recognised speakers who present regularly at seminars.

 

We truly believe it is not what you know, but who you know and the business community of Northamptonshire should have our contact details saved as someone they know who will provide the best level of excellence and expertise an insolvency practitioner can provide.

 

Mediation Services

As solicitors will inform you, courts now look for Alternative Dispute Resolution (ADR) as opposed to disputing parties ‘going to war’ with lengthy and (usually) expensive proceedings where, at trial, the outcome can still be something of a lottery. The times I have read about someone winning at court but the costs inherent with the matter dilute, or even extinguish, the award given.

The principal ADR vehicle is mediation and, as a mediator accredited by the Centre for Effective Dispute Resolution, I am a member of the largest organisation of mediators. Since launching the service I have been asked to handle disputes concerning liquidators pursuing directors for personal liability, ranging from £90,000 to £650,000.  I have even acted as mediator where a former bankrupt was pursuing his former trustee under several headings, including professional negligence.  To date, a settlement has been secured on every matter I have presided over.

Litigation will be around forever because people will inevitably have disagreements. However, in my experience, often the litigating parties have lost the ability to see the wood from the trees, while costs are mounting and, in many cases, the distraction from their normal daily lives can be destructive.  This is where a mediator earns his keep.  He is a neutral facilitator for trying to resolve a dispute.

Mediation often draws out the principal facts and, if the parties remain open-minded, can get them to recognise the degree of commerciality of their (litigious) actions. The courts prefer mediation as a way forward and will often ask if it has been considered.  Having that neutral facilitator to try and settle a dispute can save a lot of time, effort and money.”

 

Probate Services

PBC are about to launch a new service following the qualification attained by Gavin Bates to administer deceased estates.

A taboo subject for many is death. Unfortunately, PBC have been engaged on several deceased estates, including a person who passed away intestate leaving a business incorporating over 130 buy-to-let properties and a solicitor who died suddenly, leaving a wealth of issues, including handling the daily affairs (under a power of attorney) of an elderly person.

All too often, directors pass away unexpectedly leaving their business with nobody to deal with its daily operations. With his insolvency knowledge coupled with his probate qualification, Gavin can assist executors of a will with trading or, if appropriate, disposal of a business where the business owner has passed away.

The other significant point is that executors maybe confronted with an insolvent estate where anything they do could result in personal liability.

It may appear shocking to readers that an individual can be made bankrupt notwithstanding they are deceased. The Administration of Insolvency Estates of Deceased Persons Order 1986 replaces bankruptcy, although it still adopts bankruptcy statute when the estate is being administered.

Gavin says: “Death is generally a taboo subject. Unfortunately, at the time it occurs, all too often the family and friends are not of the right mindset to be thinking about keeping a business operating, where wages are payable or the deceased was the sole cheque signatory, for example. This is where PBC can offer a service to the executors and their advisors, using our experience as insolvency practitioners and applying the practical solutions required to ensure the deceased estate and its executors are protected.”

If you require any advice or assistance on mediation or probate matters, or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation. Call Gary Pettit or Gavin Bates on 01604 212150 completely confidentially.

Lord Justice Jackson recently delivered a clear message to parties who play for time when agreeing to mediate.

‘In a case where mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by dragging its feet for no good reason that will merit a costs sanction’ [Thakkar -v- Patel [2017] EWCA Civ 117]. 

Jackson’s judgment extends the message sent by the Court of Appeal in PGF II SA v OMFS [2013] EWCA Civ 1288 where the Court of Appeal gave an unequivocal endorsement to the view given in the ADR Handbook that,

“Silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable. That is so even if a refusal to mediate might have been reasonable if the receiving party had engaged with the request in a meaningful way”.

This ruling is another reminder the courts expect litigants to be proactive and engage constructively with one another during proceedings and to properly explore the potential to mediate a dispute.

It can often be a few months between the parties formally agreeing to mediate and actually getting to the table. This ruling is designed to make litigants think twice about using logistical “difficulties” cynically as a delaying tactic.

What it means:

Avoiding mediation is no longer an option. Parties cannot refuse to mediate, ignore requests to mediate, or pay lip service to an agreement to do so. If they do, cost penalties are likely to be imposed.

PBC director, Gary Pettit, is an appointment-taking licensed insolvency practitioner with over 26 years of experience.  During his career he has never lost an action where court intervention has been required.  As a mediator accredited by the Centre of Effective Dispute Resolution (“CEDR”) Gary draws on his successful litigation record when aiding parties negotiate a settlement.

Should you be involved in an insolvency-related dispute where mediation has been (or is being) considered then we at PBC fail to see how the only known mediator who is also a current appointment-taking insolvency practitioner cannot be the right person for you.

For more information, see here or call Gary on 01604 212150.

Insolvency practitioners are well versed to creditors’ meetings as the way in which creditors make decisions about a company or individual who is insolvent and how the process is managed. However, from 6 April 2017 the profession and creditors will have to get used to a completely new way of operating as a result of the one of the major changes made by The Insolvency (England & Wales) Rules 2016.

Creditors will still be the decision makers in the insolvency process but physical creditors’ meetings are now not the main method at which decisions will be taken by creditors.

There are now four ‘decision procedures’ specifically defined by the rules, namely:

• virtual meeting,
• correspondence,
• electronic voting; and
• physical meetings. Physical meetings may only be used in exceptional circumstances.

 

In addition, deemed consent can be used to obtain a decision from creditors but it is not a ‘decision procedure’.  This distinction is critical as only decision procedures can be used for the approval of remuneration

Virtual meeting

 A virtual meeting is one where creditors are not invited or allowed to be at a physical location but may participate by way of telephone or video conferencing.

Electronic Voting

Electronic voting is an electronic system whereby creditors may vote without having to attend a physical location to do so by the decision date. Systems like Survey Monkey or similar would best fit this process.

Correspondence

When seeking a decision by correspondence, creditors will be sent various proposed resolutions and will then complete and return the voting form by the decision date.

Physical meeting

A physical creditors’ meeting may only be called if the “10 10 10” rule is met. After notice of a decision making process has been sent to creditors, a physical meeting can be requestiioned if either of the following conditions is met:

• 10% of the value of creditors request a meeting
• 10% of the total number of creditors request a meeting
• 10 individual creditors request a meeting.

 

These physical meetings will operate in much the same way as used to do.

Deemed consent

Alternatively, an office holder may send creditors a notice of resolutions by deemed consent. Creditors are deemed to have consented to a decision or resolution after notice of the decision or resolution is sent to creditors and fewer than 10% in value have objected to it. If objections are not received by the decision date creditors will be deemed to have consented to the decision or resolution.

Obviously it will take a while for creditors to become accustomed to these new processes and therefore PBC will gladly assist anybody in explaining the new processes.

PBC are pleased to announce the successful completion of the administration of Rowellian Football Social Club which included payment in full to its secured creditor, unsecured creditors (plus statutory interest) and a payment to its members.

This has been a highly complex and unusual administration from the outset, including setting a legal precedent. By way of background, the Club was a long-standing trading entity that primarily operated a social club and traded as ‘Rothwell Town Football Club’.  Whilst trading was satisfactory over its lifetime, in its latter years the Club saw a decline in business with significant losses being suffered.  Efforts to sell the Club were unsuccessful for various reasons.

Ultimately, solicitors were instructed to place the Club into administration. However, before the administration application could be filed the legal entity of the Club needed to be established.  To this end, the High Court concluded the Club’s constitution failed to meet the criteria of any recognised legal “Person” in the United Kingdom.  Despite this and after 3 separate hearings Leeds High Court laid down directions whereby the Club’s members voted to amend the constitution to be described as a partnership.  Immediate steps were then taken to place the Club into partnership administration with Gary Pettit and Alan Price being appointed Joint Administrators on 17 October 2011.

Upon appointment, the administrators made enquiries about the possibility of planning being granted to re-develop the ground and were told, in principal, this was likely. Following a short marketing plan two offers were received culminating in a sale at £1.39 million.  An application for planning was submitted.  Negotiations over the sale of the land and exchange of contracts were protracted, the exchange eventually took place in early 2014, at the same time the application for planning was submitted.

Whilst this was going on it became clear there were likely to be surplus funds available after the payment of the creditors and costs of the administration. The administrators had the unusual task of working out what to do with the surplus funds.  The Club’s constitution prohibited members enjoying any profit (or windfall).  There were no “shareholders” as such and the Club was dormant.  In the end, court directions were sought where the administrators suggested, notwithstanding the constitution, the surplus ought to be paid to the members.

The other issue was the exit route from administration. In normal circumstances an administration must be completed within one year unless creditors vote to extend or the court grants the relevant extension.  This is normally for a maximum period of eighteen months.  However, in order to avoid the inherent costs of liquidation and to enhance dividends payable, the administrators applied to court and sought additional extensions past the 18 months statutory deadline.  In total the administration lasted 5 years.

Full planning was finally granted in late 2014. However, the original purchasers decided they could not proceed with the sale and this meant further negotiations with a new purchaser, including an assignment of the contract and amendments to the planning permission including the council’s insistence the secured creditor be subject to the planning consent.  It also included complex communications with regards to the vacation of a communications mast from the site.  The sale eventually completed in March 2016.

Gary Pettit said “The hard work and commitment by all parties on this highly complex and very unusual administration has resulted in its secured creditor being paid £259,935 and unsecured creditors being paid in full together with statutory interest. I have also received claims from 100 members who have each been paid a dividend of £795.52, a nice return on a £5 annual membership fee”.