PBC announce large return to creditors

PBC are pleased to announce a significant dividend has recently been paid to the non-preferential creditors of Eldean Ironmongery Limited.

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Earlier this month, the joint liquidators were able to issue a dividend of 61.59pence in the pound to non-preferential creditors, with the amount distributed totalling over £89,500. This had been preceded by full payment to the preferential creditors and a payment of over £67,000 which full redeemed the company’s secured creditor, which in turn safeguarded the directors who had given personal guarantees that will not be called on.

The ability of the joint liquidators to make these payments was down to the sale of the company’s freehold property. PBC worked closely with a local firm of estate agents to ensure a sale of the property at a price 30% higher than the estimated value.

Joint liquidator Gary Pettit said, “At PBC the key word is “Awareness”.  This is not just for stakeholders but is also relevant to the PBC team.  That awareness resulted in us thinking outside of the box when looking to sell the property, culminating in a significantly enhanced price when compared with the initial valuation.  All in all, a good outcome for creditors as a whole”.

The financial cost of debt

The title for this editorial is quite deliberate. When companies and individuals are experiencing debt problems there is a non-financial cost consequence.  I am talking about the pressure, stress, anguish and, in some cases relationship breakdowns.  That is the physical cost burden and is often over-looked in the creditor scramble to get paid before any implications of a formal insolvency prevail.  The more fundamental cost is that of the professionals as every penny they draw down is depriving you, as a creditor, of a better (or any) return.

Notes

Since the Insolvency Act 1986 came into force there has been endless commentary surrounding the fees charged by an insolvency practitioner (“IP”) for handling insolvent estates. Unfortunately, there have been reports that fully justify criticism where even IPs have been known to be shaking their head with disbelief at what another IP is claiming.

So, what can you do to control the costs? October 2015 saw the implementation of remuneration reforms for IPs.  Now, once appointed, the IP must provide an estimate of the costs for completing the appointment if he proposes to be paid on a time cost basis.  Okay, that is a bit like wetting your finger and holding it in the air to see which way the wind is blowing as many things can (and do) arise that were unknown at the time of appointment, but it is the law nonetheless.

Under the reforms an IP can fix their remuneration on a time cost basis, fixed (or capped) sum, a scale rate percentage or a combination of all three. The key point to remember is you, the creditor, fix the basis of remuneration so it is really important you do get involved.  In a recent example I advised a creditor where the liquidator was seeking a level of fees and disbursements that, when you read “Between the lines” was designed to ensure the liquidator took all of the realisations in costs.  Based upon our advice the resolutions sought were rejected and alternative resolutions put forward that promote creditors at least getting a dividend.

In addition to the October reforms the Insolvency Service announced on 1 July 2016 the Official Receiver’s fees were changing. This announcement came out of the blue but, in essence, the Official Receiver will take a lump sum from the first realisations followed by a straight 15% of the remaining assets TOGETHER WITH 15% of the funds available to distribute to creditors.

Fixing remuneration on a scale rate basis can be seen to be the way forward as creditors get a good idea of the likely outcome. However, it can also appear very expensive.  For example, how much does it cost an IP to instruct the bank of an insolvent estate to close the account and send the closing balance to the IP?  I did see one example where creditors approved a global 25% scale rate of realisations, which included over £100,000 in the bank.  A creditor contacted me for advice as they were intending to complain as (quite rightly) they thought £25,000 for closing a bank account seemed a little excessive.  Unfortunately, because creditors did not properly engage with the insolvency and simply allowed a 25% rate on ALL realisations the IP in question ended up as the only happy bunny!

So, if you are unfortunate to be on the receiving end of a notification one of your customers is heading towards a formal insolvency, be involved or, better still, consult an IP to act on your behalf. Ensure the foundations of the insolvency are laid down at the outset.  Complaining later when you are being forced to write off your debt while simultaneously the IP has been authorised to take handsome fees serves no purpose other than to increase frustration.

Can your advisor advise?

Let us start with a question. If a stranger came up to you and asked to borrow your car for a couple of weeks would you simply hand over the keys, walk off and trust the car will be returned in good order?  Hopefully, your answer will be along the lines of “Don’t be daft” or, quite simply, “No.”

So, why is it then, when confronted with an issue that could have serious financial implications, both on your business and you personally, many still refer to unlicensed or unregulated advisors?

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Recently, I have had the misfortune of coming across two examples. The first was a director who was advised his company was insolvent and steps ought to be taken to place the company into liquidation.  So far, so good.  However, that advice included selling the principal business pre-liquidation where the sale included a tidy £80,000 windfall for the directors!  A fee of over £16,000 was demanded and paid pre-liquidation.  That director is about to be confronted with a number of claims where the liquidator can “Lift the corporate veil” and hold the director personally liable.  The second is of a similar tone and with every day that passes the directors appear oblivious to the fact the advisor is steering them towards personal liability claims and, potentially disqualification from acting as a director.

To make matters worse, when using such advisors you have no guarantee of their knowledge or skill. Furthermore, there is likely to be little (if any) redress in the event of a complaint or challenge to their advice.

The Association of Business Recovery Professionals have been so concerned with this (growing) problem they have published two guides:

“Don’t be misled by advice from an unlicensed advisor”

“My business is in financial difficulty”

These can be found on the Association’s website (www.r3.org.uk) or on our website at www.pbcbusinessrecovery.co.uk/Links/.

Every insolvency practitioner (“IP) has to be licensed through a professional body and are regulated by statute, their professional body and the Government through the Insolvency Service. IPs also have professional guidelines to follow and are insured so there is recourse if things go wrong.

Perhaps the anomaly in the capacity of an IP to advise surrounds personal insolvency. If during a meeting with an individual the IP concludes that individual should go bankrupt and, as a result the IP will not be appointed to act the IP must cease the meeting forthwith because he is not permitted to provide bankruptcy advice!  The exception is if the IP holds a licence issued by the Financial Conduct Authority, which I am happy to say PBC are licensed in that respect.

At PBC there are two IPs, regulated through the Institute of Chartered Accountants of England and Wales and the Association of Chartered Certified Accountants. The directors in both Northampton and Coventry have well in excess of 100 years’ experience between them and, as mentioned, licensed by the Financial Conduct Authority.

Personally, if it was my financial welfare on the line I could not comprehend seeking help and guidance from anyone who is not qualified. That is not me being a control freak; merely seeking the best and most appropriate steer.  That is my view so why would you think differently?

So why not administration?

Insolvent Concept. Word on Folder Register of Card Index. Selective Focus.

There is never a good time but to do this but on 18 December 2015 the (39) employees of a company in Thetford were given the dreadful news their employer was ceasing to trade with immediate effect. As a result they were all being made redundant forthwith and salaries could not be honoured.

Having recognised the company was insolvent the directors concluded the company must take the steps to place it into creditors’ voluntary liquidation. However, with the natural Christmas break it was decided best to commence the liquidation proceedings at the start of 2016.

During the Christmas break information came forward that suggested cessation of trade was premature and on the advice of PBC, Gary Pettit and Gavin Bates were appointed joint liquidators on 4 January 2016. A week later (and having secured the services of some of those employees that had been made redundant) creditors approved PBC trading the business for the beneficial winding up.

Applying a simple business approach PBC turned around losses to record almost £200,000 of pre-tax profits, which assisted in securing a sale of the business as a going concern. Not only does the sale enhance the assets available for creditors but the purchaser has already started re-employing, together with plans for expansion generally.  All good news for creditors and for the economy of the local area.

Many (including fellow insolvency practitioners) have asked why PBC did not advise placing the company into administration, which is regretfully the standard approach. In reply, Gary Pettit has said,

“The directors recognised at an early stage this company was insolvent and acted upon that determination without delay. There were no legal actions or other (creditor) threats that could damage the business at the time so why incur the additional (high) expense of administration?  Furthermore, there are other legal implications that were avoided in liquidation and this enhanced the purchase price, which in turn promoted a higher recovery for creditors.  Trading under liquidation is uncommon but, in this case, everything pointed towards that approach and the outcome is clearly justifying the view at PBC whereby you consider the best advice for the client, irrespective of the costs consequence for ourselves.”

This matter typifies the ability to think outside of the box and the outcome has protected the jobs of many (not to mention enhanced additional employment for others), protected the interests of creditors (including minimising risks under third party liabilities) and preserved a business requirement for the many customers who relied upon this company’s services.

PBC expands in Coventry

In some quarters this may be the worst kept secret but officially we can now announce the retirement of David Halstead Bottomley who has been in partnership with Paul Rogers at Bottomley & Co for over 10 years.

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As regards our new beginnings, we can reveal that, as David bows out, Paul and the team at Bottomley & Co, have joined Gavin Bates, Gary Pettit and Kym Carvell of PBC Business Recovery and Insolvency Limited, creating PBC Bottomley.

The team have already moved into new larger premises at the Coventry University Technology Centre. Paul and Gavin are well-known as regular faces on the Coventry & Warwickshire networking circuit.  Paul said, “I have known Gavin for many years and I could always rely on Gavin to give me a straightforward answer, so I am looking forward to working together”.

Paul went on to say ‘It is clear that we have had similar ideas and philosophies. So when this opportunity arose it was the ideal time for bringing together our expertise and to provide an enhanced service to Coventry & Warwickshire’s businesses and beyond.

Gavin said, “We look forward to building on our combined expertise to provide expert advice to all stakeholders on the risks in business and the solutions to insolvency”.  The team at PBC Bottomley are planning a stakeholder event at the end of the summer, so watch out for the invitations.

The Castle (Wellingborough) Limited

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The joint administrators announced yesterday that The Castle (Wellingborough) Limited is to be placed into liquidation and all theatrical performances and activities have been cancelled with immediate effect.

Joint administrator, Gary Pettit, said, “We have been in constant dialogue with the Council, who have supported The Castle over the past few years, but sadly we have no option but to close the business down. There has been a lot of interest shown in taking the theatre forwards and non-disclosure agreements were issued to those parties, however there are some complex legal and constitutional issues that prevent us from following up this interest and we are unable to meet the statutory purposes of the administration.”

“As a result, the company will be wound up by the court and the property will be handed back to Wellingborough Council. We will be reviewing all advanced bookings we received for future performances and we will be in contact with those people in due course.”

Questions:

  • How many staff will this affect? Sadly, we have had to issue redundancy notices to 31 staff members this afternoon. All salary payments are up to date.
  • Will all costs to performers/suppliers since your appointment be paid in full? All post-appointment costs will be paid in accordance with the Insolvency rules regarding trade expenses.
  • What happens to costs from performers/suppliers prior to your appointment? Current indications are that we will not be able to make any payments to creditors for outstanding debts that arose prior to our appointment. However, the full position will be disclosed to these creditors within the liquidation process.
  • What does ‘liquidation’ mean / what is the process now? The Court will place the company into liquidation, meaning it affairs will be wound down. As the building is owned by Wellingborough Council, it will be secured and handed back to them to manage going forwards. All assets owned by the company will be sold and any funds generated will be distributed in accordance with the insolvency rules. As the company is placed into liquidation, there will also be a statutory investigation pursuant to the Company Directors’ Disqualification Act 1986 – this is a condition of liquidation and does not infer that there was any wrongdoing at this stage.
  • What is happening to the Theatre?  The building will be closed, secured and handed back to Wellingborough Council. It is entirely the Council’s decision as to future use or development. In our personal view it is not viable to run this entity just as a theatre, it needs to be developed as a wider service.  Therefore, we do not anticipate there will be any future theatrical activity for at least 2 years.
  • How many people expressed an interest in The Castle? There were 7 expressions of interest in the business and two further expressions of interest in the property for developmental purposes. We have been unable to secure the Council’s full commitment for future support for The Castle, therefore we are unable to do anything further.
  • What happens to people who pre-booked tickets for performances which are now cancelled? All tickets booked after 13 April 2016 will be refunded in full. We are in the process of contacting these people, but if they have not heard from us by Friday 8th July then they should contact PBC on 01604 212150.  Anybody who purchased tickets before 13 April 2016 will be entitled to claim as a creditor in the administration, and as stated above, it is unlikely we will be able to make payments in this regard.  Alternatively, if the tickets were purchased on a credit card, you should contact your card provider who may be able to issue a refund.