PBC charity golf day 2023
Redundancy for Directors
At PBC we are often having directors express surprise when they are told they have employment rights and that it is possible to claim for their redundancy entitlements against the Redundancy Payments Service (“RPS”).
However, late last year the Government updated their guidelines for directors making redundancy claims. While the guide looks “Innocent” and helpful, the practicalities are far from straight-forward.
The RPS introduced a painstaking questionnaire that directors must complete. Cynics would say this questionnaire was designed to ensure directors cannot claim their legitimate entitlements, but directors are encouraged to grit their teeth and complete it all the same. Questions you will be asked include:
- Were you a shareholder of the company?
- How much did you earn over the past 3 years?
- Were you paid less than the minimum wage?
- Were you responsible for starting company insolvency discussions with an insolvency practitioner?
These questions are designed to imply you made yourself “Voluntarily redundant,” so should not be entitled to your employment rights. This is an argument the RPS have previously lost in court where the court questioned the RPS on whether they support directors breaching their statutory duties and continue trading whilst insolvent or, to follow the law, cease trading and make all employees redundant.
Further, if you have an adverse loan account (i.e. you owe the company money) then the RPS will automatically claim a right of set off and not pay any entitlements. This approach is woefully unsound but until challenged they will continue to apply it.
In essence, a director needs to prove they were an employee. The view of the RPS is that an employee would not loan to (or borrow from) their employer, they merely fulfill their job role and are paid accordingly. With this in mind, the RPS may also ask for evidence such as pay slips, P60s, details of any dividends paid, copy accounts and bank statements.
So, while the RPS have set out a procedure that seeks to reject employee claims from directors, it is still possible to claim nonetheless. Who knows, one day a director will take such an exception, they may appeal a rejection and see this practice challenged in court again.
If you require any advice or assistance on mediation or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.
Have your say!
This article was published recently by BBC which prompted this email from Gary Pettit to the BBC in response…….bang goes Gary’s knighthood!
Warning that thousands of firms face collapse – BBC News
I read your article headed, “Warning that thousands of firms face collapse” and concur with Julie Palmer’s views. However, there are some further points to consider.
Firstly, it should not escape our minds that corporate insolvencies slumped during the pandemic as enforcement restrictions, introduced primarily by the Corporate Insolvency & Governance Act, prevented debt enforcement in some key areas. In addition to the (ill-thought out) bounce back loans, together with other financial support available, the Government created a false economy by financially assisting many companies that ought to have failed during 2020-21.
As an insolvency practitioner I am seeing similar patterns across all fields of industry including:
• Those companies kept “Alive” due to COVID support are now started to fail. In other words, current corporate failures include two years’ of relative inactivity on top of usual annual statistics.
• Companies are struggling to secure raw materials. Without those materials they are unable to complete sales and without sales they are being starved of income. This comes to the fore when I am selling company assets, with purchasers paying above market value, primarily due to the extended lead times through “Normal” delivery/ordering routes. Probably the most stark example I can comment on was a compulsory liquidation in late 2022 where the (kitchen fittings/displays) assets were professionally valued at £35-50,000 by my agent, only to realise £180,000 as competing businesses came forward scrambling to secure the goods. It does suggest there is money out there.
• Many are still trying to restore pre-pandemic trading levels but are being caught up by the need to repay BBLs, CBiLS or rent arrears that accrued. This is in addition to the end of the job retention scheme, resulting in overheads returning to previous levels. Utility bills are the latest attack on cash flow and that is probably the core reason for many struggling; they are simply running out of cash.
What does not get mentioned is the Government declined to listen to the dissent shown towards re-introducing preferential status for HMRC. While it is classed as “Secondary preferential” it elevates HMRC up the order of priority of payments. Again, COVID is partially responsible for a high level of tax debt. I believe it went from £16 billion pre-pandemic to circa £39 billion now. However, what we are seeing (and will continue to see) is more “Phoenix” liquidations because the secondary preferential status of HMRC makes restructuring through the likes of a company voluntary arrangement non-viable. That is evident when you consider the insolvency statistics, which report very high liquidations (in terms of percentage of all corporate failures) while CVA numbers are negligible. The implementation of secondary preferential status was ill-thought, misguided and, actually costs the Government with liquidations paying out lower returns to creditors (meaning HMRC recoveries are lower) and the additional burden on the Government of costs inherent with liquidation (ie higher redundancy and other employee entitlement claims, loss of business rates for local counsels, increase in unemployment benefit claims, to name but a few). This practical effect is like ever decreasing circles as creditors of the liquidations are forced to write off debt and, in turn have to review their own financial structure, or even became another statistic of the Insolvency Service, adding further cost burden on Government funds.
If financial problems are being experienced or, indeed, they appear to be on the horizon, then take advice early from PBC. 01604 212150 or email enquiries@pbcbusinessrecovery.co.uk.
You must be busy……?
Whilst it is well reported that insolvency numbers are on the rise and likely to continue given the current economic difficulties, the above is a question frequently asked of us here at PBC Business Recovery & Insolvency.
The answer to the question from our perspective is, yes, we are. However, busy is not always gauged by the number of formal appointments we undertake. Undoubtedly, formal appointments help pay the bills but from our perspective “busy” is generally based on the amount of advice being sought when financial difficulties are experienced. To this end, yes, we are busy, but busy looking to help companies and individuals avoid formal insolvency processes and to fight another day. Of course, some companies are unable to be saved and it is appropriate that the doors be closed once and for all, but this is not for a want of trying, on our part, and those we advise.
If financial problems are being experienced or, indeed, they appear to be on the horizon, then take advice early from PBC. The adage of ‘a problem shared is a problem halved’ is generally very true – at PBC we are just at the end of a phone or email if needed – 01604 212150 or email enquiries@pbcbusinessrecovery.co.uk.
The initial meeting is always free of charge, confidential, no obligation and impartial, with the appropriate advice given.
Help is out there
According to HM Revenue & Customs, as at 3 January 2023 almost half (5.7 million) of the 12 million individuals expected to file a tax return are yet to do so. At the corresponding time in 2022 that figure stood at some 4 million.
HMRC have made it clear the forgiveness for late filing shall not apply in 2023 so many could face an initial £100 fine. That fine can increase for continued non-filing.
No doubt there will be many reasons for late filing but one of those is likely to be a fear the taxpayer will be unable to pay the liability arising. Burying your head in the sand is no solution. Indeed, it can become a large and costly problem.
Contrary to belief, HMRC will look at assisting a taxpayer where affordability is an issue, especially now when the cost of living issues are taking hold of the Country.
Should you find yourself in a position where you cannot afford to pay your tax liability by the due date then HMRC will consider a time to pay agreement (“TTP”) that permits you to spread the payment over a period not exceeding 12 months. If you owe less than £30,000 you can follow this link:
https://www.tax.service.gov.uk/pay-what-you-owe-in-instalments?_
The principal criteria for a TTP are that you:
- have applied for a TTP within 60 days of the payment deadline.
- have filed your 2020 to 2021 tax return
- owe £30,000 or less
- have no other tax debts
- have no other HMRC payment plans set up
It would be wrong to imply HMRC simply agree to TTP upon application. Firstly, HMRC have no obligation to agree, and consideration is likely to include the above criteria, together with a review of your compliance history. Should the tax liability be over £30,000 you are encouraged to telephone HMRC to discuss a TTP. PBC are happy to advise anyone with debts owed to HMRC, whether as your only creditor or as part of a wider financial matter.
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 or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.
Interim Dividend Declared
PBC are delighted to announce the payment of a significant interim dividend amounting to £500,000 to HM Revenue & Customs from an insolvency estate. Following our advice, the Northampton based company was placed into creditors’ voluntary liquidation in August 2022 and a commercial approach adopted with regards to asset disposals. Combined with further assets to realise additional payments will be made to creditors in the future.
Jamie Cochrane, who is dealing with the liquidation, said, “It is always pleasing to be able to return monies to creditors, albeit solely HMRC at this stage. The approach taken by PBC on this case has avoided the company being wound up by the court, the increased level of costs associated with this process and allowed us to address asset realisations in an orderly manner, resulting in enhanced values. All of which will lead to a higher return to creditors”.
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 or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.
New Year – time to plan but…………
It has been recently reported many differing businesses are finding it extremely difficult to plan due to the uncertainty whether government support to businesses for their energy costs will be extended beyond March 2023.
Most business owners would ideally like to have at least a 3-6 month cash-flow buffer to work towards and the government’s failure to provide clarity on energy costs beyond March 2023 is of significant concern to many. According to the Federation of Small Business one in four small firms expect to either close, downsize or radically change their business model if the energy support dries up after March. https://www.bbc.co.uk/news/business-64151979
At PBC Business Recovery and Insolvency we always urge business owners, if concerned about the businesses financial future to seek early advice.
If you require any advice or assistance on financial concerns, then please do contact PBC Business Recovery & Insolvency on 01604 212150 or email to enquiries@pbcbusinessrecovery.co.uk and we will be more than happy to help.
PBC World Cup sweepstake money goes to charity!
We hope you all enjoyed the exciting World Cup final last night. PBC are pleased to announce that the total winnings of £55 from our office sweepstake will be going to Gemma Dearsley at the Lighthouse Centre who was lucky enough to draw both Argentina and France!
PBC also have 2 charity events already planned for next year to help raise more money for this very worthwhile cause. Details to follow shortly!
Lies, damn lies and……
Lies, damn lies and……
At this point we are guessing readers are finishing off the above quote.
On 14 December 2022 the Insolvency Service released the November statistics for corporate and personal insolvency and there are some messages that derive from the core numbers reported.
November 2022 saw 2,029 recorded corporate insolvencies. This was a 35% increase on November 2019 (i.e., pre-pandemic figures) and includes:
| November 2022 | Compare with pre-pandemic | |
| Creditor voluntary liquidations | 1,595 | 50% increase |
| Winding up by the Court | 290 | 7% increase |
| Administrations | 134 | 11% decrease |
| Company voluntary arrangements | 10 | 52% decrease |
The key messages appear to include:
- The fallout from the pandemic is starting to take effect.
- Since the introduction of secondary preferential status for a majority of the debt owed to HMRC, restructuring a company has become less viable.
- Creditors are starting to enforce debts by way of winding up petitions, particularly HMRC and one main clearing bank.
However, personal insolvency appears to be taking a totally opposite approach. While individual voluntary arrangement (“IVA”) numbers are difficult to track (they are only recorded once the insolvency practitioner registers it with Insolvency Service) they are averaging 7,801 new IVA per month. This compares favourably with bankruptcies, which only numbered 546 in November, a 60% fall when compared with pre-pandemic figures.
With personal insolvency, our conclusion is that people are recognising their financial challenges early and are acting likewise. In doing so, there is a better chance of reaching a compromise with their creditors. Equally there also appears to be a level of understanding from creditors, who accept the likely outcome from an IVA will be significantly better than that in bankruptcy.
No matter what the statistics say, the consistent message is always that when directors of a company or individuals alike recognise they have financial difficulties, taking early advice will usually mean more options are open to you.
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 or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.
What is desire?
A common question directors of an insolvent company ask is along the lines of can I pay a particular creditor in full before the company is wound up? Usually, that creditor is related or associated in some way to the director, or there may be a personal guarantee attached to the debt.
In short, the answer is invariably “No” as that may constitute a preference. As a quick point, a preference is where, “The company does anything or suffers anything to be done” and that action puts the creditor in a better position than creditors as a whole.
The key principles surrounding a preference are:
- Where the benefitting creditor is not associated in any way then it is for the liquidator to prove there was a desire to place a creditor in a better position. If the party is connected in any manner, then desire is presumed, unless it can be rebutted.
- Did the giving of the preference render the company insolvent or was the company already insolvent?
These key principles were tested in two separate court cases this year, with differing outcomes arising based upon the individual facts.
In the first of these, Carton-Kelly -v- Darty [2022] EWHC 2873 (Ch) the repayment of an intra-company debt of £115 million was deemed a preference. The defence primarily swung on the argument the company was balance sheet solvent, mainly as a result of a material deferred tax asset. However, the court disagreed as these allowances were only available if future profits were to arise and, given the company had ceased trading, that prospect was never going occur.
In upholding the liquidator’s claim the court cited, “the purpose of [the preference provisions] is to prevent a company defeating or undermining the pari passu principle.” [sic]. In other words, you must ensure creditors as a whole are treated fairly and equally.
The second case was Manolete Partners PLC -v- Coleman and Ors [2022] EWCH 2644 (Ch) where the court took a differing view. Mr Coleman had repaid his loan account and argued a sale of the business had been agreed where the combination of sale proceeds and debtor receipts would have paid all known creditors. Insolvent liquidation was never contemplated. Indeed, the only criticism against his defence was the fact he paid himself in full immediately, whereas other creditors would need to wait until sufficient funds were received.
As it happens, liabilities were substantially higher than Mr Coleman understood to be the case and the company was insolvent.
In considering the facts, the court accepted Mr Coleman’s genuine belief all creditors would be paid in full and the presumption of “Desire” had been rebutted. Accordingly, the case against him was dismissed.
The message we can take from these two cases is whether a transaction is a preference, or not, will very much depend on all surrounding facts at the time.
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 or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.