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.

Promotion Announcement

pbc-business-recovery-and-insolvency-practioners-logo

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.

Informal full and final settlement – it can be done!

Settlement Agreement

Informal full and final settlement – it can be done!

We were recently referred a matter, which, was slightly unusual in the current climate and below is a summary of the facts:

 

  • Company had ceased trading.
  • Only asset was cash at bank of £67,000.
  • 6 Company creditors totalled £201,000 of which £75,000 was owed to the company directors.
  • No HMRC debt and no Covid support loans.

 

The directors asked could we deal with the voluntary liquidation of the matter and of course, given the net liabilities we said we could. However, given the nature of the matter and looking to think out of the box and, provide best advice, we suggested best try an informal full and final settlement which would provide the following:

 

  • A return of 33 pence in the £ (within 28 days) in the informal offer.

or

  • 21 pence in the £ (payment not likely to be received within 1 year) if 100% of creditors did not agree with liquidation as a result.

 

We are pleased to report that agreement was reached but this was mainly due to their being no HMRC debt and no Covid support loans (HMRC and liabilities in respect of Covid support loans are unable to informally agree this sort of offer) with the creditors involved being able to make a commercial decision.

 

Whilst it would have been easy for us to deal with the liquidation, we always to look to provide the best advice which, we believe, is certainly in evidence here.

 

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

 

Don’t miss the early warning signs- take advice!

Life is full of those “Where were you?” moments from the death of Princess Diana to the fall of the Berlin Wall.  Insolvency is similar with the announcement of big companies entering into insolvency and one of the most recent was Carillion in January 2018 (This writer was at a breakfast in the Premier Inn, Leeds City Centre when the news broke).

The Carillion story took its latest twist over the weekend with the news the company’s former auditors, KPMG, had reached an undisclosed settlement against the £1.3bn lawsuit launched by the Official Receiver.  The claim focused on audits between 2014 and 2016 and alleged KPMG did not spot various “red flags” as it audited Carillion’s accounts. The firm was paid £29m to audit Carillion over 19 years and signed off the final audit nine months before the liquidation.

When the claim was issued, KPMG said that Carillion’s board and management were solely responsible for the failure as they set the strategy and ran operations and that the lawsuit was “without merit”.  KPMG’s have now issued a statement saying: “I am pleased that we have been able to resolve this claim. Carillion was an extreme and serious corporate failure, and it is important that we all learn the lessons from its collapse”.  When you consider KPMG were also fined £14.4 million by the regulatory body on this matter, these are wise words that ought to be considered by all advisors.

However, the lessons apply not just to professional advisors but to directors as well.  Missing the early warning signs or “red flags” can result in an increased risk of financial problems.  At PBC we strongly encourage directors of companies in or facing financial distress to take advice at an early stage.

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

Paying less tax!

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Business Asset Disposal Relief (“BADR”) – (in old money known as Entrepreneurs’ Relief) may be available to company shareholders who wish to wind-up their solvent company via a Members’Voluntary Liquidation (“MVL”) process.  This is a long-standing method to reduce the standard capital gains tax paid to a rate of 10%.  At PBC we advise and formally act in MVL’s to assist business owners to maximise their return(and pay less tax) in conjunction with the company’s accountants.

There is always speculation pre budget that BADR will either be scrapped or reduced – the most recent reduction was in the March 2020 budget which changed the lifetime relief capped from £10 million to £1million.  Since then, BADR has not been changed.  However, given the level of Government support since Covid, is BADR an easy target for further scrutiny?

The next budget is scheduled for 15 March 2023 and, whilst the view is BADR will not be scrapped altogether, it may be that further reductions/restrictions could be in the offing.

If you are a company owner or advisor to the company and wish to discuss an MVL in more detail, please call PBC on 01604 212150 or email enquiries@pbcbusinessrecovery.co.uk.

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

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

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

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. business insolvency northampton and bedford

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.