Insolvency as a job – It can be a thankless task.

Everyone wants a pop at someone and that someone ends up being us at times. 

  • Landlords losing a tenant or with rent arrears
  • Creditors being owed money
  • Director/shareholder disputes
  • Employees losing their jobs

We’ve had creditors turn up with big burly men and threatening behaviour, verbal and written insults. Every man and his dog thinks that because a company has gone bust there must have been some wrong-doing which we absolutely must investigate. Albeit that is very rarely the case, in the few instances we do have to take legal action and lift the corporate veil, we then hear ‘you didn’t tell us that’ or something else, quite often insulting the person having given the advice. 

If we know about it, we will tell you if it’s right or wrong.  Even if there is an action, we report it to the Insolvency Service, but it rarely results in director disqualification.  We can only pursue someone financially if they have anything to pursue and if it’s cost effective.  However, if we don’t do so, that’s our fault too, even though we are an independent 3rd party who was not involved whatsoever in running that business.   Often, we are accused of being in cahoots with the directors, just because they came to us for advice and we are helping them with their statutory duties, along with relieving them of some pressure at the same time. 

We work in a very complex profession whereby the ‘entity’ we are acting for changes throughout, initially advising directors or individuals of their responsibilities and guiding them through the process before being formally appointed and then having a statutory duty to act for the creditors.  Despite all of these,  we remain in insolvency because we believe there is a value in what we do. 

The insolvency process is beneficial although it’s a hard sell at a networking event, we can’t often offer much in return but may help you keep a client, ensure employees get paid, release directors from a lease enabling the premises be let to a more reliable business, put some money back into the public purse, return funds to unsecured creditors in quite a few occasions, relieve some pressure from business owners that simply need guidance so they don’t fall fowl and become one of those few above that do become personally liable. 

We often provide enough support that our formal services are not needed.

Who knows – you may actually see the positives in what we can offer….. 

By Claire Goodacre 

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), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Settling a Director Loan Account – A potential tax exposure?

Settling a Director Loan Account - Potential Tax Exposure?

It has become an increasing situation to discover adverse director loan accounts (”DLA”) showing on the balance sheet of companies that are in financial difficulties.  All too often a director is left with a financial burden that requires settlement, whether that is in part or in full, paid by way of lump sum or over a period of time. 

Where it is part settlement, is the unpaid balance of that DLA deemed to have been written off or are you simply released from that liability?

That was the question the tribunal judge had to consider in the First Tier Tribunal of The Commissioners for his Majesty’s Revenue and Customs versus Gary Quillan.  The issue arose after Mr Quillan paid £57,000 to the liquidator of his company, leaving an unpaid balance of £382,456.  HMRC decided to levy a tax charge against Mr Quillan under section 415 Income Tax (Trading and Other Income) Act 2005 that permits the assessment against any adverse DLA which is either written off or released (from being pursued).  HMRC lost the appeal as the tribunal determined the DLA balance had not been written off nor released, merely left unpaid and available to pursue should the financial circumstances of Mr Quillan significantly improve at some later time in life, subject to the provisions of the Limitations Act.

Where an adverse DLA is concerned, if a director is incapable of repaying in full, paying a settlement in full and final satisfaction, it may expose that director to a section 415 tax assessment.  But, in leaving the matter “Open” the risk carried is they could be subsequently pursued for the unpaid element at some later stage, presumably within the 6 years limitation period?

When faced with a company that has an adverse DLA, PBC look to work with the director to review the construction of the DLA to ensure the balance is a genuine personal liability.  All too often we find the DLA includes genuine business expenses and often makes no allowance for setting off monies owed to that director.  Indeed, in a recent instruction, PBC were able to successfully defeat a DLA recovery claim by litigation funders (acting for a liquidator) by exercising a similar review.  Unlike that recent instruction, while a review may not extinguish the balance owed, it can often assist the director in reaching an agreement for repayment and in a manner that could minimise the threat of a tax assessment landing on the doorstep at a later date.

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), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.