New Code of Conduct for Directors

calculator

 

The Institute of Directors(“IOD”) has recently announced its plans to introduce a code of conduct for directors to rebuild public trust in businesses.  The plans follow in the wake of recent headline-making scandals at Carillion, BHS and P&O Ferries.

 

The proposed code would be voluntary which would automatically weaken its effectiveness, particularly when bearing in mind a survey of IOD members showed only 21% would support a voluntary code compared to 58% backing a mandatory code.  However, the IOD states it believes a mandatory code would produce “a counterproductive focus on compliance” rather than allowing directors to focus on running the company.

 

The draft code released by the IOD focusses on nine key principles ranging from the directors personal conduct, a pledge for businesses reducing their carbon footprint as well as directors understanding their duties as directors.  We have long believed that before any individual is appointed as a director they should pass a basic “director theory test” (akin to the driving test) so that directors know their basic duties and are aware of facts including:

 

  • The difference between their property and that of the company.
  • Exercising independent judgement and acting with reasonable care and skill – abdicating responsibility to other directors is not acceptable.
  • Avoiding conflicts of interest.

 

Perhaps the most important is to recognise when the company is insolvent and how their duties change.  Indeed, one of the points from the draft IOD code is “Maintain the financial viability of my organisation and, if that is no longer possible, take appropriate action to protect the interests of creditors”.  When directors become aware their company is insolvent and cannot pay the debts when they fall due, they should seek advice as soon as possible to protect their position.  In endorsing the IOD code, it cannot be a coincidence that many of the directors who find themselves under the threat of personal liability are, invariably, those who unwittingly breach their duties due to a lack of knowledge.

 

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.

 

 

Successful Sale of Business

 

The most common reasons why businesses fail

PBC are delighted to announce the sale of the business and assets of a long-standing construction company that was suffering as a result of contract delays.  The company was initially placed into creditors’ voluntary liquidation in late April and was sold to an independent third party on 16 June 2022 in a move that enabled a number of former employees to be re-hired.  The sale will also ensure that a significant return will be made to each class of creditors in due course.

 

Liquidator, Gary Pettit said, “It is always pleasing to be able to save a business and ensure the continuity for employees, customers and suppliers.  This is an example of what can be achieved when directors seek advice at the appropriate time and I would like to thank all those involved in securing the sale.”

 

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 info@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

 

The Breathing Space

Women looking into a piggy bank

 

And……breathe

 

How much is the increasing cost of living impacting on you?  With utility, fuel and general household shopping costs increasing, the monthly domestic budget is being challenged, with more people exposed to financial risk.

 

Prior to the pandemic, the choices for individuals suffering debt problems were primarily, individual voluntary arrangements (“IVA”), bankruptcy, debt management plans or debt relief orders.  While that appeared to provide a degree of choice, issues surrounding the likes of debt versus assets could often restrict choice.  The common features, though, were often creditor pressure (with the associated demands) and stress imposed on the debtor.

 

In May 2021 the Government launched the Debt Respite Scheme or, as it is more commonly known as, the Breathing Space.  The Breathing Space scheme is designed to provide just that, some time away from creditor pressures while a debtor tries to reach a solution for resolving their situation.  In addition, specific procedures were set up for those who have medical evidence to confirm they are receiving mental health crisis treatment.

 

A Breathing Space order provides a debtor with 60 days of protection while mental health applications provide for protection over the duration of the crisis treatment plus a further 30 days.  Government statistics suggest a debtor who is subject to a Breathing Space order has over 3 times more chance of entering into a debt solution than had they not been afforded the time to sort out their affairs and by April 2022 some 58,000 applications had been registered.  This included over 900 applications where the debtor was receiving mental health crisis treatment.

 

These applications are made on a debtor’s behalf by the likes of the Citizens Advice Bureau, Council monetary advice centres or Step Change.  However, if the debt solution is to consider entering into an IVA then you will require an insolvency practitioner.

 

To supplement the Breathing Space legislation, consultation is currently ongoing for the introduction of the Statutory Debt Repayment Plan (“SDRP”).  Unlike a debt management plan, this will be a regulated and structured scheme that provides up to ten years for a debtor to repay their debt.  Unlike some commentary and social media adverts we have seen, the Government are NOT promoting any scheme that sees 85% of your debt written off.  The SDRP is designed for repaying the entire unsecured debt (e.g loans, credit cards etc) so should not be entered into lightly.

 

At PBC we take the view the proposed SDRP provides a solution for people who fall between the current formal options available.  It may also assist those where an IVA is more appropriate but creditors’ general lack of understanding (of insolvency) or a simple reluctance to support an alternative to bankruptcy, invariably forces a debtor into bankruptcy, which as is proved in the majority of cases, the “Poor” alternative.

 

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 info@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Bounce-back loan misconceptions

 

It seems that every other press release from the Insolvency Service at the moment announces more sanctions against individuals who have abused the Covid support schemes and in particular the Bounce-Back Loan scheme (“BBL”).  For example the latest included a director who applied for a BBL with three different lenders far exceeding the amount he was entitled to and an individual who spent £13,000 of the loan he received on various gambling sites.

 

One common misconception around BBLs is the position of personal liability.  It is true to say there is no personal liability for directors should the business fail, and the loan is not repaid.  However, something we are seeing at PBC is where the funds received from the BBL have been paid to the director, thereby creating a loan between the company and the director.  This loan is repayable.

 

If a director is concerned they may not be able to meet the BBL repayments, or if that has already occurred, directors should be aware this could constitute evidence of the company’s insolvency as it is not able to meet its debts as they fall due.  Upon reaching this point, the director’s legal duties switch from the shareholders to protection of the creditors as a whole.  It is at this point, at least, PBC recommend seeking advice.  Directors should not be wary about seeking advice (particularly if they have an adverse loan) as failing to do so may lead to the position becoming worse should liquidation occur at a later stage, as well as leaving them vulnerable to stepping on the “elephant traps” as we have previously mentioned here – https://www.pbcbusinessrecovery.co.uk/beware-the-elephant-traps/ .

 

Should you or your business have an issue with repaying a BBL (or for any other reason) then please contact a member of the Team at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to info@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

 

Why you should seek early advice

figures

It is not often that insolvency makes the headlines, but recent days have seen the sentencing of Boris Becker to two and a half years in prison. As Julie Andrews once sung, let’s start at the very beginning.

 

Boris Becker was adjudged bankrupt in 2017 following the non-payment of a £3million loan relating to a property in Mallorca. Following the making of the order, an insolvency practitioner was appointed trustee in bankruptcy with the duty of realising the assets and the Official Receiver had the responsibility of investigating his affairs. This work led to claims of assets not being declared (including the trophies for winning Wimbledon and an Olympic medal), as well as debts being hidden.

 

In 2018, in a surreal moment, Boris Becker declared diplomatic immunity against further attempts to pursue him over the debt. His lawyers said he was a sport and culture attaché of the Central African Republic, a claim subsequently dropped.

 

He was found guilty last week of transferring hundreds of thousands of pounds from his business account after his bankruptcy, failing to declare a property and an associated loan in Germany as well as concealing €825,000 of debt.

 

Whilst it is open to debate as to whether the sentence handed out is more severe or not (given the high-profile nature of the case) it does serve as a reminder of the powers in the Insolvency Act. The story of Boris Becker’s fall from one of the best tennis players in the world to a prison inmate also serves as a lesson to others who believe they can avoid disclosure. His finances were impacted through  a combination of a reduction in earnings, divorce and child maintenance payments but his outgoings seem unchanged (for example he mentioned a £22,000 per month rent bill for a London house).

 

There are many reasons why individuals and directors alike will try and “Beat the system”.  Experiencing financial difficulties creates stress and can lead to irrational decisions that may, ultimately lead to outcomes similar to that suffered by Mr Becker.  The key to avoiding these issues is to seek early advice.

 

Should you or your business have an issue of financial difficulties following a shock (or for any other reason) then please contact a member of the Team at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to info@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

Director Duties

You need a licence to drive

 

It is often said, to drive a vehicle on the roads you first need to pass a test, which demonstrates you understand the laws of the road.  You also receive a driving licence as evidence of passing.  This goes with many professions where you need to achieve certain qualifications and probably receive a certificate as evidence.  However, to be a director of a company, it is a simple case of filling in a form and filing that at Companies House with no question of whether you understand the statutory burden that office imposes.

 

As an employee you will either gain knowledge or acquire qualifications and you are employed for that service under a contract of employment.  However, add the label of “Director” to that employment and you immediately become a company officer that carries duties beyond a simple employment contract.

 

The principal duties of a director are laid down in the Companies Act 2006 and generally state a director shall:

 

  • Act within their powers
  • Promote the success of the company
  • Exercise independent judgment
  • Exercise reasonable care, skill and diligence
  • Avoid conflicts of interest.

 

In most cases, the true implications of these duties may never consciously arise.  But what if your company is experiencing financial difficulties?  All too often directors ask can I pay this person, or can I repay a loan where I have given a personal guarantee?  Alternatively, directors may decide to continue trading in the hope that something good is around the corner.  Unfortunately, it is often something that is far from good that awaits around that corner and that can occasionally lead to personal liability and/or director disqualification.

 

In any circumstances where a company requires restructuring or, is facing closure, it is always the directors who are at the end of the criticism, whether that is from The Insolvency Service or creditors who face debt write off.  It can be of little surprise that directors who have taken advice from an early stage and follow that advice find the criticism (and other ramifications) minimised, or even extinguished.

 

Should you have an issue of financial difficulties then please contact a member of the Team at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to info@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

Thomas Cook directors avoid disqualification

Sky News are reporting no further action shall be taken against the directors of Thomas Cook under the Company Directors Disqualification Act.

Andrea Leadsam, the then business secretary at the time of the liquidation, sought an enquiry as a priority given the significance of this case and its implications for thousands of customers and employees.  She added,

“I ask that the investigation by the Official Receiver looks, not only at the conduct of directors immediately prior to and at insolvency, but also at whether any action by directors has caused detriment to creditors or to the pension schemes.”  Labour MP, Rachel Reeves added, “Its directors had exhibited a lack of challenge in the boardroom as the company piled up debt and Thomas Cook management missed opportunities to reduce debt levels and give the business a viable future”.

“Will I be banned?”

A question we, at PBC, get asked constantly by directors.

 

Like most high-profile companies, the Thomas Cook demise was subject to significant media attention.  However, regardless of the media reporting or the size of the company that enters into an insolvency event, it all comes down to what was the conduct of the directors?  In the case of Thomas Cook they engaged with the creditors, they took independent advice throughout and, when they were advised their efforts were going to be to no avail, they followed that advice and took what is an incredibly difficult decision.

At PBC we have an immense level of respect for every person that contacts us for advice.  It is often a period of heightened emotion and, at times, can feel intimidating.  However, taking that advice generally dismisses the “Pub talk” stories and can open up options to address those issues that are keeping you awake at night.

Taking early advice helps to control the situation, provides more options being available and helps avoid directors doing things that could see them getting embroiled in issues where disqualification and possible personal liability are a real threat.

Should you have an insolvency-related issue then please contact a member of the team at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to info@pbcbusinessrecovery.co.uk.

Lies, Damn Lies and….

PBC Logo

Most readers are probably smirking as they finish the quote in the heading.  However, talking statistics, The Insolvency Service has released the latest statistics relating to registered company insolvencies in December 2021. Commentary – Monthly Insolvency Statistics December 2021 – GOV.UK (www.gov.uk)

 

In total there were 1,486 companies that registered as insolvent during December.  Of these 1,365 were voluntary liquidations, which is 73% higher than December 2019.  What is probably more concerning is that the principal rescue procedures of administration and company voluntary arrangement only numbered 79 companies, being 49% and 67% down respectively on December 2019 figures.

 

The remaining 42 companies all fell into compulsory liquidation, which is a 75% fall in numbers as compared to December 2019.  However, this is understandable as a moratorium over most winding up petitions was introduced by the Corporate Insolvency & Governance Act (“CIGA”) and, new tapering measures were introduced from 30 September 2021 when the moratorium was to be lifted.  This will continue to have a direct impact on post CIGA moratorium winding up petitions for the interim.

 

To add to the above numbers, two new procedures were introduced that were designed to assist safeguarding businesses.  However, in the 6-months ended 31 December 2021 the company moratorium numbered just 15 while the restructuring plan only 10 of which two concerned parts of the Virgin Group of Companies.

 

No doubt there will be plenty of analysts who will draw their own conclusions as to why there seems a disproportionate number of liquidations as opposed to rescue procedures.  At PBC we have considered this and summarise our opinion of the key reasons as:

 

  1. There is not a viable core business to save.
  2. The secondary preferential status, now enjoyed by HMRC, acts as a block to any opportunity of a return to the general body of creditors.
  3. Creditor frustrations are at such a level they will not entertain proposals for restructuring/saving the business.
  4. The procedural costs are sometimes prohibitive when compared to the company liabilities.
  5. Due to various legal and technical reasons, it is more constructive to look at a “Phoenix” and start afresh,

 

Much of the cause for the above issues also stems from that long-running problem of directors not taking early advice.  At PBC we fully understand it is a very difficult step to take in calling our offices and seeking help, but it cannot be a coincidence that those early callers generally find they have more options available to them and invariably matters can be addressed in a more orderly  & positive manner.

 

Should you have an insolvency-related issue then please contact a member of the team at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

Formal crackdown on directors who dissolve companies to evade debts

The Insolvency Service has been granted new powers to take to task directors who dissolve companies to avoid paying company debts. This is as a direct result of directors dissolving companies to avoid repaying Government backed loans put in place to support businesses during the Coronavirus pandemic.

The new legislation now extends the Insolvency Service’s powers to investigate and disqualify company directors who have been deemed to have abused company dissolution processes.

Previously the Insolvency Service had these powers to investigate directors of companies that entered formal insolvency such as liquidation and administration. It is also understood that the Insolvency Service may also be instructed to investigate live companies where evidence has been brought to their attention of wrongdoing.

In addition, the new legislation also allows for the Insolvency Service to apply to court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour.

Should you be a director and are concerned re the new legislation then please do make contact with Gary Pettit, Ian Cooke or Jamie Cochrane (01604 212150) to understand your obligations and responsibilities

garypettit@pbcbusinessrecovery.co.uk

iancooke@pbcbusinessrecovery.co.uk

jamiecochrane@pbcbusinessrecovery.co.uk

Deal or no deal?

People Sitting around a table discussing

Are you a commercial tenant who has accrued rental arrears during the COVID-19 pandemic?  Alternatively, are you a landlord who is thinking about what action you can take against a non-paying tenant?

Since 21 March 2020 it has been reported that over £7 billion remains unpaid in respect of commercial property rents.  Landlords have been prevented from taking enforcement action under the Corporate Insolvency & Governance Act, where the moratorium against landlord enforcement has been extended to 25 March 2022.

The Government has been concerned of the post-pandemic debt enforcement bubble bursting to the detriment of the economy. As a result, various measures have been implemented to ease businesses back into some form of normality with the threat of debt enforcement being phased back in a more controlled manner.

One of these measures is the Commercial Rent (Coronavirus) Bill (“The Bill”) which is aimed to promote a swift resolution of commercial property rent arrears accrued during the pandemic and is currently going through Parliament with a view of becoming law on or before 25 March 2022.

There has been a steady promotion towards alternative dispute resolution in the UK, as opposed to litigating disputes through the courts.  The Bill is further demonstration of that drive to avoid court intervention and both tenants and landlords need to be aware of the mentality being adopted.

The Bill will only relate to rental arrears that fall between 21 March 2020 and the period when “The date when specific restrictions were last removed for the relevant sector” (“The Ringfenced debt”).  The Government code of practice in support of the Bill schedules the latter date for each industry sector and country within the UK.

Once the Bill becomes law it will introduce an arbitration facility where the decision is binding in law.  Both tenant and landlord are encouraged to reach a mutually acceptable resolution on how the ringfenced debt is to be repaid and whether that is paid in full or at a compromised figure.  If a settlement cannot be reached, then either party can unilaterally apply for an arbitration hearing.

Some of the key points recommended by the Bill include:

 

  1. The two parties are expected to share the pain by considering rent reductions or payment plans. However, no agreement can be made where it results in (or creates a real threat of) insolvency for either tenant or landlord.
  2. The parties will each need to provide evidence of viability in support of any offer (or counter-offer) put forward.
  3. Both can either agree to a public hearing or allow the appointed arbitrator to decide on the terms of resolution based upon the documentary evidence before the arbitrator.
  4. An application cannot be made for arbitration if either party is already subject to insolvency proceedings.
  5. The rent repayment agreement cannot exceed two years in duration.

 

The Government continues to urge businesses that can afford to pay their rent to do so.  Indeed, it would appear the conduct of the tenant (in terms of refuse to pay versus unable to pay) will be taken into consideration.  This draws up the key question of viability and some specific areas that can be expected to be considered, including:

 

  • If the inability to pay was due to the tenant adopting “Unjustifiable steps to alter the financial position” (e.g. the payment of excessive dividends) the arbitrator will have the option to disregard these transactions when assessing the award.
  • Where a tenant can prove the business is viable, but it is unable to pay all the rent arrears, the tenant should be entitled to a concession that does consider the balancing exercise between landlord and tenant.
  • Any concessions must be affordable to both tenant and landlord, in terms of financial impact on the landlord.
  • To assist determination of viability and affordability the arbitrator is expecting to receive relevant financial information.
  • It is not expected that tenant viability would include restructuring, borrowing, or the taking of further debts.

 

It is made clear in the Government guidance to the Bill that arbitration ought to be the last resort and that both tenant and landlord are encouraged to reach an agreement without arbitration. This does appear to suggest the arbitrator will look at the reasonableness (or otherwise) of any dissenting party, although that is only my assumption.

While it is likely the Bill will be subject to some minor revisions, the key message is clear whereby the Government are expecting both tenants and landlords to act in a manner that promotes the protection of businesses and their employees. A refusal to compromise or to approach this issue in a transparent and fair manner are not options on the agenda and are likely to expose the dissenting party to penalties, including cost consequences.

However, what is most likely to be the most difficult area for an arbitrator is the analysis of financial data and the reality check on viability of either tenant or landlord.  If a party to the arbitration get this information wrong or, if the message is unclear, it is likely to result in an award being made based upon a misinterpretation of the information available.  This could be damaging to the viability of the tenant or landlord, or both.

The message is clear for both tenant and landlord.  Be transparent, fair, reasonable but, most of all, take a commercial view that promotes saviour of the business and its employees.  The key area will be the viability check and PBC can provide such a report for either party of the negotiation surrounding the ringfenced debt (and non-ringfenced debt if applicable) as this will promote the chances of proposals being considered as both a fair and commercial compromise.

Should you have an insolvency-related issue then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk