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

What is in a (Company) name?

 

 

Can a director be held personally liable for the debts of their company?  The immediate reaction will probably be, “No” although that is not entirely accurate.

 

Generally, a director can be found personally liable for:

  • Debts where they have given a personal guarantee.
  • They have borrowed company money for personal use, creating an adverse loan account.
  • They are found guilty of malpractice (which causes a loss to the company) including any actions that place company assets out of the reach of creditors.

 

However, a question that often arises is when directors are looking to re-start trading with a new company and whether they use the current company name for their new enterprise.  As we all appreciate, the company name can be your brand, it is what your customers are attracted by and so therefore may carry a value.

Section 216 Insolvency Act 1986 (“The Act”) states that the name of a company in insolvent liquidation becomes a prohibited name.  That also goes for a trading name or a name that is so similar that it may cause confusion to the public.  This restriction only applies to those people who were directors (or “shadow” directors) of the liquidated company in the 12 months leading to liquidation AND who become directors of a company with a prohibited name within 5 years AFTER the liquidation date.

Section 217 of the Act then gives rise to personal liability following contravention of re-use of a prohibited name, as well as criminal sanctions including potential imprisonment.

 

In the recently reported case of PSV 1982 Ltd v Langdon [2021] EWHC 2475 (Ch) it was held:

  1. the effect of section 217 of the Act is that establishing the company’s liability (through proceedings or otherwise) makes a defaulting director automatically responsible. It is not necessary to bring separate proceedings against a defaulting director; and
  2. ‘liability’ as defined in section 217 means an obligation to pay a sum of money. The relevant liability was incurred when the contract was breached, at which time [the director] was in breach of section 216 and therefore personally liable.

 

The Claimant in the above case (PSV) were seeking recovery of some £1.4 million inclusive of costs and interest and, while the decision is likely to be appealed on a couple of technicalities, it serves as a stark warning to directors.

So, if a director was planning to start afresh what should they do when it comes down to the name?  Well, they can always steer clear from the prohibited name completely.  While this may cause some communication issues with customers, it certainly avoids any threat of breaching section 216 of the Act.

However, if the name (or something very similar) is needed then there are exceptions where permission can be obtained (prior to using the name) and readers are advised to take independent advice from an insolvency practitioner and/or solicitor who practices in the insolvency field to ensure you (a) meet the requirements for an application to use the name and (b) what the defined steps required consist of to ensure you do not become another Mr Langdon.

The number of “Phoenix” insolvencies is increasing and, it therefore follows, so does the exposure to breaching section 216 of the Act.  That company name could be seen as a precious commodity.  However, it is clear it can also become an expensive and personal liability.

 

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

Thank you from Cynthia Spencer

Nina dropped this thank you letter in to us to let us know how everyone’s generous contributions helped the Cynthia Spencer Hospice.

PBC Charity Golf Day September 2021

               

Many thanks to everyone for attending our PBC charity golf day on 14th September raising much needed funds for the Cynthia Spencer Hospice.

Thanks to our players amazing generosity, the total amount of money raised for the Cynthia Spencer Hospice was £2,114.

Thank you to Tom Low of Propel for your very generous sponsorship, very much appreciated.

Many thanks to Nina Gandy for coming along and talking to us about the Cynthia Spencer Hospice.

Congratulations to Bobby Russell for the best score and also to him with the rest of his team for the highest scoring team (David Smith, Adam Holby and Adam Ashenden).  Well done guys.

It was lovely to see 2 ladies taking part, and we hope that trend continues.

We hope to see you all again next year, if not before!

It is winding up, but not as we know it.

On 10 September 2021 the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 was laid before Parliament and comes into force with effect from 29 September 2021.

For most people, that maybe a case of, “So what?”  However, for those who are thinking of enforcing the repayment of debts it will have a logistical impact. 

As many will know, prior to the introduction of the Corporate Insolvency & Governance Act 2020 (“CIGA”) a creditor, owed £750 (or more) could present a winding up petition against a debtor, following either an unsatisfied judgment or the expiration of a statutory demand.  However, provisions within CIGA prohibited the use of statutory demands or winding up petitions, unless it could be proven the petition debt did not arise (or become unpayable) as a direct result of Covid-19.  These interim provisions were due to expire on 30 September 2021, having previously been extended on previous occasions.

We can all speculate on why the CIGA temporary provisions were extended.  However, suffice to say the continuation of Covid-19 and the feared impact of “Letting loose” frustrated debtors to pursue unpaid debt (and its impact on the economy) were clearly on the agenda.

In short, the temporary provisions being introduced:

  1. Increase the debt that must be owed to present a company winding up petition to £10,000.
  1. Creditors must seek proposals from the debtor business for repayment of the debt, giving 21 days to respond before they can proceed with a winding up petition: and
  1. Commercial Landlords must still demonstrate to a court that debts are not Coronavirus related until the end of March 2022.

Many believe the £10,000 limit should remain beyond these temporary measures but that is a discussion for another day.

The more interesting measure is the introduction of the 21-day notice.  At first, those who deal with debt recovery may ask what is the difference between a statutory demand (that provides 21 days to pay or secure the debt in any event).  You may even ask whether a statutory demand still needs to be served after this new 21-day notice has expired.

Thankfully, the amendments to the schedule provide the answers.

Paragraph 4 includes two distinct requirements (in addition to those already prescribed):to the schedule provides the 21-day notice must contain:

(e)          a statement that the creditor is seeking the company’s proposals for the payment of the debt, and

(f)           a statement that if no proposal to the creditor’s satisfaction is made within the period of 21 days beginning with the date on which the notice is delivered, the creditor intends to present a petition to the court for the winding-up of the company.

This is a significant shift from the requirements within a statutory demand as it appears to be steering an unpaid debt scenario down the road of Alternative Dispute Resolution.  This assumption appears to be supported by the fact a statutory demand is not required on the expiry of the 21-day letter.  However, Rule 7.5(1) of the Insolvency (England & Wales) Rules 2016 have been amended to include two statements on the winding up petition, namely:

(1)          that the requirements in paragraph 1 of this Schedule are met, and

(2)          that no proposals for the payment of the debt have been made, or a  summary of the reasons why the             proposals are not to the creditor’s satisfaction (as the case may be).

In theory, this appears like a sound compromise to ensure there is not a flood of winding up petitions from 1 October onwards.  However, the issue regarding whether any proposals are satisfactory, or not, appears subjective.  If a petitioner believes they are not satisfactory, what happens at the first hearing of the petition?  What if the court adopt the view the petitioner was unreasonable in either refusing the proposals or, in the alternative, had not engaged in settlement negotiations?  Worse still, if the petition is dismissed in favour of payment terms, who pays the costs, not to mention consideration of any damage caused by the petition having already been advertised?

At PBC we are taking the view these interim measures were attempting to allow debtors to pursue unpaid debts but in a commercial and understanding manner.  In short, avoiding the potential flood of recovery action that has been the fear behind previous extensions.  It also sends out a warning to those on the receiving end of debt enforcement and that is to act in a timely and appropriate manner when considering the viability of your business.

Should you have an insolvency-related issue then please contact me 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

Should accountants report on clients?

Have any of your clients taken out a Covid-based loan?  If so, then what are your responsibilities as the advising accountant?

At PBC we have noticed a marked increase in businesses looking to close down (by way of strike off or through liquidation) where there is an outstanding bounce back loan (“BBL”) or a CBIL, or in some cases, both.

Due to the uncertainty of what must be done to demonstrate they have exhausted all avenues of recovery (before being able to claim under the Government guarantee) lenders are objecting to strike off.  Lenders are also writing to directors, pressurising them to repay the Covid loans.  There is also a notable heightened attention to companies in liquidation with unpaid Covid loans (for director disqualification and restoration purposes) where Covid loan monies have been used for personal benefit.  As you will be aware, in order to receive a BBL in the first instance, the applicant had to confirm it would not be used for personal purposes but working capital for the business.

So, where does this leave the advising accountant?

While accountants are not required to identify what a BBL was used for, it is likely they will receive this information when preparing their clients’ accounts. If accountants consider their clients may have used BBL funds for personal purposes (e.g. to redeem a personal loan or to purchase a family car etc) they may, depending on the circumstances, have an obligation to submit a Suspicious Activity Report (“SAR”).

ICAEW members (whether in private practice or in business) must adhere to the Code of Ethics which includes the fundamental principle of integrity. Paragraph R111.2 provides an accountant shall not knowingly be associated with reports, returns, communications or other information where they believe that the information:

  • contains a materially false or misleading statement; or
  • contains statements or information provided recklessly; or
  • omits or obscures required information where such omission or obscurity would be misleading.

In addition to the ethical code, accountants must consider their anti-money laundering obligations. In general, accountants are required to submit a SAR to the National Crime Agency, where information comes to them in the course of their business, which leads them to suspect that another person is engaged in money laundering.

As will be the same for insolvency office holders, accountants should question the application of Covid loan monies and consider whether those monies now form an adverse directors’ loan account.  These enquiries may sail close to tipping off under the money laundering regulations so extra caution is advised in such circumstances.  In our opinion, serious consideration of submitting a SAR must be given if the information to secure the BBL or CBIL in the first instance was false or misleading.

As a guide, when looking at circumstances specifically surrounding BBLs we suggest advising accountants consider:

  • Had the company filed dormant accounts for 2019 and/or 2020?
  • Was turnover overstated (in the on-line application) by more than 25%?
  • Was a loan obtained for more than 25% of turnover?
  • Were the directors aware of insolvency at the time of application?
  • Was the application after a petition or winding up resolution?
  • Was the business trading outside of the UK?
  • Had the business ceased trading pre-1 March 2020?

Directors are increasingly seeking to defend insolvency officeholder actions by pointing the accusing finger at their accountant and if that accountant has failed to meet their prescribed duties it could place them in an uncomfortable position. It, therefore, goes without saying you should be satisfied with the level of conduct demonstrated by your client when it comes to BBL or CBIL as, with some 1.5 million loans made, this could become a very hot topic.

Should you have an insolvency-related issue then please contact me 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

 

End of Temporary Insolvency Measures

Creditor Enforcement to Re-commence

Since June last year, the Corporate Insolvency and Governance Act 2020 included temporary measures that prevented creditors from serving statutory demands or presenting winding up petitions, other than exceptional circumstances.

These measures have previously been extended with the latest extension up to 30 September 2021.  However, it has been announced today (8 September) no further extensions shall be sanctioned.  In short, creditors will be able to use statutory demands and winding up petitions to enforce debt positions with effect from 1 October.

In an effort to cushion the threatened explosion of winding up petitions, the removal of these temporary provisions has been tempered slightly by adding some interim provisions that will be in force until 31 March 2022:

  1. To protect businesses from creditors insisting on repayment of relatively small debts the current minimum debt threshold for a winding up petition has been increased from £750 to £10,000

 

  1. Creditors shall be required to seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding up action.

However, existing restrictions will remain in place for commercial landlords whereby presenting winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic is prohibited.  This is consistent with the continued moratorium over commercial landlords where tenants will remain protected from eviction until 31 March 2022, whilst the government implements a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic.

In response to this announcement, Gary Pettit of PBC said,

“It was inevitable the CIGA moratorium on creditor enforcement would end, particularly as the interim provisions were becoming a “Debtors’ charter” and damaging the economy overall.  The hike in minimum petition debt is welcome and should be made a more permanent monetary limitation but time will tell.  With the likes of HMRC being unleashed on about 18 months’ worth of tax debts life could get challenging for businesses where debt has accrued.  The potential of an explosion of debt enforcement activity means businesses need to think about their position and take early advice as the earlier that advice is taken, the more options that are generally available.”

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