An alternative credit check?

Are you an SME who is contracted to supply (or are considering supplying) a large company? If so, how confident are you payment of your invoices will be paid in a timely manner, if at all?

Why it’s important to check your credit file

In recent times we have witnessed some large companies failing, including Connaught Construction, BHS and recently, Carillion.  With each failure there is a wake of debt owed to thousands of suppliers that will end up being written off.  Some of that debt was unpaid because the supplier was caught up in the contractual web of having to continue to supply or face the potential of being held in breach of contract.  Others may be apportioned to a “Relaxed” credit control.  After all, the biggest customer on your books is too big to fail, isn’t it?  The examples given answer that question!

However, those in charge of considering a supply line to large companies have a tool available to enable them to determine whether the prospect of working with a large company is the “Golden opportunity” or something where you politely say, “No thanks.”

The Small Business Enterprise and Employment Act 2015 (“SBEEA”) introduced a payment policy reporting obligation on all large companies. A “Large company” is defined as one that meets at least two of the following:

  • Annual turnover of at least £36 million.
  • Balance sheet value of £18 million.
  • At least 250 employees.

 

The reporting duties imposed by the SBEEA came into effect from 6 April 2017 so we should start seeing these payment reports very shortly as financial year ends will need to provide for this obligation.

The information required in this report must incorporate a narrative description of the business standard payments terms and include:

  1. The standard contractual length of time for payment.
  2. How suppliers have been notified (or consulted) on any changes in this policy within the financial year.
  3. Description of their policy for resolving disputes relating to payments.
  4. Statistics covering:
  • the average number of days to make payments.
  • The percentage of payments made within 30 days, 60 days and 61 days or longer.
  • The percentage of payments due within the reporting period that were not paid within the agreed payment period.

 

They will also have to reveal whether:

  • Suppliers are offered e-invoicing.
  • Supply chain finance.
  • The policies regarding deducting sums from payments due as a form of charge to remain on the suppliers’ list.
  • Whether they have deducted sums from payments due.
  • Whether they are a member of a payments code and, if so, name the code.

 

This report must be published on a web-based service provided by Government and within 30 days of the end of the reporting period covered. While it is still in its infancy this service should prove invaluable when you are considering working with a large company and should be part of your credit/sales practice before you sign on that dotted line.

Time to pay thanks to Carillion?

Following the demise of Carillion, HM Revenue & Customs have announced their Business Payments Support Services are open to approach by any company or business that has suffered a short-term cash flow problem as a result of the large scale failure.

The Support Service will consider:

  • Instalment arrangements of tax due that cannot be paid on time;
  • Suspension of recovery action/proceedings;
  • Review penalties for missing statutory deadlines;
  • Reduce any payments on account;
  • Agree to defer payments due to short term cash flow difficulties.

 

Should you find yourself facing difficulties to meet your tax liability as a direct result of the Carillion failure then you may apply to the Support Service on 0300 200 3835 or go on the website at www.gov.uk and search “Dealing with HMRC-payment problems.”

The obvious question this raises is, “Why is this offer being made for Carillion creditors?” At PBC we believe this could set a precedent for others who are caught under an insolvency process.  After all, what is different between a supplier losing (say) £5,000 in the Carillion liquidation to that under “Standard” UK liquidation?

At PBC we are often approached to assist companies with addressing tax issues whether in respect of trying to secure a time to pay agreement or by other formal means where appropriate. Should you require advice in this respect then contact PBC and speak to one of our insolvency practitioners on (01604) 212150 or email info@pbcbusinessrecovery.co.uk.

PBC announce Charity Quiz

 

PBC are pleased to announce a charity quiz to raise money for Ronald McDonald Charity Houses.

The quiz will be held on Wednesday 21 March 2018 at 6pm at Greens Restaurant, Collingtree Park Golf Club.

For further details about the evening, please find the invite and booking form here.

For further details about why PBC support the charity, please click here .

Second Edition of The Leaf Released

PBC are pleased to announce the release of the second edition of The Leaf Magazine, which can be read here.

Topics in this edition include:

  • Beware the Unregulated Insolvency Advisor
  • Focus on Mediation
  • Statutory Interest on Corporation tax in Solvent Liquidations
  • And Many More

A Round Up of Recent Insolvency Statistics and Perhaps More Trouble Ahead!

Last week The Insolvency Service released the insolvency statistics for the fourth quarter of 2017. Whenever these are published, the newspapers will always look for the story without going into the details.

So for example, the press reported that personal insolvencies in 2017 increased by 9% as compared to 2016, Of course that is correct, but they didn’t report that personal insolvencies fell by 11% in Q4 2017 as compared to Q3.

It is of course true that when inflation is higher than increases in wages then it will have an effect on individuals’ surplus income and in many cases (99,196 in 2017), will lead to personal insolvencies. In the short term this is expected to continue.

Another story that didn’t seem to hit the headlines was a 2.5% rise in corporate insolvencies in 2017 as compared to 2016. First this is a small increase in any event. However, it should also be noted that corporate insolvencies have been at a historically low number for a few years now, so a small increase on what is already a small number is not worth mentioning.

So this all seems like reasonably good news for the economy as a whole. On face value it does but at PBC we are starting to see growing signs of trouble ahead.  Over the last 3 months we have seen a growing number of enquiries and work.  It is fair to say that the retail sector (the high street in particular), is struggling, partially because of the reduction in personal incomes., and also businesses which deal with discretionary spend items (for example, new car sales are down).

At some stage we also expect fallout from the Carillion failure as subcontractors and those further down the chain come to terms with the lost income and future work.

It was also interesting to see that the FCA has started to address the issue of interest only mortgages. The FCA estimate there are 1.67 million full interest only and part capital repayment mortgages in the UK and the most of these will conclude in the next 10 to 14 years. Clearly as these come to a conclusion it will have an effect on those consumers and therefore the economy.  Only time will tell.

As always if you or your business is starting to struggle we would always recommend that you take advice at an early stage. Initial meetings with PBC are free and confidential.

PBC ANNOUNCE DIVIDEND TO CREDITORS IN LIQUIDATION

PBC are pleased to declare a dividend of 26.82 pence in the pound to the unsecured creditors of Silver Sovereign Limited.

The company’s major asset was an adverse directors’ loan of approximately £57,000. This has been recovered in full which has allowed a payment to creditors to be made.

Joint liquidator, Gavin Bates, said, “Whilst it has taken some time to collect the payments from the directors in respect of their loan, the approach taken has resulted in a significant return to creditors. It is always good to make payments to creditors”.

PRESS RELEASE – NOBLE EXPRESS LIMITED – IN ADMINISTRATION

Noble Express Limited, the Northampton based supplier of catering equipment, cleaning chemicals and other non-food essentials to the hospitality industry, has been placed into administration.

The company has experienced difficult trading conditions over the past two years, which affected cash flow and led to the appointment of administrators PBC Business Recovery and Insolvency last week.

The full level of debt is being quantified and known creditors have been notified of the administration. However, appointed administrator Gavin Bates of PBC is hopeful that a buyer can be found, and procedures are in place for the company to continue trading at this time.  Gavin added “Noble Express is well-known in the industry and consequently this has generated some interest in the purchase of the business.  We remain hopeful that we can secure the right buyer and Noble Express will be able to continue to build its reputation in the hospitality sector.”

It has been necessary to make two staff redundant, but the remaining 5 staff have been retained to assist with continued trading under the management of the Administrators.

For businesses interested in purchasing Noble Express Ltd, please contact Gavin Bates at PBC directly on 01604 212150 or gavinbates@pbcbusinessrecovery.co.uk and a Sales Pack can be despatched.

Beware the Unregulated Insolvency Advisor!

Last year R3, The Association of Business Recovery Professionals, launched a campaign to warn about the risk of using unlicensed insolvency advisors and produced a very helpful guide which can be found here.

Business Pressure

The problem of unregulated advisors is not a new one but something that has grown over the last few years. The guide highlights some of the common marketing phrases these firms use, including:

  • We act for you, not your business’ creditors
  • Don’t take advice from an insolvency practitioner, as they only act for your creditors, whereas we act solely for you
  • We can offer you an alternative way to close down your company, leaving you free to launch a new business debt-free
  • We have a way to allow you to continue trading, keep your assets and yet benefit from writing off all your debts

 

Late last year we experienced one situation with a client and so we thought we would share the story as an example of the advice being given by the unregulated advisor.

Our client X Limited had contacted us via his accountant and after an initial meeting it was clear that the Company had in effect ceased to trade and was insolvent. The director wished to wind the Company up and we were instructed to place the Company into liquidation.

The director asked lots of questions about the process and wanted to ensure he was doing the right thing. The liquidation was explained in great depth and all questions were answered.

A new style decision process was called to place the company into liquidation and on the day of that meeting the director arrived very concerned because he had been contacted by an advisor and was now unsure whether the liquidation was right for him.

He provided me with copies of the correspondence he had exchanged with the ‘UK’s leading Unlicensed Insolvency Practitioners & Insolvent Business Acquisition Specialists’. He had discussed the situation on the phone with them and thought he may take on this firm and cancel the liquidation process.

However he was concerned about what they offered. So I reviewed the paperwork he had received. The unregulated advisor’s offer was as follows;

  • The advisor would buy the Company for a nominal £1.
  • The director would resign and the advisor replace him.
  • He would be free of his debts and free to get on with his life.
  • When we read further through the terms and conditions the actual fees would be £5,000 plus VAT or 10% of the liabilities remaining on acquisition whichever is the greater.

 

In this example the unsecured liabilities were £165,619 so a fee of £16,561, although the unregulated firm had agreed a discounted fee of £9,400 plus VAT.  However of those unsecured liabilities £45,000 related to a directors loan account and there were other creditors which the director had personally guaranteed in any event, so he would not be free of some of his debts, as we had already explained to him.

I also pointed out that within the terms that the advisor had provided, whilst the advisor would try to have the Company struck off, he reserved the right to put the Company into liquidation.

In the end the director agreed the liquidation was the best way forward and we were appointed as the liquidator on that day.

To conclude the story I then found out on 8 January of this year the unregulated advisor was placed into provisional liquidation by the Official Receiver to protect the public interest.

We are aware that these advisors commonly chase directors who have received a CCJ and so are aware that the Company may be having cash flow problems.  PBC receives the same data and where possible we contact the accountant to make them aware of the situation so they can explain to the client that they may receive this sort of approach.

I hope this provides a clear example of the benefits of advising clients to seek professional help from a licensed insolvency practitioner.  PBC offer initial meetings which are free of charge and confidential.

Blog written by Gavin Bates

The peril of working with a big company

How many times have you heard the story of a SME securing that “Life changing” contract with a big company?

While many can look back and say that really was a life changer, too many fall into an ever-decreasing financial circle. All is going well until the SME gets told the previously agreed unit price is being revised (usually down) while the double-whammy is the large company also dictates when and how much the SME will be paid. Others, such as those working for Carillion Plc, find they are increasing their exposure while the contractual terms oblige them to continue working (with no guarantee of payment) or face potential claims for (say) unilateral breach of contract.

The Government highlight the late payment interest legislation but their stance is based upon vote winning and not the hard reality of business where the larger corporations will simply ignore such demands with the threat you continue working under their preferred conditions or lose the contract entirely.

I mention Carillion but lest we forget others like British Home Stores, Habitat, Mark One, Toys “R” Us and 56 football clubs that have been subject to insolvency; some multiple times.

It is so easy to sit and write this but when an SME has that large corporation opportunity it can be like offering a starving person food. It takes a brave person indeed to turn down such a business opportunity.

The Achilles heel always seems to centre around the terms of contract. Large corporations will generally lay down their terms.  Our advice would be to consult your solicitor and ensure there are safeguards for the SME in that contract.  Okay, that may be a deal breaker but what do you prefer, a contract that benefits both parties and encourages success or to sit in front of an insolvency practitioner telling a tale of woe as your business ceases to trade because it could not trade under the conditions imposed?  Is that really a tough choice?

Should you need further convincing just think of the 30,000 businesses and the £1.5 billion of unpaid debt Carillion has left in its wake. One of those has already spoken to PBC and is wondering how his business will survive losing the £800,000 Carillion owe.  At PBC we are certain this business is not the first victim of Carillion where the owners now see the life changing experience being one of detriment and loss.

If you require any advice or assistance on mediation or probate matters, or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation. Call Gary Pettit or Gavin Bates on 01604 212150 completely confidentially.

Blog written by Gary Pettit

Statutory Interest on Corporation Tax in Solvent Liquidations

This blog is for accountants, tax advisors and directors who are considering a solvent liquidation, commonly referred to as a Members’ Voluntary Liquidation or MVL.

During the course of 2017 we have been informed of what appears to be a change of policy by HMRC in respect of statutory interest on Corporation Tax. HMRC now require the payment of statutory interest at 8% from the commencement of the liquidation on any CT that falls due for payment after that date, even if the normal due date for payment of the tax is not until after the commencement of the liquidation, and payment is made before the normal due date.

HMRC are relying on a decision in one of the Lehman’s cases for this change in policy. That case indicated that statutory interest was due on both future debts and contingent debts, and since CT payable on a normal due date after the commencement of a liquidation is a future debt then statutory interest falls due. Whilst that judgement related to an administration, HMRC are arguing that in view of the similarity in wording in the legislation it applies equally to liquidations.  The standard letter that they are sending to liquidators with demand for statutory interest says:

“Our understanding of the correct treatment of statutory interest derives from the decision of David Richards J in Re Lehman Brothers International (Europe) : Lomas v Burlington Loan Management Limited. In a supplemental decision he restates his conclusion that “interest under Rule 2.88 (statutory interest) is payable on future debts and on the amount admitted to proof in respect of contingent debts from the date on which the administration commenced”.

Rule 2.88 mirrors Rules 14.23 which applies to a winding up. We are also assuming that will also apply to others taxes, VAT, PAYE and NIC etc.

To make matter worse it is clear that HMRC themselves don’t understand or haven’t been made aware of the change of policy and so we are aware of cases where we have paid the statutory interest and it has been paid back to us. The current advice is to pay the CT to the normal office but send the statutory interest to HMRC’s MVL team!

Therefore if you are considering a solvent liquidation further planning will be required to calculate and more importantly pay any tax debts at the commencement of the liquidation or as soon as possible thereafter in order to minimise statutory interest.

Gavin Bates specialises in solvent liquidations, commenting on the change Gavin said:

“This is effectively a hidden tax on entrepreneurs since HMRC are receiving interest that would not be due other than for the decision to cease trading to permit the members to extract their capital from the company. I also find it very unfair that we have no notice of this change of policy.  I often sit with directors many months before my appointment as liquidator in order to plan the process so we will now need to calculate and pay the tax debts as well as many other factors which we work through”

If you wish to discuss this further please feel free to contact us for an initial free meeting which are confidential and impartial.