When you realise you are potentially in a position where you or your company is insolvent you will need to take action as soon as possible. It is sadly not uncommon for corporate and personal insolvency to be bedfellows, but they are different so you will need to make sure you are approaching it from the right perspective. One of the very early discussions we often need to have with our clients is the difference between their personal and corporate financial responsibilities. Kym Carvell explains how to answer the question ‘what is personal insolvency’ and the difference between that and corporate insolvency in this video. She also discusses some of the confusion surrounding the liability status of sole traders and the common reasons why some companies can become insolvent.
What is a Voluntary Arrangement?
Voluntary Arrangements (VAs) are not a universal panacea for financial difficulties but they can be a way of resolving your financial issues to the satisfaction of everyone concerned. In this video licensed insolvency practitioner and director here at PBC, Gary Pettit, will explain what a voluntary arrangement is and what it can do. Many people are aware of the basics of a VA but are unsure of a range of specifics such as can a company have a voluntary arrangement and do all creditors have to abide by the terms of a voluntary arrangement? Gary will answer some of the more common questions we are asked about VAs and how they are used.
National Appointment
Gary Pettit of PBC Business Recovery & Insolvency has been appointed as one of the judges for the prestigious SME National Business Awards that take place at Wembley Stadium on 1 December 2017.
In response to the appointment, Gary said,
“This is truly an honour and a reflection on the reputation of PBC and the Team. I feel both humble and proud to be part of the judging panel. It goes without saying I wish the best of luck to all of the businesses who have reached this stage and, in particular those fortunate to reach the finals.”
Personal Insolvency Rates – Women Overtake Men
Every quarter the Insolvency Service produce statistics which confirm how many businesses fail, broken down by insolvency type:, liquidations (whether they are compulsory or voluntary) administration or company voluntary arrangements (CVAs).
At the same time similar statistics are released for individuals, divided into bankruptcies, debt relief orders or individual voluntary arrangements (IVAs). There are very few details about the number of debt management plans.
When these are released, the details will always make that day’s news and as is normal with the media they focus on the worst points.
In general terms, corporate insolvency appointments have been failing from their recent highs reached during the financial crash in 2007/08 (although failures were much higher in the early 1990’s). Personal insolvency appointments have also been falling, although in the last year there has seen a steady rise. Historically men have always had higher rates of insolvency than women but since 2014, women have overtaken men.
Once a year the Insolvency Service produce more detailed personal insolvency statistics. The main headlines are:
- The total insolvency rate increased for the first time since 2009, and increased in all regions of England and Wales between 2015 and 2016.
- The North East continued to have the highest insolvency rates, while London had the lowest.
- Nine out of ten local authorities with the lowest insolvency rates were in London or the South East, whilst seven out of the ten areas with the highest rates were located in coastal areas.
- Insolvency rates increased for all age groups except 55 and over, with those aged between 18-44 showed the biggest rises.
When I review these figures I am always interested in the details. For example Corby has been in the top 10 of the worst local authority areas in terms of personal insolvency rates. As mentioned above the majority are seaside towns which have their own issues due to the seasonal economies in which they operate. Being based in Northampton we are aware that Corby still has elements of poor families struggling to make ends meet in low paid jobs. In our experience these will often be cases in which credits cards and loans have been built up, possibly in a period when there has been a loss of income or ill health or just simple overspending. Commonly once the debt has been built up they find it almost impossible to repay the debt because of the low income and so a downward spiral begins.
So what can the individual do?
The first thing required is to be honest with yourself and the situation. Sit down and summarise who you owe money to and how much. Next produce a budget detailing your income and necessary spending. Hopefully this should leave a surplus and you can then plan how to reduce your debt using this surplus.
You may find you need additional help and PBC have always offered help to individuals and will outline all the options open to them from refinancing, a debt management plan, IVA’s and bankruptcy, alone with many others. Our advice is simple: take action as soon as possible rather than leaving it too late.
Initial meeting are free of charge and confidential. We hope to understand your position, answer your questions and lay out the options available to you in order for you to consider which is the best way forward for you.
UPDATED TOTAL- Charity Walk Completed!
Kym and Jamie completed their 80 mile charity walk for Ronald McDonald Houses earlier this month. They have currently raised £2,047 and have therefore exceeded their amended target of £2,000, which itself was double their original goal.
Kym’s daily blogs, reproduced below, provide the highlights of their four days walking:
Day 1 blog: I’ve seen Wembley Stadium, Regents Park, Grenfell Tower (so sad), nesting moorhens with chicks and swans with cygnets, a green woodpecker, some handsome dogs (shame about some of the owners) and a lorry driver about 3ft away mount the pavement and take out a bollard (male naturally)! I’ve learned that London cyclists are rude and my efforts to teach them manners whilst amusing for me, were largely wasted, Jamie can’t multi task and his attempts to look at his glasses while holding a drink meant that I would end up wearing it! I’ve learned that Billie-Marie is back in Alder Hey which has made us more determined and that there are a lot of generous people out there, thank you so much to everyone who has donated. Day 1 done we’re on our way home tired and dirty. Day 2 starts at 7am tomorrow as we had to cut today a little shorter than planned because Jamie somehow has managed to lock his lovely wife Naomi out of their home!
Day 2 blog: Tough today as the heat made it hard! Today we’ve seen 3 herons, a red kite and a couple of guys appearing to be picking nits from each other’s hair! It was a more picturesque walk today along the canal path, a lot less pavement pounding. Well-mannered cyclists, friendly people except one rude guy at Watford where we also saw the days first builders bum and thankfully the only one! Is that really necessary? Must be quite uncomfortable and draughty! Jamie is suffering nasty blisters today and I have put the blister pack “in a safe place” but can’t remember where! Sorry J! Our other silly moment was forgetting to pay for parking in Northampton! Oops! Half way through now time wise though a few more miles to cover the next 2 days so early start tomorrow for day 3! We can do this!!
Day 3 blog: Off to an early start today at Tring. As my back and shoulders are surprisingly sorer than anything else I’ve decided to ditch the back pack, use a bum bag and let Jamie carry the weight! Not sure this look will catch on again so may try to up the game tomorrow and rock in socks and sandals as well! The new waist attire has taken a soaking with Jamie’s 2nd throw of a drink over me as has my phone! Today I’ve seen the most beautiful countryside and my senses have been assaulted by the less pleasant aromas that come with it! I’ve seen horses running together, a couple of boat cats, stunning wildlife and a doberman belly flop into the canal to chase geese which naturally flew away leaving the dog unable to get back out again! Help was at hand and all ended well but it was funny. Everyone we’ve met has been lovely despite Jamie’s groans of pain about his blisters! In fairness they are really bad poor lad. My legs are feeling it now but we’re almost there and I’m determined to finish even if I do so on my hands and knees.
Day 4 blog: Off to an early start again and just finished! Woohoo 80 miles over 4 days completed with lots of laughs and groans of pain along the way. Today I managed to spill my own drink on me, thought I’d give Jamie a break from doing it! We’ve had donations from strangers including the owners of Zack the greyhound who took a liking to me, seen beautiful views including common terns, had a close encounter with a heron and learned that the names Rosie and Jane appear on more barges than any other name. I have asked myself over the last few days why I accepted this fundraising challenge from someone almost 30 years younger than me but we’ve done it! Would I do it again, hell yes! Growing old is compulsory growing up and acting your age is optional and the latter is my choice and the way I plan to continue. Most importantly, we’ve almost hit our target for Ronald McDonald House which is an amazing charity that gives so much help to families of sick children, more than I can begin to explain. Heartfelt thanks to everyone who has donated and to you all for your support and encouragement, much appreciated.
To donate, please click here.
Paying by card – know your rights!
Research by the UK Cards Association showed that, in 2016, 77% of national retail sales were made by card. It was also announced in the last few days by the British Retail Consortium that debit card payments overtook cash for the first time, no doubt increased by the use of contactless payment.
Most payments by credit card (including some charge cards) are protected by law: consumers have a legal claim against the card issuer where the goods or services cost between £100 and £30,000 and are not delivered.
In addition, for debit and credit cards (including pre-paid cards), the card schemes provide a system of “chargeback”. Chargeback schemes are voluntary schemes with the terms and conditions set by the card issuer and accordingly the rules vary from issuer to issuer. However most schemes allow the card issuer to ask the merchant acquirer to reverse a payment made by card with no minimum or maximum limits.
It is unfortunately inevitable that some payments made for services will not be honoured when a retailer enters into insolvency. New guidance issued to insolvency practitioners states the appointed insolvency practitioner must issue a notice on the retailer’s website informing customers of whether their services or goods will be delivered, as well as informing them of the above rights.
The UK Cards Association has also issued a guide to card holder’s rights, which can be found here:
Ever Decreasing Circles
When you think of Ali Campbell you think of UB40, Shane Filan, Westlife and Martine McCutcheon may bring back memories of “Eastenders”. What they all have in common is being made bankrupt, which goes to prove cash is king.
There is an old joke about the husband who did not report his wife’s card stolen because the thief was spending less than she did. Excluding mortgages, household borrowing in the UK rose to £198 billion and with car financing increasing by 15% and credit card debt by 10% this represents the fastest growth in debt levels since 2005. Statisticians suggest the average household could last just 32 days without any income and that more than 22% have savings below £500.
This depressing picture is indicative of how austerity has impacted on the general public. However, it does not reflect the true picture because the reports on personal debt do not include “Hidden” liabilities such as personal guarantees for third party borrowing or directors over-drawing on their loan accounts. The worst case I have seen so far was a former partner of a failed legal practice whose Christmas present in 2014 were demands amounting to £11 million. Try explaining that to your spouse!
At PBC we see people with personal debts ranging from less than £10,000 up to the poor sole mentioned above. Regardless of the quantum of debt they all endure the same; demand letters, High Court Enforcement Officers, threats of bankruptcy etc. Admittedly, there are some who consult PBC where bankruptcy is the best option for that individual due to the overall circumstances. Others, like our client with the unwanted Christmas present, entering into an individual voluntary arrangement (“IVA”) provided certainty and protected his career.
As implied, an IVA is not right for everyone. It is a deal with your creditors; a balanced compromise where there are benefits for both the client and their creditors and demonstrates being more beneficial than bankruptcy. The key component from the client perspective is you must have something to offer, whether that is an income contribution or tangible offers, or a combination of both.
The principle message has (and will always be) take advice early. The longer you leave debt-related problems the more antagonised your creditors will become, the more cumbersome the debt and the less creditors will be persuaded to support any form of compromise you may wish to put forward.
Charity walk only 2 weeks away!
Northampton is within easy reach of London Euston – unless you choose to do it the way Kym Carvell and Jamie Cochrane from PBC are doing it.
Spurred on by the excellent support a charity has provided to Kym and her family since Kym’s granddaughter Billie-Marie was born last August, the pair are planning to walk from Euston over four days in July.
While Billie-Marie, who was born 10 weeks prematurely, has been treated at Alder Hey Hospital in Liverpool, her parents have been able to take advantage of the nearby Ronald McDonald House, which provides free accommodation for parents and carers who want to stay close to their sick children.
Kym said: “Parents are already going through so much when their children are ill, the added stress of having to find somewhere to stay if the hospital is not local to them is something they just don’t need.”
“As a family we have seen first hand how important it is to not only have somewhere to stay, but somewhere with a direct phone line to the ward and with staff who can counsel and reassure worried parents, and I wanted to do something to help raise money to fund more of these houses so that other parents get the support my son and daughter-in-law have had.”
Kym’s colleague Jamie Cochrane, who has done a number of charity walks in the past, came up with the idea of walking from London. The pair aim to complete the walk over four days, averaging 20 miles a day and have set a fundraising target of £1,000.
Jamie said: “I wanted the challenge to be something new and different and this idea just occurred to me – it’ll be quite tough, particularly later on in the walk, but when you think of what Billie-Marie has endured, and what her family has gone through, a few blisters is nothing.”
Anyone wishing to support Kym and Jamie in their charity walk can visit the Just Giving page at https://www.justgiving.com/fundraising/James-Cochrane5
Targeted Anti Avoidance Rule
The following is a blog written by Pete Miller of The Miller Partnership which we at PBC felt should be shared to readers of our website.
When the details of the Finance Act 2016 were first published, new measures such as changes to the Targeted Anti Avoidance Rule (TAAR), were met with a fair degree of interest by company owners.
However, as the months have gone by and these changes have started to bed in, what was initially just a talking point has become a cause for concern for many of the businesses I talk to.
The TAAR was introduced by the Government to prevent what is known as “phoenixing” – the process whereby shareholders receive capital distributions on the winding up of company then go on to run a similar business in another form, such as carrying on the same business as a sole trader after winding up the company, or continuing the same trade through another company.
If you are caught by the TAAR then you could see your capital distributions being taxed as dividends at an income tax rate of up to 38.1 per cent – and not as capital gains tax which may attract entrepreneurs’ relief at the much more favourable rate of 10 per cent. The rules make quite a difference.
The crux of the matter lies in whether or not you are trying to avoid paying income tax by phoenixing the company, which is something only you, or the clients you are advising, can decide.
Many people I have spoken with worry that the anti-phoenixing rules will catch them. In many cases, the TAAR is not a problem; clients just need reassurance that they are 100 per cent commercial. But there are cases where we need to look more closely at the rules and their application to the particular situation.
Crucially, businesses should note that the TAAR can only apply if you are liquidating and not selling your business. We may be able to help you with opportunities to sell the company as a money-box, instead, so if this might be helpful, please call or email us at once.
Although the anti-phoenixing rules are still fairly new, The Miller Partnership has many years’ experience in advising on such motive-based tests in taxation law. The chances are, the rules won’t apply to you, but if you think that they might, please talk to us. We can help.
Even in wholly commercial cases, HMRC might decide to enquire into the situation, because they think that the TAAR might apply. Those cases will also need careful handling, to ensure that we are able to convince them of the commerciality of the winding up. The evidence will be a major factor in HMRC’s decision, so call us if you are thinking of winding up your company, and we’ll help you make sure that you have all the proof you will need.
The changes to the transactions in securities rules mean that, apart from considering the TAAR, if you are planning to wind up or liquidate your business, you must get tax clearances from HMRC first. It’s vital you do so and I cannot stress this course of action strongly enough.
What do you expect from an insolvency practitioner?
Readers will often see phrases such as ‘Provide the best advice, no matter what the fee consequence…’. However, how often do you hear someone add to that, ‘and what it is you want’?
Personally, I fail to see how you can receive the right advice without first understanding what you, the potential client, are hoping for, because is that not the basic principle behind managing expectations?
Many have an (understandable) perception that all insolvency practitioners do is administer insolvency estates and in many cases that may be correct. That is not all we do at PBC. Yes, we can (and do) accept appointments on the whole spectrum of insolvency types, including some challenging tasks which have included setting a legal precedent in 2016 when we questioned the validity of an administrators’ appointment.
At PBC our services also include:
- Advice to professional advisors when they are, in turn, advising clients.
- Advice to (and representation on behalf of) creditors on both their rights and the problems they are facing.
- The ability to refer people to the right advisors, whether that is legal, accountancy-based or specific, such as involving personal guarantees.
- Mediation services – at the time of writing, and as the practice’s CEDR accredited mediator, I have successfully settled every dispute where engaged as the mediator.
- Probate services where Gavin Bates is a qualified person for handling (and/or assisting on) deceased estates.
- Two nationally recognised speakers who present regularly at seminars.
We truly believe it is not what you know, but who you know and the business community of Northamptonshire should have our contact details saved as someone they know who will provide the best level of excellence and expertise an insolvency practitioner can provide.
Mediation Services
As solicitors will inform you, courts now look for Alternative Dispute Resolution (ADR) as opposed to disputing parties ‘going to war’ with lengthy and (usually) expensive proceedings where, at trial, the outcome can still be something of a lottery. The times I have read about someone winning at court but the costs inherent with the matter dilute, or even extinguish, the award given.
The principal ADR vehicle is mediation and, as a mediator accredited by the Centre for Effective Dispute Resolution, I am a member of the largest organisation of mediators. Since launching the service I have been asked to handle disputes concerning liquidators pursuing directors for personal liability, ranging from £90,000 to £650,000. I have even acted as mediator where a former bankrupt was pursuing his former trustee under several headings, including professional negligence. To date, a settlement has been secured on every matter I have presided over.
Litigation will be around forever because people will inevitably have disagreements. However, in my experience, often the litigating parties have lost the ability to see the wood from the trees, while costs are mounting and, in many cases, the distraction from their normal daily lives can be destructive. This is where a mediator earns his keep. He is a neutral facilitator for trying to resolve a dispute.
Mediation often draws out the principal facts and, if the parties remain open-minded, can get them to recognise the degree of commerciality of their (litigious) actions. The courts prefer mediation as a way forward and will often ask if it has been considered. Having that neutral facilitator to try and settle a dispute can save a lot of time, effort and money.”
Probate Services
PBC are about to launch a new service following the qualification attained by Gavin Bates to administer deceased estates.
A taboo subject for many is death. Unfortunately, PBC have been engaged on several deceased estates, including a person who passed away intestate leaving a business incorporating over 130 buy-to-let properties and a solicitor who died suddenly, leaving a wealth of issues, including handling the daily affairs (under a power of attorney) of an elderly person.
All too often, directors pass away unexpectedly leaving their business with nobody to deal with its daily operations. With his insolvency knowledge coupled with his probate qualification, Gavin can assist executors of a will with trading or, if appropriate, disposal of a business where the business owner has passed away.
The other significant point is that executors maybe confronted with an insolvent estate where anything they do could result in personal liability.
It may appear shocking to readers that an individual can be made bankrupt notwithstanding they are deceased. The Administration of Insolvency Estates of Deceased Persons Order 1986 replaces bankruptcy, although it still adopts bankruptcy statute when the estate is being administered.
Gavin says: “Death is generally a taboo subject. Unfortunately, at the time it occurs, all too often the family and friends are not of the right mindset to be thinking about keeping a business operating, where wages are payable or the deceased was the sole cheque signatory, for example. This is where PBC can offer a service to the executors and their advisors, using our experience as insolvency practitioners and applying the practical solutions required to ensure the deceased estate and its executors are protected.”
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.