Hit by the collapse of ISG? We are here to help!

The collapse of ISG into Administration will have a significant effect of many in the supply chain with monies owed not being paid any time soon or potentially not at all. 

If the loss of income is likely to mean financial difficulties going forward it is imperative to take advice and try not to panic.

Whilst undoubtedly the Administrators of ISG have a strategy in mind, it is likely to be a few months before the anticipated financial outcome will become public knowledge. All we know so far is some 2,200 employees were made redundant, with 200 employees retained to assist the Administrators.

Below is guidance to supply chain members until the financial outcome of the matter becomes more visible.

  • If you are struggling to pay your suppliers, communicate with them early, explaining the position. This should also include HMRC. We would expect they will be under some form of guidance to help as best as possible in this particular matter. 
  • If you are asked to complete work for the Administrator, look to leverage your position in this scenario. Payment up front or even better payment of part of all your old debt to continue working. Understand your importance to the Administrator if this request is made. 
  • Retention of Title Clauses – For companies that have supplied goods, look at your retention of title clauses. This may enable you to recover your products.
  • Trade Credit Insurance – if you have this make a claim immediately.
  • Take advice from your accountant/solicitors or even an Insolvency Practitioner to see what options are available.

At PBC Business Recovery & Insolvency we advise companies daily and,  first and foremost, aways look at recovery options for those we advise – trying to prevent them entering a similar process to that of ISG.  Sometimes, this is unavoidable, but the sooner advice is sought the greater the opportunities are.

If you need any advice or assistance on any corporate recovery option or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Record fines at British Home Stores.

Some may remember the demise of the BHS Group as shops around the country closed down, following the group entering into administration in April 2016.

Move on eight years and the court has imposed a record £110,230,000 compensation order against two of the former directors. Yes, £110 million!

The commentary surrounding the BHS court hearings   are far too long for this narrative.  However, it can be summed up by saying any director whose company is facing distress must act rationally, assess the impact of their decision making and avoid, “Wishful thinking” at the expense of the company creditors.

Some key messages that came out of the two decisions, included:

  • Directors of companies in financial distress have a “Modified duty” that is owed to the interests of the company creditors as a whole and not to shareholders.
  • This modified duty arises from the point when the company is “Bordering on insolvency or an insolvent liquidation is probable.”
  • The standard expected (of directors) depends on the size and sophistication of the company.
  • Taking professional advice does not necessarily absolve directors of their risk of personal liability.

In short, the court is saying any delay in taking positive action to protect the company creditors may expose directors to risk of (what they termed as) equitable compensation awards being made on a personal liability basis.

At PBC we have always encouraged directors to seek early advice.  We appreciate how difficult it can be making that call and attending a meeting with our experienced team.  However, time and again, business owners have expressed a relief after consulting with PBC and many of those fears built up inside  are eased.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Abusing a Winding up Petition

Woman sitting at desk with PBC logo on the screen

As everyone in business will appreciate, the phrase, “cash is king,” rings very loud when it comes to keeping your business going.  With many businesses across the UK fighting to get debts paid, it has resulted in recovery threats increasing. But just how far can you press a customer for payment?

In one case PBC were instructed to advise directors of a company that was literally days away from crashing into administration, following a threat of, “if you do not pay our client by 4.00 p.m. Friday we shall commence winding up proceedings.”  After some checking it turned out the client supplier had refused to supply the goods until they were paid for in advance.  After we pointed out the goods had not even left their client’s building, the threatening solicitor withdrew their threat.

A malicious winding up petition is one that has been presented wrongly.  It maybe the petitioner knows the debt is not due or payable, or it is disputed, where a more appropriate judicial process ought to be followed.  In short, it is designed to pressurise a payment that may not lawfully be due and this is regarded by the courts as an abuse of process.

Another action that is considered an abuse is when the petitioner advertises outside the parameters of the insolvency rules.  For example, emailing a copy of the endorsed petition to the respondent company’s bankers on the day the petition was presented can result in the petition being dismissed and, potentially a subsequent legal action against the petitioner on grounds of malicious prosecution.

There are two key messages, here, namely:

  1. As the creditor, you need to consider whether you have an enforceable debt and, if so, what is the most appropriate route for collection.  It also helps if you can put the emotion to one side and consider the outcome of your actions and whether there are better alternatives that will maximise recovery.  If in doubt, seek legal advice or, where an alternative insolvency procedure has been put forward by the debtor, consult with an insolvency practitioner for their views on that alternative.
  • For the debtor, at the first sign of experiencing difficulty in meeting your debts when they fall due, take advice from an insolvency practitioner.  Do not leave it until you have frustrated your creditors so much that they become focussed on seeing your business wound up and you investigated for potential misconduct.

It is all too simple to tell someone who is owed money not to become emotional, but threatening winding up when that is inappropriate or even malicious can come back and haunt you.  Yes, there is a desire to recover debts as quickly as possible, but beware of not falling into the malicious trap.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Administration saves 170 jobs – It’s what we do.

Following our recent reports about our work in safeguarding businesses, PBC have now successfully ensured the continuation of another business via Administration, where all 170 employees were protected. Had the company entered into liquidation, it would have resulted in all employees being made redundant where the burden on the Government Purse was estimated to have been in excess of £200,000 in respect of the employees’ entitlements.

Ian Cooke from PBC said,

“This is another example of directors seeking early advice and where the PBC Team were able to assess the situation quickly and advise on the most beneficial solution for all stakeholders.”

If you require any advice or assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton) or 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk

Highest liquidations since 1960

That is the headline from the corporate insolvency statistics for the second quarter (1 April – 30 June 2023) that were published on 28 July by the Insolvency Service. 

In total there were 6,342 company insolvencies of which 93% were either creditors voluntary liquidations (5,240) or compulsory liquidations (637).  Collectively in the year (Q3 of 2022 to Q2 of 2023) the recorded number of creditor voluntary liquidations (“CVL”) is the highest since 1960, which is remarkable when you consider arguably our worst recession that peaked in 1993.  The latest figures mean the rate of liquidations is 52 in every 10,000 active companies registered as compared to 43.9/10,000 one year ago.

The remaining numbers reported were 409 administrations and only 56 company voluntary arrangements.  In addition to these numbers the two new rescue procedures introduced under the Corporate Insolvency & Governance Act have hardly been utilised.  From 26 June 2020 to 30 June 2023 there have only been 45 Moratoriums and 21 Restructuring Plans.

The big question must surely be why?  In short, the common features appear to be:

  1. The combination of Brexit, quickly followed by Covid-19 has had a severe impact on the world-wide economy.
  2. Cash flow has been adversely hit following the withdrawal of the Government’s fiscal and other measures put in place to support businesses during the pandemic, together with the legacy the financial support and the pandemic have left.
  3. Because of that support, companies that would ordinarily have ceased trading in 2020-21 were able to continue longer than envisaged.  This means the 2022-23 figures are swelled by the legacy of the higher than usual company survival rates during the pandemic.

Something that you will not see in Government dispatches is that many companies are using CVL as a vehicle for selling the business and assets, or even to “Phoenix” into a new company.  This is because of the much-contested decision to make HMRC a secondary preferential creditor, resulting in the restructuring procedures being no longer viable in many cases.  The low numbers of administrations, CVA, moratoriums and restructuring plans are indicative of this problem.

The saying, “Lies, damn lies and statistics” has some merit when considering the insolvency numbers because it is the devil in the detail beneath those core figures that matters and the signs are many businesses are finding themselves the subject of a merger or acquisition.

At PBC we are finding ourselves assisting companies and their professional advisors with going concern sales more often than in the past and we see no reason for that current trend to change in the short term.  However, more often than not, the key to an organised resolution is to seek advice at an early stage.  It is a long-standing piece adage but there can be no coincidence that most businesses are saved in one form or another where the directors sought advice early.

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 (Northampton) or 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Insolvency Practitioner Declares Further Dividends

kalkulation am rechner

The success of an insolvency process is often measured on the ability to realise sufficient assets in order to pay something back to creditors and two cases we are administering are meeting that goal.

In the first case, PBC are delighted to announce the payment of a further significant interim dividend of £200,000 to HM Revenue & Customs from an insolvency estate.  Combined with a payment of £500,000 in January, HMRC have now received over 35% of their debt.  With further assets to realise, it is expected that well over £1million will be returned to creditors.

The second case involves an individual who was declared bankrupt in 2019.  Realisations of two buy to let properties and an endowment policy have enabled payments of approximately 20 pence in the pound to be made to unsecured creditors.

Jamie Cochrane said, “It is always pleasing to be able to make payments to creditors as described here.  The commercial approach taken by PBC on these cases has increased the dividends we are able to pay”.

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 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

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

Beware the Elephant Traps

Something I have been asked several times recently is when should directors seek advice from an insolvency practitioner.  My answer is always “as soon as possible” as there are more options available the earlier advice is sought, with the likelihood of rescue and recovery markedly higher.

The other advantage is that a director is less likely to step on what I call the elephant traps.  These antecedent transactions, explained below, can lead to personal liability for the director to restore the position to what it would have been prior to the transaction taking place.

  1. Preference

The Insolvency Act 1986 defines a preference as where a payment is made to a person and “that person is one of the creditors or guarantor for any of the debts and [the insolvent] does anything which has the effect of putting that person into a position which will be better than if that thing had not been done”. 

It needs to be proved that the company was insolvent at the time (or as a result) of the transaction and that there was a desire to prefer the creditor or guarantor.  However, where the recipient of the preference is a party connected with the company (e.g. a director or relative of a director or a company of such a person) then the desire is presumed.  Finally, the payment needs to take place within a relevant time which is 6 months prior to the company entering liquidation or administration, although this is extended to two years when the recipient is connected.

Typically, preference payments involve payments being made to directors to clear loan accounts, to creditors personally guaranteed by the director or to suppliers which the director intends to utilise should they start a new business.

  1. Transactions at an Undervalue

A transaction at undervalue occurs when a company “makes a gift or otherwise enters into a transaction that provide for no consideration” or “enters into a transaction for a consideration the value of which is significantly less than the value provided” in the two years prior to the company entering liquidation or administration.  Additionally, it needs to be proved that the company was insolvent at the time (or as a result) of the transaction.

The most common examples are the gifting of assets to directors or the transfer of an asset the director believes is theirs (e.g. a company car) for a value far less than it was worth.

  1. Transactions Defrauding Creditors

A transaction defrauding creditors arises when a company “makes a gift or otherwise enters into a transaction that provide for no consideration” or “enters into a transaction for a consideration the value of which is significantly less than the value provided”.

On the face of it, that sounds exactly like a transaction at undervalue but in this case it needs to be proved there was an intent to put assets beyond the reach of anyone likely to make a claim (typically a creditor).  There is no need to prove insolvency and the transaction does not need to occur in a relevant time period.

Often these cases involve scenarios where financial arrangements are changed to ensure one party holds the assets while another takes all the risk.

  1. Wrongful Trading

Wrongful trading occurs where “at some time before the commencement of the winding up, [a director] knew or ought to have concluded that there was no prospect of avoiding insolvent liquidation”.  

Case law has held that a director can be held personally liable for the increase in liabilities from the point where they ought to have reached the conclusion to the time when the company ultimately enters liquidation or administration.  A statutory defence is available to directors where “they took every step with a view to minimising the loss to the company’s creditors”. 

An example would be directors acknowledge their company had suffered losses and there was insufficient capital to keep the company trading.  Over the next two years (say) debts increased by £200,000 and the company went into liquidation owing £350,000.  The wrongful trading (and personal liability) is the £200,000 increase.

  1. Fraudulent Trading

Fraudulent trading carries criminal sanctions as well as personal liability for any party “knowingly … carrying on business with intent to defraud creditors or for any fraudulent purpose”.  The company does not need to be insolvent at the time of the fraudulent trading, which could be as simple as a single act.

A single act could be the taking of a loan, using the funds for personal benefit and having no intention of repaying the loan.  This would include the government backed Covid support schemes.

  1. Misfeasance

Misfeasance occurs where a director breaches their duty (fiduciary or otherwise) in relation to the company.  Common examples of this include adopting a systematic policy of avoiding paying taxes to HM Revenue & Customs, failing to maintain adequate books and records and paying dividends where there were not the available reserves to do so.

It is a common policy for director/shareholders to pay themselves a mixture of salary and dividends to reduce the tax liability but recent court judgements have held that dividends cannot subsequently be converted to salary if challenged.

Except with the statutory defence outlined above for wrongful trading, the antecedent transactions outlined have no defence so if a director steps on the elephant trap there is mitigation.  As a result, I must return to what I said at the outset that if advice is not taken as soon as possible, then this position could result in significant sums becoming payable by the director.

Government extends business support measures.

The Government have announced two further extensions of provisions under the Corporate Insolvency & Governance Act 2020.

 

Commercial landlords

The ability to evict or take goods in lieu of rental arrears has been further suspended until 25 March 2022.  The Government have produced a guide for landlords, which includes financial assistance.  The link is:

https://www.gov.uk/government/publications/covid-19-and-renting-guidance-for-landlords-tenants-and-local-authorities/coronavirus-covid-19-guidance-for-landlords-and-tenants

While this provision can be financially damaging to landlords, tenants also need to understand they must continue to pay rent (whether that is the contractual sum or a reduced amount under an agreement with their landlord) otherwise they are simply accruing a debt that could become unmanageable, while simultaneously increasing the landlord’s frustration, meaning they show less understanding once these provisions are lifted.

Further to the above, a director may have given a personal guarantee or, in non-payment of the rentals, could be exposing themselves to potential malpractice action (which carries personal liability) should their company ultimately fall into liquidation.

Debt enforcement

The restrictions on statutory demands and winding up petitions are being extended for a further three months until 30 September 2021.  The Government claim this is, “To protect companies from creditor enforcement action where their debts relate to the pandemic.”

It is, perhaps, interesting the announcement appears to be silent on extending the moratorium over wrongful trading, although directors, in particular, should not hold the misconception suspending wrongful trading provisions protects them if they continue trading beyond a point where creditors suffer.

While being of the view extending the above provisions further is kicking the can down the road, it is understandable.  The COVID road map has been pushed back until 19 July and with furlough to end in the autumn companies will need to re-adjust their overhead expenditure while also getting their business back on track after the adverse impact of lockdown.  Holding off aggressive creditor action to the end of September provides some breathing space for companies to recover before having to deal with aged debt.  Holding off landlords even further allows additional time for business owners to assess the viability of continued trading.

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

ARE YOU PREPARED FOR ‘NORMAL’ ?

Have you heard the phrase, “You cannot change the past, but you may influence the future?  All too often we blame what has happened rather just accept that it has happened, and we need to address matters going forward.

 

The past 14 months, or so have been arguably the most challenging any of us have experienced but June brings forward two very important dates:

  • Assuming the Government road map stays on course, the 21st is expected to see the end of restrictions and a return to normal life.
  • It is widely believed the (thrice) extended deadline on various interim restrictions and amendments invoked under the Corporate Insolvency & Governance Act (“CIGA”) will end on 30 June.  These include a limitation on serving statutory demands, presenting winding up petitions and landlords taking recovery action for rental arrears.

 

In addition to the CIGA provisions, many businesses will now be receiving notification that repayments of the “Bounce Back” loans are falling due, while the employment furlough scheme is set to end in the autumn.

All the above events will serve to impact on company cash flow, while many will face recovery action from those debtors, frustrated they could not take enforcement action during the CIGA restriction period.  This includes HM Revenue & Customs where enforcement action has been limited to tax evasion and other limited taxation matters.  It is little wonder the Government have extended the restriction period.

Many will be aware of the phrase, “If you fail to plan then plan to fail.”  Unfortunately, all too often, people are great at what they do as a profession, but the accounting/bookkeeping side is seen as a necessary evil.  That may well be the view but if you had a flat tyre, would you carry on driving or stop and do that necessary evil of changing the wheel?

The prediction is UK will endure a short, but sharp economic recession.  As with previous economic challenges, those prepared are generally the ones who survive, so how do you promote the chances of you being one of those survivors?  Here are a few points that I see when assisting companies in financial difficulties:

 

  1. Put together a cash flow forecast (ask your accountant to help if preferred).  When you have this, check actual trading results with the forecast, at least on a monthly basis in order to compare projections with the actual results.

 

  1. Credit control.  Remembering cash is king and a good customer is a paying customer, and your customers are likely to be facing similar post COVID issues as you.  Unpaid debts do not pay the wages!

 

  1. With credit control comes setting and keeping to credit limits.  If you set a credit limit of (say) £5,000 for a customer and an order comes in that exceeds that limit, be bold enough to inform them you cannot entertain that latest order until some of the older invoices are paid.  Yes, some may grumble but your recovery time will improve.

 

  1. Where appropriate, consider negotiating longer debt repayment terms with creditors.  The Government anticipate there should be a lot of forbearance demonstrated by creditors (including HM Revenue & Customs) as, generally speaking and within reason, they would rather recover their debt than find they are on a list of creditors of an insolvency.

 

  1. Avoid the temptation of “Corrective trading.”  What I mean is, for example, do not think hiking your prices will help you recover sales income lost during the COVID restrictions.  While reasonable increases maybe acceptable, pushing that barrier too high will inevitably lose you custom.

 

  1. If in any doubt, seek independent and professional advice, whether that is from your accountant, solicitor, or an insolvency practitioner.  These advisors are there to assist you and steer you in the right direction so use them and use them at an early stage.

 

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