2017 – A Year of Change

Where has this year gone? It seems to be that every year flies by; why is that?  Age?  Maybe.  But then you think about it.  We never have a break between seasons these days.  With Christmas rapidly approaching advertisers are pushing us to book 2018 holidays and I will not be surprised if shops are selling Easter Eggs by the time this has been read!

Regardless, we are here and what has 2017 been like? In the world of insolvency we were confronted with the biggest change in the way we conduct assignments since 1987, which despite the years seemingly going quickly these days, 1987 DOES feel a long time ago!  The Insolvency (England & Wales) Rules 2016 were an attempt to consolidate, bring the rules into the 21st Century and improve creditor engagement.  Well, two out of three ain’t bad, as the song says.

The PBC Mediation Service started this year and its accredited mediator, Gary Pettit, can boast 2017 was 100% successful in terms of settling each dispute over which he presided, including a £1 million professional negligence claim by a bankrupt against his own Trustee.

So, what lessons have I learned from 2017? Well, there are probably too many (I am always learning) but two key lessons are:

  • Always be prepared to adapt to changes, both in business and in life. Business can be great but it can also be extremely cruel. Whatever you do, do not bury your head and think those problems will go away. Either face them head on or;
  • Take professional and independent advice. It is not something new but when you consider I am currently working with three individuals who all thought they could deal with the UK court system. All three are now bankrupt and face substantial statutory costs (in one of those cases, adding 50% again on top of their original debt). I am looking at ways to extricate them from bankruptcy, which could have been avoided had they faced their demon rather than bury their head.

Away from the day-to-day business Kym Carvell and Jamie Cochrane tested their stamina by walking from London to Northampton in aid of the Ronald MacDonald charity. There is a separate article on how they did so I will not spoil the enjoyment of the readers.

So, on behalf of PBC, may I wish everyone a Merry Christmas and a happy 2018.

If you require any advice or assistance on any insolvency-related matter then please contact Gary Pettit or Gavin Bates at PBC Business Recovery & Insolvency on (01604) 212150.

What is insolvency and does it apply to me or my business?

Insolvency is a very simple situation that can need a very difficult and sometimes complex resolution. If you find yourself in a situation where you are potentially insolvent you will need to take a long, clear look at things and decide what is the best option. In this video, Kym Carvell looks at what insolvency means for a business or individual. With over 30 years of experience of insolvency, Kym is a respected member of our team who is able to explain financial situations with clarity, honesty and a sympathetic ear. If you think the situations described in this video may apply to you, or your accountant is flagging a potential issue, your best option is to contact us as soon as possible so we can begin working towards a resolution.

 

When are creditors paid?

When a company or person is going through a financially difficult time common questions which occur are who will get paid and when? Many people often have a vested interest in a company and there is a very clear order in which they will appear in the order of payment. While this is sometimes frustrating it is a legal requirement and cannot be changed. In this video Gary Pettit, one of our directors and a licensed insolvency practitioner here at PBC, takes you through the basics of what will happen and who will be paid at what point in the process. He will also look briefly at the different ramifications of areas such partnerships and limited companies. As always the advice is to contact us if you feel we can help but this video should clear up some of the more regular questions we hear about payment before, during and after insolvency procedures.

What is Bankruptcy?

Personal insolvency, including bankruptcy is something that nobody wants to face. In this video Gavin Bates, one of our directors , explains a little more about what insolvency means, other options to potentially avoid bankruptcy and what could happen if you do need to take the bankruptcy option. Many people come to PBC with questions such as ‘will I lose my house if I take bankruptcy’ and ‘what about my car and other basic needs’ these are difficult questions and the answer will vary depending on your circumstances but we will work with you to make life improve as fast as possible. For many people, the relief of seeing a solution to their issues is the first sign that they are re-stabilising their life and turning the corner towards becoming solvent again. While the road may still be difficult (and we may not always say what you want to hear) talking and taking some advice could be the first step on your journey.

What is the difference between Corporate and Personal Insolvency?

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.

Personal Insolvency Rates – Women Overtake Men

figures

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.

Ever Decreasing Circles

‘Living beyond means’ – a leading cause of bankruptcy

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.

Be pro-active or accept your fate?

Apart from the obvious frustration, what steps do you take upon receiving the news one of your customers has gone into an insolvency process?  You may have retention of title on stock, it may be a debt write off that is business-threatening to you.

 

For 30 years The Insolvency Act 1986 has been the basis for all insolvencies in England and Wales, subject to various amendments through statute or legal interpretations. However, 6 April 2017 saw the most fundamental change in legislation with The Insolvency (England & Wales) Rules 2016 (“The Rules”) coming into force.

 

Most of the Rules are a consolidation of provisions that were considered to be similar for each insolvency type within The Insolvency Rules 1986.  Other changes are an attempt to “modernise”, such as the ability to communicate through electronic means or, simply via a website.  Other changes are more fundamental on a practical level.

 

From hereon there will no longer be any physical creditor meetings, unless a requisite majority of creditors demand one. Instead we have electronic voting, virtual meetings, resolutions by correspondence and a process known as “Deemed consent”.  The deemed consent procedure could mean notices are sent to creditors on one day and 7 days later a liquidator is appointed with creditors getting only a few days’ warning.  So, what if you believe the conduct of directors has been questionable?  Physical meetings have been a forum for posing relevant questions so, if you believe there is good cause for challenging the directors you must provide a written request for a physical meeting in a very short space of time.  The burden to act quickly really does fall squarely upon your shoulders!  Further information can be found here.

 

The Rules also place the onus upon creditors to monitor for progress reports.  In the past an insolvency practitioner would send notice stating the progress report can be accessed on a specific website, providing you with the file name and password.  That has ceased and it is now up to the creditor to monitor when the reports will be available.  In theory, that is fine but a liquidator has two months after each anniversary to submit a progress report.  What is the creditor supposed to do?  Check every day until it is there?

 

For me, the Rules impose a burden on advisors, credit controllers and the financial institutions to be more aware, act instantly or roll over and let the process take its course. Personally, I am concerned the Government have gone too far and reforms to The Rules will occur but, until that time, creditors need to be proactive.

 

Should you require any further assistance on The Rules, 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.

PBC announce payment in full to creditors in a bankruptcy.

PBC are pleased to report a distribution in full plus statutory interest to unsecured creditors in a bankruptcy.

 

The only asset in the bankruptcy was the debtor’s 50% share in the dwelling property, where his ex-partner resided. His ex-partner expressed an interest in purchasing the estates half share.  However, due to personal circumstances she was not in a position to make a market value offer and solicitors were instructed in respect of selling the property.  After protracted negotiation, coupled with an order of the court a sale of the property was completed on 1 December 2016.

 

The bankrupt’s half share of equity was received, creditor claims were agreed and they have received payment in full plus statutory interest. The additional benefit has been the balance of funds being returned to the bankrupt.

 

Gary Pettit of PBC said, “The outcome of this bankruptcy demonstrates the benefit of good negotiation skills, coupled with commercial thinking. It would also be remiss not to recognise the professional work undertaken by Katie Summers of summers nigh law for assisting me in achieving this great result.

‘Living beyond means’ – a leading cause of bankruptcy

‘Living beyond means’ – a leading cause of bankruptcyRecent statistics released by the government showed the leading causes of bankruptcy in 2015 were living beyond means, relationships breakdowns and reduced levels of income. The data also highlighted differences in the reasons why men and women go bankrupt.

Gavin Bates, Insolvency Practitioner at PBC, said: “These figures are similar in some respects to the statistics we discussed in our blog last year, however, a particular point of interest is that ‘living beyond means’ is the most common reason why both men and women go bankrupt. This certainly correlates with our experience at PBC where we are seeing an increasing number of people who are in financial difficulty because they are spending more money than they can afford.”

The research also ties into the increases in household debt that have been making the headlines recently.  Official figures from the Bank of England showed that personal debt, including credit cards, overdrafts and loans, has risen to its highest level since December 2008, leading debt charities to call for greater assistance for those that are struggling.

Gavin Bates continued: “People seeking credit may be doing so simply so they can afford essential items and cover day-to-day living costs, while others do so to ‘keep up with the Joneses.’ Taking on additional debt may be in some circumstances unavoidable, and works if you can manage to make the minimum payments. It would be better to review all your finances, reduce or cut outgoings and not borrow in the first place. All too often we see people who have suffered a reduction in, or loss of, income, or a period of ill health which make the position unmanageable very quickly.”

Individuals who find themselves with spiralling debts should seek advice as soon as possible so they can take action to get their finances back into shape.