PBC Moves into Bedford

 

Insolvency practice moves into Bedford.

PBC Business Recovery & Insolvency have announced opening their new office in Priory Business Park, Bedford with effect from 1 March 2019.

Highly regarded, PBC provide professional advice and services across both personal and corporate insolvency, whether that is for the client directly or where the client has an insolvent customer that owes them money.

In addition, Gary Pettit is a CEDR-accredited mediator, specialising in facilitating of settlements in corporate or insolvency-related disputes

Managing Director, Gary Pettit, said,

“This is an exciting move for PBC.  Bedford is a vibrant business town and, from my own experience there is an abundance of positive energy shown by its business people.”

Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01234) 834886 or email to garypettit@pbcbusinessrecovery.co.uk

Brexit vs Cash

How many readers like change?  Do you remember the constant barrage of doom and gloom surrounding the Millennium Bug or what about GDPR?  Let us face it, in general we all fear changes that may interfere with our comfort zone.

The “B” word has been with us for 2 years and, personally, I have adopted the position of why write about it?  After all, nobody knows what post EC departure means so anything written pre-Brexit surely must be rhetoric or simple guesswork.  Admittedly, the older generations know what it was like before we joined but times have moved on since then and the economic World is vastly different.

So, let us focus on what we do know.

I bet when asked about your salary you cite your gross earnings.  However, gross earnings cannot be taken into account when it comes to paying the bills; you have to look at your take home pay and hopefully it is sufficient to meet your domestic needs.  Similarly, in business there seems to be a heavy focus on the level of turnover rather than the net profit or, more importantly, cash flow and the ability to meet debts as they fall due.

Through 2018 the average amount owed to a company was £80,141 rising to £82,000 for professional services.  Late payments are the most significant threat to SMEs and the longer they remain unpaid, the higher the risk of an inability to collect.  If your business had to write off £80,000 how much additional business would you need to secure in order to recover that loss?  Going back to the salary scenario if your employer paid you late could you still meet your debts as they fell due?  There is little difference.

At PBC we would say most of our clients have suffered from poor cash flow.  Some are due to poor credit control, some through a slow burn as the business suffers for one of many reasons, while others fall victim to a one-off catastrophic write off.  In one particular case PBC are handling the company suffered a 7-figure debt as their customer went into liquidation, bringing the company to its financial knees.  Thankfully, the director took early advice and we had time to restructure his company via a company voluntary arrangement, safeguarding all of the employees and the company going forward.

So, our message to you is Brexit is currently uncertain whereas cash is king.  Look after your cash controls and let Brexit unwind in whatever format it is destined to take.

Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit and PBC Business Recovery & Insolvency on (01604) 212150 or email to garypettit@pbcbusinessrecovery.co.uk

What has 2018 been like?

 

When I get that call from Business Times informing me it is time to draft your editorial reviewing the past year a mild panic strikes like a bolt out of the blue! Is it really that time already?  What has happened over the past year and what can I write about?

The year started with PBC launching its mediation service.  So far, the PBC mediation service has successfully settled every dispute where acted, either on the day or in the immediate period thereafter.  It has included insolvency-related matters, a shareholder dispute and a professional negligence claim.  All but one were pre-legal action and it is fair to say in two of those the claimant was probably relieved that a settlement was reached!

For those who believe they want their day in court then beware. The courts are penalising those who refuse mediation as an alternative dispute resolution by imposing cost awards.  In one report I read the Claimant won £10,000 but because they refused mediation a cost order of £35,000 was made against them!

While mediation is proving successful our principal area remains insolvency and once again we have found ourselves being asked to act on some challenging assignments, including a deceased estate on the South coast and a corporate group that has two foreign subsidiaries (one in Canada and the other in Australia).  We were also delighted to accept our first nomination from HM Revenue & Customs for the appointment as liquidator, replacing the directors’ choice of insolvency practitioner.

The advisory side has also seen some interesting matters where PBC have assisted creditors of companies either entering into an insolvency process or, in one case, challenging the conduct of the residing liquidator. As we always say at PBC, awareness (of your rights) can often protect your financial interest.

The retail sector has taken a pounding this year as we witness the likes of House of Fraser and Toys R Us fall under the regime of the Insolvency Act. Until the retailers look at new ways of improving foot fall then the outlook continues to look bleak.

Gary Pettit was also invited to be party to the Government consultation on corporate governance, being proposals following the experiences of these large-scale corporate failures and the devastating legacy they leave. As the Government say, “When Parliamentary time allows” there could be some stark changes imposed, including the ability to pursue directors of companies that are struck off the register.

For the time being directors should be aware HM Revenue & Customs are continuing their campaign to recover tax from “Disguised remuneration schemes” such as Employment Benefit Trusts and other tax avoidance schemes. At PBC we have seen an increase of these incidences and with the constant pressure to reduce the level of unpaid taxes, it is an area that will continue to grow in recovery procedure terms.

It has to be said the final word must go to Jamie Cochrane who passed his accountancy qualifications. It is a great achievement and the PBC Team all congratulate him on his success.  That hard work and his dedication to PBC has also been rewarded with promotion to associate.

Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit and PBC Business Recovery & Insolvency on (01604) 212150 or email to garypettit@pbcbusinessrecovery.co.uk

HMRC to be a preferential creditor once again

 

The 2018 Budget has seen the announcement that HMRC will regain their preferential creditor status, a position which they lost in 2002 under the Enterprise Act. Since then they have ranked alongside unsecured creditors (such as suppliers, landlords etc).

Chancellor Philip Hammond, speaking in Parliament said, “We will make HMRC a preferred creditor in business insolvencies…to ensure that tax which has been collected on behalf of HMRC, is actually paid to HMRC”.

Further detail announced by HM Treasury states, “Taxes paid by employees and customers do not always go to funding public services if the business temporarily holding them goes into insolvency before passing them on to HMRC. Instead, they often go towards paying off the company’s debts to other creditors.  From 6 April 2020, the government will change the rules so that when a business enters insolvency, more of the taxes paid in good faith by its employees and customers but held in trust by the business go to fund public services as intended, rather than being distributed to other creditors such as financial institutions”.

It is understood HMRC will become a “secondary preferential creditor”, ranking after current preferential creditors, which includes the Redundancy Payments Service and employees for certain elements of their employment rights. HMRC will only become preferential for debts collected by the company on behalf of HMRC, such as VAT, PAYE and employee’s NI contributions but will remain unsecured for Corporation Tax and employers’ NI contributions.

The Government believe this measure will result in an extra £185 million in taxes being recovered each year. However the policy will have other consequences such as:

  • Banks and other lenders may be unwilling to support companies, or charge higher interest rates on lending, as their risk will increase.
  • Other unsecured creditors, including small businesses, landlords, pension funds, suppliers and employees will see the amount they receive reduced.

The full release from HM Treasury is available here:

The budget also included confirmation of proposals whereby directors could be held liable for debts due to HMRC where there is a risk that the company may deliberately enter insolvency. Following Royal Assent of the Finance Bill 2019-20, directors and other persons involved in tax avoidance, evasion or phoenixism could be jointly and severally liable for company tax liabilities in certain cases.

Liquidators’ appointment valid despite breach of deemed consent procedure

The Insolvency (England & Wales) Rules 2016 came into effect in April 2017 and were aimed at enhancing creditor participation in the insolvency process while also consolidating the rules.

One of the new provisions enables an insolvency practitioner (“IP”) to serve creditors with a notice of deemed consent; meaning if the IP does not receive any objections by a given date then, by deemed consent, that IP is appointed liquidator of the company in question. However, what happens if you are a creditor but do not receive a copy of the notice?  You may have burning issues or a preference on the IP who should be appointed.

These were some of the issues arising in the case of Cash Generator Ltd v Fortune and others [2018] EWHC 674 (Ch) which is understood to be the first case to challenge the new insolvency rules.

Background

The companies operated, as franchisees, in pawn-broking and ‘payday’ loans.

The first and second respondents were nominated by the companies as their joint liquidators and, when fewer than 10% of the creditors objected, they were duly appointed under the deemed consent procedure.

Before the liquidations began, the companies assigned their leasehold interests in their business premises to a third party.  Once appointed, the first and second respondents sold the stock and other assets.

The Companies Court decision was that non-compliance with the statutory provisions for the appointment of liquidators did not invalidate the first and second respondents’ appointments as joint liquidators of the three companies. There was also no cause for their removal to enable an independent investigation into the assignment of the companies’ leasehold interests in the business premises and the sale of the stock and assets.

The application

The applicant was a franchisor and claimed to be a creditor. They sought declarations from the court that:

  • the appointment of the first and second respondents as liquidators was invalid as the correct procedure had not been followed.
  • the first and second respondents should be removed from office.
  • the first and second respondents should be replaced by the Applicant’s own nominees or those appointed by the court.

What did the court decide?

The court determined there were two distinct issues to consider, namely the invalidity (or otherwise) of the appointment and whether the respondents ought to be removed from office.

Invalidity

The applicant argued that as they (and other creditors they were aware of) had not been given notice of the respondents’ nomination, the statutory requirements for nomination under the deemed consent procedure had not been complied with.  Consequently, the appointment was fatally flawed.

It was conceded by the Applicant that a company could nominate a person to be liquidator at a company meeting at which the liquidation commenced.  However, the insolvency rules require directors to seek nomination from the creditors whose choice of liquidator shall prevail. In those circumstances, the court had to intervene and either order removal or the appointment of new liquidators.

The judge considered these arguments in the light of section 100(1B) Insolvency Act 1986, which provides,

“The directors of the company must in accordance with the rules seek nomination of a person to be a liquidator from the company’s creditors”.

The court also reviewed the deemed consent provisions in the insolvency legislation and highlighted notice can be taken of the fact information made available to those assisting the directors frequently contained errors, such as a mistake, oversight, or a failure to keep proper books and records. It did not escape the court’s view that omissions may even be down to a deliberate decision not to provide correct information.

Notwithstanding the possibility for error or omissions the court felt the Government had intended for the new rules to achieve a speedy appointment of an insolvency practitioner nominated by creditors and not to cause uncertainty, delay or additional costs. It was also noted the deemed consent procedure was intended to encourage creditor involvement rather than to assure maximum number participation. The court further argued the Government would have anticipated there was a prospect of one or more creditors not being given notice from time to time. Accordingly, it was reasonable to conclude that, in the absence of an express provision, the Government did not intend invalidity in these circumstances, otherwise it opened every appointment up for challenge where creditors failed to receive notice, hence the loss of opportunity to vote.

It was also pointed out by the court the applicant had other remedies open to it. For instance, to requisition a meeting of creditors or even an application for directions under section 112. of the Insolvency Act 1986.

Removal

It was argued there was a need for an investigation into the conduct of the respondents, particularly the issues surrounding the pre-liquidation lease assignments and the post-liquidation sale of stock. As those investigations concerned the liquidators conduct, new office holders should be appointed in their place.

The court followed the approach set out by Warren J in Sisu Capital Fund Ltd v Tucker [2005] EWHC 2321 (Ch), [2006] 1 All ER 167, being:

  • removal should be ordered where an independent review cannot be carried out because of conflict
  • the court should consider the views and wishes of the majority of creditors
  • removal should not be ordered merely because conduct has fallen short of the ideal
  • the court should remember that removal can impact upon professional standing and reputation

The court found no evidence had been put forward to suggest the respondents would not carry out investigations that they considered appropriate. Indeed, it was observed the early sale of stock had been based upon expert valuation advice and, as there was no business to sell, a ‘fire sale’ had been justified. Furthermore, the respondents had been advised on both the validity of the assignments and value of the leases.

In noting the above, the court also mentioned HMRC had not supported the application and, presumably was content for the respondents to remain in office. Based upon the facts before the court, there was no cause to remove the respondents as liquidators.

What are the practical implications?

Gary Pettit said, “It was interesting to note the presiding judge issued a plea for the Rules Committee to consider whether the rules needed to be consolidated as those rules the judge had been referred to in this case were in a variety of places and featured numerous requirements. This echoes the common view of insolvency practitioners.”

Gary continued, “Ultimately, though, what this judgment means is company nominated liquidators need not worry about the validity of their appointment under the deemed consent procedure if a creditor is not sent notice of their nomination and a statement of affairs, in accordance with the rules.”

Comment

Creditors are often omitted from the initial notice of an insolvency, primarily due to the pace of information gathering causing an oversight in identifying all potential creditors. The Court appear to have acknowledged this practical difficulty when reaching their decision.

Unfortunately, while the new insolvency rules require for virtual meetings to be advertised in the London Gazette this is not a requirement for the deemed consent procedure. It remains to be seen whether this advertising requirement will be amended for proposed deemed consent appointments following this latest court decision.

A personal problem?

 

Invariably, when we talk about insolvency people start thinking of the likes of BHS, Toys “R” Us and other large corporate concerns. However, what about a problem that is closer to home?

The Insolvency Service recently released the statistics for Q2 of 2018. These show corporate insolvency numbers were down on the previous quarter (although still higher than the equivalent period of 2017) whereas personal insolvency reached its highest level since 2012.  In fact, in the 12 months ended 30 June 2018, 1 in every 433 adults in the UK entered some form of personal insolvency.

What is interesting is the number of individual voluntary arrangements (in short, a deal with your creditors) continue to exceed bankruptcies. The reason for this could be in 2015 the minimum debt for which you can petition for someone to be made bankrupt increased from £750 to £5,000.  Alternatively, it is more likely people are taking responsibility for addressing accrued personal debt and seek to enter into an IVA as a means of managing their affairs.  A recent profile case is that of Katie Price (aka Jordan) whose bankruptcy hearing was adjourned while her advisors look at the viability of her entering into an IVA.  You have to wonder how someone previously reported as being worth £45 million finds themselves in that position but it does demonstrate it can happen to anyone.

It is very simple to say people who fall into personal insolvency were reckless and spent beyond their means. However, examples I have handled include:

  • A solicitor who was hit with partnership liabilities two years after he had left the partnership.
  • Directors whose company fails resulting in personal guarantee liabilities arising.
  • The legacy of ill health or a divorce.
  • Redundancy causing a dramatic reduction in household income.

It seems, these days, people who end up falling into bankruptcy are either those who have simply nothing material to lose (or offer to creditors) or have buried their head and just let the level of creditor antagonism increase to the point of no return. Invariably, those who PBC have assisted find putting a proposal to creditors for an IVA far more likely to succeed than someone who has delayed, procrastinated or simply frustrated creditors to a point they lose any sympathy when it comes down to voting.  The message remains as always, the sooner you take advice the better the situation is likely to be.

Should you require any advice or assistance with your financial affairs then please contact either Gary Pettit or Gavin Bates at PBC Business Recovery & Insolvency 

Restoration of Company Results in Dividend to Creditors

PBC are pleased to report that a dividend of 66.40 pence in the pound was paid to unsecured creditors in a liquidation that, at first, appeared to have no distributable assets.

The company was placed into creditors’ voluntary liquidation in June 2012 and following closure of the liquidation the company was dissolved. PBC were subsequently approached to restore the company to the register and act as liquidators to realise a refund of fees from the company’s former bankers.

With the assistance of Katie Summers, a partner at Howes Percival LLP, a successful application was made to restore the company to enable the fees to be recovered and subsequently a payment to be made to creditors.

PBC CONFIRM DIVIDEND PAID FROM AN IVA

PBC are pleased to announce a first and final dividend to creditors from an individual voluntary arrangement (IVA).

The debtor’s proposals for an IVA were approved in November 2017 and comprised a lump sum following the sale of an investment property. The arrangement included the removal of a second charge against the dwelling property, with the creditor in question submitting a claim in the IVA.

Joint Supervisor, Gary Pettit said, “It is pleasing to see this dividend paid to creditors and the IVA nearing a successful completion. The IVA has successfully dealt with the debtor’s financial difficulties, which were not helped by the debt management plan he was previously using”.

For more information on IVAs, please see this video.