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:

http://www.theukcardsassociation.org.uk/wm_documents/Credit%20and%20debit%20cards%20-%20A%20consumer%20guide%20June%202016%20FINAL.pdf

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.

‘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.

A look at personal guarantees

A look at personal guaranteesA recent survey by Wirefund revealed that over half (55%) of SME business owners do not know what a personal guarantee is. This certainly matches our experience at PBC as we see many cases where company directors cannot remember whether they signed personal guarantees or not.

 

What is a personal guarantee?

In the last decade, there has been a trend among creditors, including banks, finance providers, landlords and, increasingly, trade suppliers, to ask for personal guarantees. As the name suggests, this is a contractual promise to pay the liabilities of another. If you’re seeking a small business loan, for example, you might be asked to provide a personal guarantee of the loan. Such guarantees are unsecured, which means they are not tied to any specific asset such as property. For the lender, such guarantees make a loan agreement more secure, as responsibility for paying it back falls not just to the borrowing company but to the individual directors involved as well.

 

Why do they matter?

The unsecured nature of the guarantee means that you will be personally responsible for repayment of the loan in the event it cannot be paid back by the business itself. All your personal assets, therefore, are at risk, from the family home to cars. If you do not have sufficient assets to cover the debt, then you may be made bankrupt and with it encounter all the ongoing difficulties associated with a poor credit rating. It is also worth pointing out that if several directors give a personal guarantee to the same creditor, then the creditor does not have to take action against all of them and can instead choose to pursue just one.

 

It is clear that personal guarantees carry significant implications, and certainly, the courts have tended to take the view that the guarantor undertook the commitment with full knowledge of the facts. It is easy to sign up in haste in order to secure funding. However, it is important to seek advice in advance to ensure the full ramifications are understood should the guarantee be called upon. You may also want to consider personal guarantee insurance to provide some protection in the event of difficulties.

 

Options

Should you find yourself in a position whereby your company is failing and you are left with personal liabilities, then there are a range of options to consider from personal insolvency procedures through to negotiation of a settlement. We offer a free, confidential, no-obligation initial consultation to discuss the issues you are facing.

Can they touch my pension?

Coin Dropping Into Piggy Bank

The title of this piece is the question I am asked regularly by individuals who are threatened with personal insolvency and are (understandably) concerned their personal pension may be used to repay creditors.

Personal pensions used to be an asset that could be realised for the benefit of creditors. Provided the bankrupt was over the age of 50 years a trustee could realise the tax-free lump sum, the annuities or, in many cases, both.  This all changed with the introduction of the Welfare Reform and Pensions Act 1999 (“WRP”) where personal pensions were primarily no longer bankruptcy assets.

What has been long debated is whether a pension ceases to be a pension and becomes income a person is entitled to when they exercise their right to draw down the pension benefits and, therefore fall outside the protective ring of the WRP.

A bankrupt has a statutory duty to cooperate with their trustee and may face serious consequences for failing to comply, including imprisonment. A trustee also has general powers to seek and overturn previous dealings.  For example, back in the early 1990s many matrimonial homes were transferred into the sole name of the non-business owner for the consideration of “Love and affection” and were, quite rightly, deemed void.  These general duties and powers assist a trustee in his duty to maximise realisations for the creditors and the income derived from pension lump sums and annuities provide funds that assist repayment.

In the case of Raithatha –v- Williamson [2012] EWHC 909 these duties were tested when a trustee demanded the bankrupt exercise his rights to receive the benefits of his personal pension and the judge determined the pension benefits did fall within the definition of income.  Bad news for pension holders who could, by way of this decision, be forced to “Retire early” when it came to their pension benefits.

However, on 7 October 2016 the Court of Appeal overturned the Williamson case. In the matter of Horton –v- Henry the judges decided uncrystallised pension rights did not constitute “Income” and neither the court nor the trustee had power to decide how a bankrupt should exercise elections open to them in relation to their pensions.

This decision does appear to be contrary to the general powers and even promotes debt avoidance by pouring money into personal pensions. However, a trustee can challenge excessive pension contributions and, as I proved a few years ago, demonstrate the pension was merely a tool to defraud creditors.  In that sort of scenario a trustee can obtain some (or all) of the pension benefits.

Assuming the Horton case will not be appealed to the Supreme Court the message appears clear.  If you are over 50 years of age then unless you really need the pension benefits resist exercising your rights to receive them until you are discharged from bankruptcy.  Alternatively, if in doubt you should consult an insolvency practitioner or a pension advisor as a lack of patience (in terms of when to exercise your rights) could prove costly for your future.

Gary Pettit

Why it’s important to check your credit report

Why it’s important to check your credit fileRecent research revealed that more than 2000 county court judgements (CCJs) are made every day, often without the knowledge of the individuals and families receiving them.

A CCJ is made when someone takes court action against an individual, saying they owe them money, and the individual doesn’t respond. These orders play a key part in debt recovery for businesses. However, they can adversely affect the credit rating of individuals if they never receive it, perhaps due to a recent house move and the letter being sent to an old address, and are therefore unable to either dispute it or pay it.

As CCJs stay on an individual’s credit file for six years, the fact that it exists at all may only come to light later down the line when a mortgage or similar is applied for and refused.

A credit file is a financial record of every borrower in the UK, showing their repayment behaviour over a six-year period and, with CCJs hitting the headlines, it seems timely to take a look at some of the key reasons why you should review it regularly.

Get an overview of your outstanding credit

Seeing all your current financial commitments that require credit, such as mortgages, credit cards, loans and mobile phone contracts, in once place can help with the management of your personal finances.

Apply for the type of credit that is right for you

Lenders calculate their credit scores on different criteria, so while one may reject you, another may accept your application for credit.

Identify ways to improve your credit score

There are several steps you can take to improve your score including closing any credit cards you no longer use, ensuring you are on the electoral roll and making any necessary repayments on time. Also noted on your credit file will be details of any defaults on loans or CCJs.

Protect yourself against identity fraud

A look through your file will enable you to detect any names you don’t recognise or accounts that aren’t yours. If you find any, it could mean you are a victim of identity theft.

Spot any mistakes and ensure they are corrected

This includes making sure your address details are current and removing any financial connections to people who are no longer relevant, such as previous partners who you may have held a joint account with. Errors should be reported to the credit reference agencies as well as the company responsible.

You can check your credit file as often as you like without it impacting on your credit rating and it’s well worth the time to ensure it is accurate and as good as it can be so you are in the best position when seeking credit at a future date.

Companies such as https://www.clearscore.com/,  http://www.experian.co.uk/ and www.creditreport.co.uk offer free and monthly paid for packages that allow you to keep track of your credit report and score.

Are CVAs viable?

How many High Street retailers can you think of whose name has been confined to the annals of history? I can think of 15 and that excludes the latest to fall victim, being BHS and Austin Reed.

Cash flow 1

BHS entered into a company voluntary arrangement (“CVA”) with a 95% creditor approval. It included landlords of 87 (out of 164) stores agreeing to a 75% cut in rentals as a compromise for helping the retailer survive.  So why did the CVA fail?  It may surprise readers to learn BHS was the eighth High Street retailer to attempt entering into a CVA as a form of restructuring.  However, only two of them are succeeding.  A big problem for businesses of this scale is the enormous sums of money generally employed.  For example, in the case of BHS they needed to raise £100 million to cover wages and trading costs when as a rule suppliers tighten up credit and supply terms post CVA approval.

CVAs were designed as a tool for restructuring businesses that were enduring short term cash flow issues. Behind it there should always be a core viable business where some operational changes may turn the company fortunes around.  The benefits to creditors include a better return than alternative insolvency procedures and, in most cases, they preserve a customer going forward.

Provided the CVA proposals are realistic the principal risks to a successful CVA are the impact of unforeseen issues (such as a detrimental impact on the field of trade or adverse weather where the company operates in logistics, for example) and creditors imposing onerous demands that will doom the CVA to fail. Many times creditors will simply reject perfectly good CVA proposals due to a lack of understanding.  That is not a criticism of the voting creditors; merely a fact they are being asked to accept not being paid in the short term, the payment they receive is likely to only be part payment and would you also continue trading with the insolvent company as if nothing happened.  The real point is accept the lesser sum offered or face the reality of 100% write-off if an alternative route is demanded.

At PBC we have assisted numerous companies restructure and survive using a CVA as the vehicle. Sometimes it can be a simple case of we can see the wood for the trees.  The more successful outcomes arise where directors/partners seek advice at an early stage before the creditors’ antagonism reaches uncompromising levels where biting off your nose to spite your face may prevail in their voting attitude.

Oh, for those readers still wondering who the 15 retailers I could think of they are……. available on request!

At PBC Business Recovery and Insolvency we can advise you whether a CVA is appropriate. If appropriate, we will firstly assist you with the preparation of the proposal and then act as nominee and convene the meeting of creditors. Should the proposal be approved, we will then act as supervisor.

PBC Business Recovery & Insolvency offers a free one hour consultation to discuss your situation and the possible options available.  Call Gary Pettit or Gavin Bates on 01604 212150 completely confidentially.