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.
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.
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.
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.
PBC announce successful completion of CVA
PBC are pleased to report a dividend has been declared on a company voluntary arrangement (“CVA”) which was successfully implemented.
When first approached, Gary Pettit was asked how to place the company into liquidation. However, following advice the directors restructured the business with PBC’s guidance and proposed a CVA to its creditors, which was approved without modifications in January 2013. The CVA included on the sale of a freehold property and moving operations was restructured into one site from three, together with monthly contributions from future trade.
Preferential creditors were paid in full and unsecured creditors have received two distributions overall amounting to just over £79,000.
Gary Pettit said, “This case proves CVAs can help save businesses and preserve jobs. It is really gratifying when you can turn a doom and gloom perception (of directors) into a turnaround situation like this one.”
PBC announce large dividend from complex liquidation
Gary Pettit, the liquidator of Alexander – Bale Facilities Management Ltd, is pleased to announce the payment of an unexpected dividend following extensive investigations into the company’s affairs.
The company was placed into compulsory liquidation on 21 November 2011 and R Neil Marshman was appointed liquidator on 6 July 2012. Following his retirement from the practice he was replaced as office holder by Gary Pettit on 22 May 2014.
After substantive investigations into the company’s affairs, the former liquidator successfully obtained judgment against the directors to be jointly and severally liable for £1,208,585 as a result of the various payments made out by the company in the period leading up to its winding up.
Following the appointment of Mr Pettit, a freezing order was obtained and following further detailed enquiries a number of bank accounts and properties were identified resulting in significant realisations.
I am now pleased to report payment of a dividend of 34.17 pence in the pound to unsecured creditors. Creditors’ claims totalling £993,827.96 were admitted and the dividends paid totalled some £339,614.
Gary said, “It is always pleasing to see investigations bear fruit and lead to significant returns to creditors. On the face of it there were no assets available and creditors had resigned to writing off their debt. This liquidation demonstrates the value of insolvency practitioners when the evidence is available.”
‘Living beyond means’ – a leading cause of bankruptcy
Recent 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.
PBC announce large dividend paid from company voluntary arrangement
PBC are pleased to report on the recent payment of a dividend from a company voluntary arrangement (“CVA”).
After consulting with a financial consultant and seeking advice from PBC, the company proposed a CVA to its creditors which was approved with modifications in December 2013. The arrangement consisted of a splitting of the company into two distinct trading entities which included the saving of the majority of the employees’ jobs. The arrangement included the sale of assets and contributions from future profits.
Recently, the directors of the company approached the joint supervisors regarding the possibility of varying the arrangement by settling the outstanding amounts due in respect of the monthly contributions and the sales consideration by way of a lump sum payment. The variation was approved by creditors who have now received a distribution earlier than originally expected. The joint supervisors have distributed over £92,000 to creditors.
Joint supervisor Gary Pettit said, “It is always pleasing to be involved in the rescue of both a company and the saving of jobs, both of which have happened in this case. The directors sought advice at an early stage which resulted in the possibility of a rescue option being available to them. This has allowed the company to turn around its financial situation.”