Pragmatic approach avoids bankruptcy.

2 men sitting in office in conversation

When dealing with formal corporate insolvency appointments, sometimes directors owe funds to the company which, as office holders, we are duty bound to try and recover for the benefit of the company’s creditors.

One recent case being dealt with by our Milton Keynes Office had this very issue, but the director had also provided personal guarantees to company trade creditors totalling circa £300K. One of these trade creditors had also commenced bankruptcy proceedings against the director.  We were appointed liquidator of the company and, following some investigation, explored the prospect of whether an informal ‘full and final settlement’ could be reached in order to avoid bankruptcy and maximise the return to the liquidation and guaranteed creditors. We discussed this with the director and suggested they contact a solicitor who was then able to put the offer to all creditors.

We are pleased to report that all creditors accepted the offer, the settlement funds were received within 7 days and, in avoiding bankruptcy proceedings the director can now move forward.

Should you or a client 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.

Director duties reinforced (again!)

It would be wrong to imply HMRC simply agree to TTP upon application. PBC Business recovery and insolvency practitioner

What can appear to be straightforward is sometimes never the case as demonstrated by the numerous questions we get from Directors in respect of their statutory duties. This was recently highlighted on a seminar hosted by Gary Pettit where many questions were raised following a short presentation.

All too often directors can find themselves getting embroiled in the emotion of the situation, particularly where there is a dispute within the board of directors with the issues prevailing over their duties.

The court adopt the view you are a director first and foremost, while personal opinions or conflicts of interest are immaterial.  This has recently been demonstrated in the High Court decision of Jacob Beake and Paul David Allen (Acting As the Joint Administrators of London South West SW Limited) and – (1) Jamie Richard Chapman and (2) Bodman House Management Ltd [2023] EWHC 1986 (Ch).

In this case, the director refused to sign a lease to a property, jeopardising the sale.  It is understood the director tried to use his refusal to sign as leverage against a personal dispute with the administrators of a connected company.  The court took the view this refusal was a breach of duty and was interfering with the duties of an administrator.  As a result, the director was ordered to sign the lease and costs were awarded against the director.

This decision should act, as yet another warning to directors who choose to put their personal issues before their statutory duties, particularly if it results in the interference of the duties carried out by an office holder.  It also serves as a warning for those directors who are embroiled in a management dispute whereby, if you fail in meeting your statutory duties then you must be prepared to face the consequences.

If you require any advice or assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss 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.

Is the risk of insolvency increasing?

Personal-Insolvency-services-northampton-milton-keynes

This morning (31 October) the BBC reported, “The number of firms in “Critical financial distress” jumped by 25% in the last three months.”  Indeed, the number of companies falling under this description was almost 38,000 and is based upon a report that county court judgments (“CCJ”) exceeding £5,000 have increased significantly.

Firstly, some perspective.  There are over 5 million businesses registered in the United Kingdom.  However, that is small consolation if you are one of the 38,000 (or close to becoming one of that number).

A CCJ can be damaging to a business as it effects credit ratings, can impact on the ability to obtain supplies and, sometimes, can be a precursor to corporate failure.  However, you may get a CCJ for several reasons, including:

  • You have lost a legal claim, so judgment was made against you; or
  • There had been an innocent oversight; or
  • You have cash flow issues where you are unable to pay debts as they fall due.

Losing a legal claim can have obvious and direct consequences that may even result in the demise of your business.  However, cash flow issues can be something that creeps up on a business – sales may take a slight dip, that invoice you were expecting to be paid is delayed, or simply not paid at all.  A common issue we are seeing frequently is costs of materials have increased, resulting in a reduced profit margin on a job you are contractually bound to complete.  In business, you can be so focussed in doing the business that you take an eye off the business itself and these operational issues do not get recognised as early as they might.

Just because a company is struggling, it does not automatically mean failure.  As PBC have demonstrated time and again, taking early advice has enabled us to consider the options available and it enhances the prospect of turning your fortunes around.  It should be said that it is rarely too late to take advice.  However, the longer you leave it until you do, generally narrows the options available.

If you require any advice or assistance on any 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.

Claims by directors to the Redundancy Payments Service as employees..

In July we posted about employees’ rights to redundancy in an insolvency process and clarified the four main claims employees can make.

This post is aimed at directors who look to make a claim as an employee when an insolvency event occurs. This link Check if you can apply for redundancy payments as a company director – GOV.UK (www.gov.uk) provides greater detail on the following:

  • Eligibility
  • How to apply
  • What to do if the claim is rejected

What is not covered off though is, if money is owed by directors to the company when it enters into an insolvency event, the Redundancy Payments Service will not make any payments to directors even if claims pass all the eligibility criteria. Therefore, it appears to be prudent to give some consideration in repaying these sums beforehand if possible, for the following reasons:

  • It may enhance the probability of a successful claim
  • Any appointed liquidator/administrator has a duty to recover the loan account in any event given it will be an asset.

If you have any queries regarding the above, please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit https://lnkd.in/ehKHz4K for further information.

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.

The right advice

It would be wrong to imply HMRC simply agree to TTP upon application. PBC Business recovery and insolvency practitioner

It is not very often I agree with the media when they are talking about insolvency matters, but the Panorama documentary broadcast on 24 July found me shuffling around on the sofa, while muttering in horror and frustration!

Why?  Because if you watched, the subject was people who are struggling with debt being persuaded to enter into an individual voluntary arrangement (“IVA”).  One lady who owed £17,000 was on maternity leave when she agreed to pay £185 per month into an IVA.  Another chap owed £8,500 in total and was on benefits.  Both picked up advertisements on social media and were “Sold” an IVA like someone would sell a car, or some other goods.

Had those victims cited in the Panorama broadcast seen an insolvency practitioner or a recognised body such as Citizens Advice Bureau they would have received advice on the range of options available.  In short, these are:

OptionDebt parameterAsset parameterDuration
Debt Relief OrderLess than £30,000Motor vehicle worth less than £2,000 Savings/other assets less than £2,000 Surplus income less than £75 a month12-months but can be extended.
Debt Respite Scheme (standard breathing space)No limit – restricted to qualifying debt, such as credit and store cards.No parameter citedUp to 60 days protection
Debt Respite Scheme (Mental health crisis breathing space)No limit – restricted to qualifying debt, such as credit and store cards.No parameter cited30 days after the mental health crisis has been resolved.
BankruptcyNo limitationNo limitationAutomatic 12-month discharge period. Can be extended up to 15 years where wrongdoing arises, or it is classed as a “Second bankruptcy”.
IVANo limitation, although questionable for debts less than £30,000No limitation, but generally best entered into where there are assets to “protect”.Generally, payment in full or a 5-year period, whichever comes first. Often varies, depending upon the circumstances.

As Panorama mentioned, people who are struggling with debt are at their most vulnerable and accordingly, easily persuaded by someone offering them a way of resolving their troubles.  At PBC, we strongly advise people to seek early advice and by way of a face-to-face meeting with a qualified person, whether that is a member of our experienced team or the likes of Citizens Advice Bureau or the Council Financial Advisory.  Do not place your life in the hands of someone on a social network (which is likely a paid for advertisement being funded by referral fees) and comments on the end of a telephone.  Get the right advice to suit your needs.

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.

I HAVE BEEN MADE REDUNDANT – WHAT ARE MY RIGHTS?

Unfortunately, redundancy is an inevitable aspect of a company entering into an insolvency process.  This article aims to clarify the four main claims employees can make against the company, most if not all will be paid by a government department called the Redundancy Payments Service (“RPS”)

The claim to the RPS is completed online and the insolvency practitioner acting in relation to the company will provide details on how to apply, what information the employees will require, and a case reference number.  In a recent change to the process, this code cannot be obtained by the insolvency practitioner until after the company enters into the insolvency process and this may be up to three weeks after being made redundant.

All claims paid by the RPS are subject to a weekly limit which changes every 6 April.  The current limit which runs until 5 April 2024 is £643.00. 

Wages – Arrears of Pay

An employee can claim up to 8 weeks arrears of pay, based on their weekly salary rate, subject to the weekly limit referred to above.  If an employee is owed more than 8 weeks, the best 8 weeks can be chosen.  Tax and national insurance will be deducted before the payment is made.

Holiday Pay

An employee can claim for holiday pay taken but not paid and accrued holiday which has not been taken.  For the purposes of these calculations, an employee’s holiday entitlement (including bank holidays) is taken to have accrued evenly since the start of the holiday year. 

For example if an employee who had 20 days holiday plus bank holidays was made redundant after three months of their holiday year, they would have accrued a quarter of the 28 days (i.e. 7).  If the employee had taken less days than this (including bank holidays) they would be able to make a claim for the remainder.  Should the employee have taken more, it is unlikely they will be made to repay the difference.

Holiday pay claims can be for a maximum of 6 weeks, again capped at the weekly limit and tax and national insurance is deducted.

Redundancy Pay

An employee can claim for redundancy if they have worked for the Company for more than 2 years. The amount that can be claimed depends on the employee’s length of service and age.

  • Each complete year aged 18 – 22 equals half a week’s wage per year.
  • Each complete year aged 22 – 41 equals 1 week’s wage per year.
  • Each complete year aged over 41 equals 1.5 week’s wage per year.

Again the employee’s wage is capped at the weekly limit but here unlike wages and holiday pay, this is paid tax-free.

Pay in Lieu of Notice.

If a company which was continuing to trade were to make certain employees redundant, the company would be required by law to give the relevant employees notice of their redundancy and pay the employee their weekly wage during this period.  It is likely that in an insolvency process this notice will not be given and therefore the employee can claim for the wages they would have received.

The statutory notice period is one week per years’ service (from a minimum service of 1 month) up to a maximum of 12 weeks.

Employees should note that this claim is a compensation claim and is based on what happens during the employee’s notice period.  At the end of the relevant period, the employee will be invited by the RPS to complete a further online form detailing their earnings (or more importantly their potential earnings) in the period.  Therefore, if the employee starts a new job during their notice period, this income will reduce their claim.  Furthermore, all employees who are made redundant are likely to be entitled to benefits including job seekers allowance.  The RPS will deduct these benefits from this claim even if they are not claimed so our advice to any employee in this situation is to claim as soon as possible.

It is important to note that this article refers to the claim an employee can make against the RPS.  This is the most likely method for being paid and certainly the quickest.  Where an employee is paid more than the weekly limit or has extra entitlements above the statutory limits referred to above in their contract, they will have surplus claims which can still be made against the company in liquidation.  However, here, payment is dependent upon realisations in the liquidation and will therefore be uncertain.

The published guidance from RPS is they aim to pay the claims within six weeks so if this delay will result in financial pressure for you our advice is to contact your creditors and explain you have been made redundant.

If any employee who has been made redundant has any queries regarding the above they should 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.

How confident are you?

Settlement Agreement

As is typical of the media, they regularly report UK insolvency figures and how they appear to be rising.  However, there are two things that are not mentioned in their reporting.  The first is putting insolvency figures into perspective, by comparing corporate insolvencies with the number of active businesses in the UK.  The second statistic that never gets reported is the number of solvent liquidations.

A solvent (or a members’ voluntary liquidation) is a tax-led winding up of a company where there will be a return paid to shareholders.  It could be the company was a single-purpose vehicle or, simply a successful business that is being brought to an end due to the retirement of its owners.

The first thought must be that it is a real positive as business owners can retire, having paid all of the company creditors and they are the beneficiary of funds to assist (or facilitate) retirement.  However, on the other side of the coin, you could argue these are the people who have a proven record of having a good business acumen; a skill we are losing.

In some recent research, it was suggested 23% of business owners have hastened their plans to wind down or sell.  The report suggests the expediting of activity has come from an uncertainty on where the UK economy is heading.  That uncertainty covers many areas, but is primarily the legacy of Brexit, COVID-19 pandemic and the threat of a government change, where changes in policy and taxation are a real threat.

Confidence is often dismissed as a business quality and there can be no doubt business confidence has taken a beating over these past three years.  However, before you launch into a solvent winding up you should plan ahead, both in terms of how best to wind down the affairs of your company (whether that is a sale, succession planning or closure) and your own personal tax position.

At PBC we are seeing an increasing number of solvent liquidations where we will assist the directors and their advisors to ensure the winding down is completed in the most cost-efficient manner.

If you require any advice or assistance on mediation or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 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.

Don’t Let Late Payments Lead To Insolvency

How much does your business rely upon cashflow?

Does that seem like an odd question to ask?  Well, if so, why is it that a recently published report showed 60% of UK businesses expect late payment of invoices will increase?  Indeed, that same report claims we spend over 71 days per annum (equating to over £27 billion in lost revenue) chasing late payments.

We have all heard the phrase, “Cash is king,” but the vicious circle of late payment across businesses damages the economy and puts businesses at risk of needing to enter into an insolvency event.

Cashflow difficulties are invariably cited as one of the most frequent causes for business failure and at PBC we have seen examples where better credit control may have resulted in them avoiding insolvency altogether.  Indeed, in a recent liquidation a creditor was bemoaning had they been more strenuous with their efforts to get paid they may not have been staring at a write off now!

At PBC we suggest all companies need to take steps to accelerate payment of sales invoices as a sales ledger does not pay the bills, payment does.  That is not always easy to accomplish and a commercial view must be adopted at times.  However, if it has proven too late and you get that dreaded notice your customer is entering into an insolvency event then contact PBC and we can advise you of your rights and even represent you to ensure your interests are protected as best as possible.

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.