Lies, Damn Lies and….

PBC Logo

Most readers are probably smirking as they finish the quote in the heading.  However, talking statistics, The Insolvency Service has released the latest statistics relating to registered company insolvencies in December 2021. Commentary – Monthly Insolvency Statistics December 2021 – GOV.UK (www.gov.uk)

 

In total there were 1,486 companies that registered as insolvent during December.  Of these 1,365 were voluntary liquidations, which is 73% higher than December 2019.  What is probably more concerning is that the principal rescue procedures of administration and company voluntary arrangement only numbered 79 companies, being 49% and 67% down respectively on December 2019 figures.

 

The remaining 42 companies all fell into compulsory liquidation, which is a 75% fall in numbers as compared to December 2019.  However, this is understandable as a moratorium over most winding up petitions was introduced by the Corporate Insolvency & Governance Act (“CIGA”) and, new tapering measures were introduced from 30 September 2021 when the moratorium was to be lifted.  This will continue to have a direct impact on post CIGA moratorium winding up petitions for the interim.

 

To add to the above numbers, two new procedures were introduced that were designed to assist safeguarding businesses.  However, in the 6-months ended 31 December 2021 the company moratorium numbered just 15 while the restructuring plan only 10 of which two concerned parts of the Virgin Group of Companies.

 

No doubt there will be plenty of analysts who will draw their own conclusions as to why there seems a disproportionate number of liquidations as opposed to rescue procedures.  At PBC we have considered this and summarise our opinion of the key reasons as:

 

  1. There is not a viable core business to save.
  2. The secondary preferential status, now enjoyed by HMRC, acts as a block to any opportunity of a return to the general body of creditors.
  3. Creditor frustrations are at such a level they will not entertain proposals for restructuring/saving the business.
  4. The procedural costs are sometimes prohibitive when compared to the company liabilities.
  5. Due to various legal and technical reasons, it is more constructive to look at a “Phoenix” and start afresh,

 

Much of the cause for the above issues also stems from that long-running problem of directors not taking early advice.  At PBC we fully understand it is a very difficult step to take in calling our offices and seeking help, but it cannot be a coincidence that those early callers generally find they have more options available to them and invariably matters can be addressed in a more orderly  & positive manner.

 

Should you have an insolvency-related issue then please contact a member of the team at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

ARE YOU PREPARED FOR ‘NORMAL’ ?

Have you heard the phrase, “You cannot change the past, but you may influence the future?  All too often we blame what has happened rather just accept that it has happened, and we need to address matters going forward.

 

The past 14 months, or so have been arguably the most challenging any of us have experienced but June brings forward two very important dates:

  • Assuming the Government road map stays on course, the 21st is expected to see the end of restrictions and a return to normal life.
  • It is widely believed the (thrice) extended deadline on various interim restrictions and amendments invoked under the Corporate Insolvency & Governance Act (“CIGA”) will end on 30 June.  These include a limitation on serving statutory demands, presenting winding up petitions and landlords taking recovery action for rental arrears.

 

In addition to the CIGA provisions, many businesses will now be receiving notification that repayments of the “Bounce Back” loans are falling due, while the employment furlough scheme is set to end in the autumn.

All the above events will serve to impact on company cash flow, while many will face recovery action from those debtors, frustrated they could not take enforcement action during the CIGA restriction period.  This includes HM Revenue & Customs where enforcement action has been limited to tax evasion and other limited taxation matters.  It is little wonder the Government have extended the restriction period.

Many will be aware of the phrase, “If you fail to plan then plan to fail.”  Unfortunately, all too often, people are great at what they do as a profession, but the accounting/bookkeeping side is seen as a necessary evil.  That may well be the view but if you had a flat tyre, would you carry on driving or stop and do that necessary evil of changing the wheel?

The prediction is UK will endure a short, but sharp economic recession.  As with previous economic challenges, those prepared are generally the ones who survive, so how do you promote the chances of you being one of those survivors?  Here are a few points that I see when assisting companies in financial difficulties:

 

  1. Put together a cash flow forecast (ask your accountant to help if preferred).  When you have this, check actual trading results with the forecast, at least on a monthly basis in order to compare projections with the actual results.

 

  1. Credit control.  Remembering cash is king and a good customer is a paying customer, and your customers are likely to be facing similar post COVID issues as you.  Unpaid debts do not pay the wages!

 

  1. With credit control comes setting and keeping to credit limits.  If you set a credit limit of (say) £5,000 for a customer and an order comes in that exceeds that limit, be bold enough to inform them you cannot entertain that latest order until some of the older invoices are paid.  Yes, some may grumble but your recovery time will improve.

 

  1. Where appropriate, consider negotiating longer debt repayment terms with creditors.  The Government anticipate there should be a lot of forbearance demonstrated by creditors (including HM Revenue & Customs) as, generally speaking and within reason, they would rather recover their debt than find they are on a list of creditors of an insolvency.

 

  1. Avoid the temptation of “Corrective trading.”  What I mean is, for example, do not think hiking your prices will help you recover sales income lost during the COVID restrictions.  While reasonable increases maybe acceptable, pushing that barrier too high will inevitably lose you custom.

 

  1. If in any doubt, seek independent and professional advice, whether that is from your accountant, solicitor, or an insolvency practitioner.  These advisors are there to assist you and steer you in the right direction so use them and use them at an early stage.

 

Should you have an insolvency-related issue then please contact me at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

How are you paid?

PBC Logo

As the heading asks, how are you paid?  Is it a fixed salary, flexible hourly rate or on target earnings, or a combination of these?

In just over 32 years working in the insolvency profession I have been confronted with a wide variety of challenges.  However, the single most challenging task is when informing people, they are being made redundant.  It is my own fear, and I will never get used to being that messenger, even if those unfortunate employees being made redundant is for the greater good of saving a business.

When a company enters into a formal insolvency procedure, in most cases employees are entitled to make a claim for their entitlements against the Redundancy Payments Service (“RPS”).  The one regular surprise (it would appear) is that employee claimants includes directors provided they are able to demonstrate they were also employees at the time.

Generally speaking, the entitlements are wage arrears, accrued/unpaid holiday, redundancy and payment in lieu of notice.  In most cases, these claims are assessed quite easily.  You enter your fixed pay details and what you are owed on the online application.  However, what if you are on flexible hours or your income fluctuates due to commission earnings, so you are unable to insert a definitive earning figure?  This has been an issue for as long as I can remember, and “Best guess” tended to be the answer.  A recent announcement has been made by RPS that should partially address this issue.

With effect from 12 April 2021 employees with variable pay are being asked to calculate their entitlements based upon their 52-week average rate of pay.  I say, “Partially” because no computer system can fully address the large divergence in vocations and some employees could actually lose out.  For example, if you were paid commissions based upon holiday bookings, it is fair to assume earnings have been lower than normal over the past 52 weeks due to the pandemic restrictions.  Conversely, an estate agent may have seen an increase in their earnings due to the suspension of stamp duty enhancing property sales.  The question is, will RPS make an exceptional allowance for the impact of COVID?  I would suggest unlikely.

Should predictions be correct once the Government support programmes end, corporate insolvencies will increase and no doubt, the media will make plenty of noise over the scale of redundancies inherit with corporate failure and restructuring.  This prediction will place RPS under considerable pressure and payment target times will be challenged as a result, exposing those made redundant to a difficult time while they await entitlements.

Should you have an insolvency-related issue then please contact me at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

What superpower would you have if you could?

What superpower would you have if you could?  Invisibility? Being able to fly? Teleportation?  Or how about being able to re-write the law to suit yourself and ensure you are always on the right side?  That’s exactly what the government has done with two measures in the Finance Act 2020.

 

The first is the position where HM Revenue & Customs rank for dividend purposes.  For insolvencies commencing after 1 December 2020, HMRC shall rank as a secondary preferential creditor for the majority of taxes owed by the insolvent party where that party has acted as a collector of taxes.  This includes PAYE, VAT, CIS and employee’s NI contributions (but not any penalties associated with those debts).  “Secondary preferential” means their preferential status ranks after existing preferential claims (generally employee claims for wages and accrued holiday pay) but in priority to the holder of floating charge security.  HMRC will remain an unsecured creditor for other taxes including corporation tax and employer’s NI contributions.  To summarise, HMRC have therefore jumped to pretty much the top of the priority order in one fell swoop.

 

As a direct result of this, The Association of Business Recovery Professionals estimate that future new lending by banks will be £1 billion less, making recovery and turnaround harder.  To make things worse, the ability to use a formal insolvency vehicle (such as a company voluntary arrangement) may no longer be a viable option as.  the unpaid taxes rank ahead of the general body of creditors, reducing the amount available to unsecured creditors.  Furthermore, it is likely there will be a significant HMRC debt as generally HMRC are the first creditor businesses and individuals stop paying – indeed this is one of the Government’s main reasons for introducing the measure.

 

The second new measure contained within the new law is where HMRC can issue personal liability notices against company directors following tax avoidance and evasion penalties and repeated insolvencies.

 

There are various conditions which must be met before HMRC can issue personal liability notices, but all involve scenarios where the company is insolvent (or likely to be).  In the tax avoidance and evasion cases, the directors can be held liable for all of the tax avoided (and any penalties as a result).  However, in the circumstances following repeated insolvencies the directors can be held liable for debts of the failed companies as well as for any future tax debt of a new company.

 

Before you come over all Lance Corporal Jones (Don’t Panic!) this legislation is aimed at those who act in a deliberate manner of tax avoidance/evasion.  It is not aimed at those who have missed the payment deadline for this month’s PAYE (provided you do still pay that is) or your overall circumstances demonstrate, as a director, you have acted honestly and fairly to creditors as a whole.

 

Having said that, the key message that should be derived from this legislation is if you feel there is an increasing difficulty in managing the company tax affairs, or liabilities as a whole, then seek early advice.  Creditors, including HMRC, are generally understanding where they learn of a possible issue at an early stage rather than wait until the need for enforcement procedures commences.  In addition, the earlier advice is sought the more options there are available.

 

Anyone with an insolvency related issue can contact PBC on 01604 212150.  Our initial consultations are always free, confidential, impartial and no obligation.

Jamie Cochrane

Is Corporate Recovery Doomed?

There is a saying about giving with your right hand but then take back with your left.  Well, that appears to be the case where the Government are concerned.

Firstly, the Corporate Insolvency & Governance Act 2020 became law and is intended to assist businesses recover post the COVID-19 pandemic.  While I am sceptical about this, any remote positivity was dashed with the Finance Act 2020 receiving Royal Assent on 22 July 2020.  The significance of this is the re-introduction of Crown preferential status on all insolvencies.  This is despite significant objection from various parties and some MPs.

With effect from insolvencies commencing after 1 December 2020, HMRC shall rank as a secondary preferential creditor for the majority of taxes owed by the insolvent party where that party has acted as a collector of taxes.  Therefore, this includes PAYE, VAT, CIS and employee’s NI contributions (but not any penalties associated with those debts).  Secondary preferential means their preferential status ranks after existing preferential claims (generally employee claims for wages and accrued holiday pay) but in priority to the holder of floating charge security.  HMRC will remain an unsecured creditor for other taxes including corporation tax and employer’s NI contributions.

As a direct result of this, The Association of Business Recovery Professionals estimate that £1 billion of potential lending will be removed, making recovery and turnaround harder as the access to new working capital is reduced.  To compound the recovery difficulties, whether a business can secure fresh borrowing or not, using a formal insolvency vehicle (such as a company voluntary arrangement) may no longer be a viable option.  This is due to the unpaid taxes ranking ahead of the general body of creditors and having to be fully paid before those unsecured creditors receive any funds.  Furthermore, it is likely that there will be a significant HMRC debt as our experience is HMRC are the first creditor to go unpaid during any cash-flow crisis – indeed this is one of the Government’s main reasons for introducing the measure.

On first glance, Crown preferential status will only impact those where the insolvency commences on or after 1 December 2020.  However, a cynic would point out there may not be any appetite for HMRC to support the restructuring of a business prior to this date where they remain an unsecured creditor, ranking with creditors as a whole.

Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

 

Will the government support schemes make things worse?

Whilst we all might have our views on how Boris Johnson, Matt Hancock et al have handled the health impacts of the Covid-19 pandemic, one politician who has emerged with his reputation enhanced is the Chancellor of the Exchequer, Rishi Sunak, and that’s not just because he has been nicknamed “Dishy Rishi”.

 

Whilst there is inevitably some people who have fallen through the cracks, the Chancellor’s support schemes have included the Coronavirus Job Retention Scheme (commonly known as the furlough scheme) – with 9.4million employees furloughed as at 5 July 2020, the Self-Employment Income Support scheme – with 3.5million people supported, and CBILS and Bounce Back Loans totalling £45billion as at 5 July 2020.

 

While this is a staggering amount of support that Mr Sunak has offered to UK businesses, there’s the potentially slightly controversial opinion that these schemes make things worse for the directors and their companies.

 

At PBC, we always raise awareness about seeking advice at the earliest possible opportunity as this gives the greatest chance of survival, the largest range of options available and minimises the risk of directors entering the “elephant traps” of antecedent transactions or breaches of their statutory duties.  But we are worried that some directors are believing that the government support schemes, combined with the suspension of wrongful trading provisions from 1 March – 30 September 2020, mean that their business will be fine once the Covid-19 restrictions are fully lifted and trading conditions return to business as normal.

 

However, while the furlough scheme helped towards wages and other schemes were designed to support business survival, liabilities such as utilities, rent, financial commitments etc will have continued to accrue.  In addition, it is unlikely that conditions will return to a “Pre Covid normal” for a significant period of time and businesses should be focussing on how they will adapt to the “new-normal” and ensure that they remain solvent and their cashflow is healthy.

 

Our concerns about the schemes making things worse are highlighted by a well published survey that reports just under half of Bounce Back Loans will not be repaid.  Are these loans being taken out purely to see the business survive for a few more months and enable the director to profit from the business before it fails?  Bounce Back Loans were publicised with no liability on the director or that no recovery action could be taken against a borrower’s main home.  However, while the loans were for business purposes only we have heard of scenarios where the loans have been taken into the company and then used to pay off the director’s personal debt.  This could lead to personal liability for the director and we urge all directors to seek independent advice on the use of the benefits received from the schemes

 

Should you have an insolvency-related issue then please contact me at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to jamiecochrane@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

 

Jamie Cochrane

TAX AVOIDANCE

HMRC Logo

A squeeze on tax avoidance

Someone once told me, “I enjoy paying tax because, if I am paying tax then I must be earning money”.
In fairness, most people would agree with the above. Unfortunately, there has been a long-running battle for HM Revenue & Customs in catching up with those who see it differently.
Following consultation, legislation received Royal Assent within the Finance Bill 2019. Entitled, “Tax abuse using company insolvencies” it provides for a person to be jointly and severally liable for amounts payable to HMRC where at least one of the following five conditions are met:
1. Where a company that is subject to an insolvency procedure or there is a serious risk that it will be;
2. The company has engaged in tax avoidance or evasion;
3. The person responsible for the company’s conduct enabled or facilitated it, or benefitted from it;
4. There is likely to be a tax liability arising from the avoidance or evasion;
5. There is a serious possibility some or all of that liability will not be paid.
The legislation also provides for where there has been repeated insolvencies and non-payment.
The objective of this legislation is aimed at those:
• Who try to exploit the insolvency procedure to avoid or evade taxes and/or payment of taxes and duties;
• Repeatedly accumulate tax debts without payment by running them through a succession of corporate vehicles which are made insolvent;
• Try to sidestep penalties for facilitating avoidance and evasion by going insolvent.
One example I have seen included directors who had adopted a policy of VAT evasion where they have both been the recipients of 6-figure personal liability notices.
Before you panic this legislation is aimed at those who act in a deliberate manner of tax avoidance/evasion. It is not aimed at those who have missed the payment deadline for this month’s PAYE (provided you do still pay that is) or your overall circumstances demonstrate, as a director, you have acted honestly and fairly to creditors as a whole.
The key message that should be derived from this legislation is if you feel there is an increasing difficulty in managing the company tax affairs then seek early advice. HMRC are generally understanding where they learn of a possible issue at an early stage rather than wait until the need for enforcement procedures commences.
Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

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 

Insolvency back in the headlines

News broke early this morning of the liquidation of Carillion, the second largest construction company in the UK with 20,000 UK based employees and responsible for providing public services from sectors such as prisons, hospitals, transport and schools.

For clarity, the companies subject to winding up are:

  • Carillion Plc, company number 03782379
  • Carillion Construction Ltd, company number 00594581
  • Carillion Services Ltd, company number 02684154
  • Planned Maintenance Engineering Ltd, company number 00737307
  • Carillion Integrated Services Ltd, company number 03679838
  • Carillion Services 2006 Ltd, company number 03011791

This news will no doubt cause concern for the company’s employees, suppliers, sub-contractors and any other owed money by the company. The government have released advice about the situation for anyone affected which can be found here.

To assist the Insolvency Services administer the affairs of the above companies, insolvency practitioners from PwC were appointed as special managers. A special manager is appointed by the court on the application of a liquidator and the court lay down their powers such as an ability to trade or sell the business as a whole or in part.  The special managers have also set up a website that provides some guidance.

Should any creditor, including sub-contractors, after visiting the above sites wish to receive advice about their position, both on their rights as a result of the liquidation of Carillion or their financial position, please contact PBC on 01604 212150 or view our creditor services page.