Achieving payment in full

Recently, PBC took on a compulsory liquidation where there were no known assets, other than an adverse director loan and that director now lives in Dubai.

After enquiries were made into the company finances, we wrote to the director and explained how much was payable, having taken account of his employment rights and other sums he was owed.  The director was offered the opportunity to repay the loan immediately or payable over time, although the latter option would include costs and interest charges.  No threats, just a civil communication.

That civil, open and honest communication ultimately led to the director fully repaying the loan account amounting to over £400,000, which has resulted in PBC now preparing to pay all known liabilities in full, together with statutory interest.

This excellent result further demonstrates the experience at PBC where a civilised and transparent dialogue with the director concerned resulted in the perfect outcome for all.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

HMRC – an involuntary creditor

In business, companies will enter into contracts or trade agreements with suppliers and customers by a matter of choice.  However, H M Revenue & Customs (“HMRC”) have no choice.  They are an involuntary creditor who must engage in tax compliance relationships.

The current business climate indicates cash flow remains one of the main threats to company survival and, at PBC, we hear claims that because HMRC are not providing that urgent supply or service required, payment of the taxes is not given any priority.  Given that HMRC have more (and expedient) powers of enforcement and recovery than most suppliers, this is wrong.

In two recent reported cases, HMRC:

  • Continued with their petition, notwithstanding the company in question had already entered into voluntary liquidation.  The company was wound up by the court on the basis intense investigations were needed surrounding tax evasion and, in the interests of creditors as a whole the compulsory liquidation was more justified than a voluntary liquidation.
  • Exercised their powers to have a company wound up in the public interest.  This was a company that promoted debt avoidance schemes and the court agreed the operation was detrimental to the taxpayer and the winding up made.

Certainly, at PBC we have noticed a significant uplift in enforcement activity by HMRC and PBC are administering the liquidations of several where there has been tax avoidance or evasion.  These cases can lead to personal liability against directors.

HMRC officers are currently more proactive, seeking to attach HMRC debt to company assets, which could ultimately result in that company being so disabled, it is forced to cease trading.  Generally, HMRC will give you a lot of warnings but, all too often, these warnings are ignored until that warning becomes an enforcement action.

As mentioned, HMRC are not “Trading” with a company.  They do not have that trading relationship but they do have a duty to maximise tax receipts.  Ignoring their threats is misconceived because HMRC will carry out those recovery threats if needed.  However, we find they are willing to being open and candid in a continuous dialogue with them which can often result in a manageable way forward.

If you are struggling with tax liabilities and need any advice or assistance, or on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

What is a prohibited name?

“My company is failing but there remains a viable core business that I want to save.”  At PBC we are hearing this scenario on an increasingly regular basis

There are recovery options available to companies that are suffering from cashflow difficulties, such as a company voluntary arrangement.  Unfortunately, circumstances may dictate the only viable option is to acquire the business from the company and start afresh.  The most regularly used procedures for this are a pre-pack administration or simply acquiring the business from the appointed liquidator.  However, the overall circumstances dictate which is the more appropriate option in the circumstances.

A difficulty with looking to re-start trading with a new company can be the name and/or brand.  Section 216 Insolvency Act 1986 (“The Act”) states that the name of a company that is in an insolvent liquidation becomes a prohibited name.  Directors have suggested looking at a pre-pack administration avoids this restriction.  However, it is often the case an administration will exit into liquidation and accordingly, trigger Section 216 of the Act.

The provision relates to a name that is so similar that it may cause confusion to the public.  It also includes a trading name or a simple use of initials.  In the case of Re: Johnsons Electrical & Mechanical Services Limited (in liquidation) the court determined naming the acquiring company, “JEM (Group) Limited” was the re-use of a prohibited name, despite the director claiming “JEM” was part of his name – Jeremy.

There are exceptional rules to argue against the allegations of a breach to this provision and a director should always seek independent legal advice on the re-use of a prohibited name.  More importantly, directors should ensure the steps required are strictly followed because the courts adopt a no tolerance stance towards the failure to follow correct procedures.  As a warning, the penalty for getting this wrong has been demonstrated in the Johnson case where the director was held personally liable for the debts owed to the (2) claimant companies, resulting in his personal bankruptcy.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

THANK YOU

Who doesn’t appreciate a simple thank you message?

Reaching out to Insolvency Practitioners for advice can be daunting. It is not until a person, or a company director takes that leap that they realise we are here to try and help. Below are three emails received in the last week which we really appreciate.

Individual with personal debt problems:

“Morning

I’ve submitted my application for bankruptcy. Whatever happens, just wanted to say ‘thank you’. Will always be thankful and appreciative”

Individual looking to take over the running of a company from the current director and avoid a formal insolvency event:

“Hi

Hope you are well

I just wanted to say thank you so much for meeting with me and the company director to discuss matters. Your time was invaluable to us moving forward with any decisions. THANK YOU!”

The closing process made clear and easy for a shareholder to understand:

“I attach the signed consent to early conclusion as requested.

Thank you to all of you, especially Gary, Marli and Nicole, for dealing with the liquidation so smoothly.”

If you need advice, don’t leave it too late to speak to us.  We are all very nice, honest!

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Members’ Voluntary Liquidations – 3 Month Countdown!

Given the recent changes on the rate of CGT that applies to Business Asset Disposal Relief on the lifetime allowance of £1Million, the 3-month clock is ticking to benefit for the current rate of 10% until 5 April 2025 on capital distributions.

The above could be a significant tax saving for you or your clients between now and then and, if this is being considered,  the time to start acting and planning is now.

Should you wish to discuss a Members’ Voluntary Liquidation further  then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk.

Record fines at British Home Stores.

Some may remember the demise of the BHS Group as shops around the country closed down, following the group entering into administration in April 2016.

Move on eight years and the court has imposed a record £110,230,000 compensation order against two of the former directors. Yes, £110 million!

The commentary surrounding the BHS court hearings   are far too long for this narrative.  However, it can be summed up by saying any director whose company is facing distress must act rationally, assess the impact of their decision making and avoid, “Wishful thinking” at the expense of the company creditors.

Some key messages that came out of the two decisions, included:

  • Directors of companies in financial distress have a “Modified duty” that is owed to the interests of the company creditors as a whole and not to shareholders.
  • This modified duty arises from the point when the company is “Bordering on insolvency or an insolvent liquidation is probable.”
  • The standard expected (of directors) depends on the size and sophistication of the company.
  • Taking professional advice does not necessarily absolve directors of their risk of personal liability.

In short, the court is saying any delay in taking positive action to protect the company creditors may expose directors to risk of (what they termed as) equitable compensation awards being made on a personal liability basis.

At PBC we have always encouraged directors to seek early advice.  We appreciate how difficult it can be making that call and attending a meeting with our experienced team.  However, time and again, business owners have expressed a relief after consulting with PBC and many of those fears built up inside  are eased.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

From the other side of the insolvency fence.

PBC business card in holder

So, your company went into liquidation and subsequently you receive a letter from solicitors acting for the liquidator, demanding you pay a sum of money in respect of various allegations of unfitness.  What do you do?

Well, the first thing you should do is consult with a solicitor that practices insolvency as they will be aware of the terminology and implications relied upon with insolvency litigation.

However, there has been an increasing demand upon insolvency practitioners (“IP”) to represent those confronted with insolvency-related claims.  Sometimes, assisting the instructed solicitor, while others have approached them directly.

At PBC we have (what is thought to be) a unique service, whereby we have the only person who is both an appointment taking IP while also an accredited mediator.  That, together with the Team at PBC having a wide and extensive range of experience, allows PBC to offer pragmatic and commercial solutions.

Two recent examples of where PBC have assisted have been:

Case 1.  A liquidator was pursuing the director for over £100,000 (although were willing to settle at £85,000).  Using our experience and knowledge, this claim has been extinguished.

Case 2.  PBC’s client was facing bankruptcy for a claim in excess of £200,000.  During negotiation, PBC put forward the realities of bankruptcy and, more importantly, the potential recovery the claimant may achieve.  Ultimately, a £75,000 settlement was agreed, resulting in the client retaining sufficient money to move on with their life.

It should be said, nobody at PBC has a right of audience to represent parties in court and solicitors are an invaluable aid in resolving disputes.  However, as PBC are demonstrating time and again, adding our practical experience and a reality check, often promotes settlement.

If you need any advice or assistance on any corporate restructuring or 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.

Will I be banned from acting as a director?

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

A common question we, at PBC, are asked by directors who are facing the tough decision of closing down their business.

It is understandable when the media report profile disqualifications, such as ex-England and Liverpool midfielder, John Barnes, being disqualified for 3 ½ years from April 2024.  However, dig into that story and you hear that his company went into liquidation owing HMRC £190,000 following a complete failure of addressing the tax affairs.

In order to answer the headline question, we must first look at some context.  In the 14 years ending with the Insolvency Services report for 2022/23 there have been in total 16,440 director disqualifications – an average of 1,174 disqualifications each year.  Over the past ten years, available records show the average number of corporate insolvencies stands at 16,724 per annum.

The above statistics may provide a degree of comfort, but if you end up being one of those disqualified, that is no consolation.  So, what must you avoid to ensure you do not join the likes of John Barnes?

The Insolvency Services have two primary duties to consider before deciding whether a director ought to face disqualification proceedings, namely

  1. Is it in the public interest?
  2. Does the conduct of a director merit allegations of being unfit?

Unfit conduct’ includes:

  • allowing a company to continue trading when it can’t pay its debts
  • not keeping proper company accounting records
  • not sending accounts and returns to Companies House
  • not paying tax owed by the company
  • using company money or assets for personal benefit

The reported numbers for 2022/23 amounted to 932, of which 812 were directors giving disqualification undertakings and only 120 being court orders.  Some of the headline figures are:

  • 185 treated HMRC unfairly (as opposed to other creditors).
  • 147 – Accounting matters.
  • 41 – transactions to the detriment of creditors (e.g. selling/transferring assets).
  • 459 – COVID-19 financial support abuse (primarily, inappropriate bounce back loan applications or the use of the funds when received).

A director (or the board of directors) should never be shy in taking advice, whether that is from the company accountant or solicitor.  Alternatively, if directors believe their company is insolvent, or likely to become insolvent, they should be consulting with an insolvency practitioner who can advise, based upon both current issues and experience.  In short, directors should never to assume but seek advice early.

If you need any advice or assistance on any corporate restructuring or 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.

Following Insolvency, is a director an employee?

An employee of a business in liquidation will have various entitlements that can be claimed against the Redundancy Payments Service (“RPS”).  Those entitlements fall under the Employment Rights Act.

In the past the RPS have sought to reject claims made by the directors.  At first, RPS claimed directors were making themselves voluntarily redundant.  This approach was quashed by the Court of Appeal who said meeting their statutory duties prevailed and redundancy was a direct result of meeting those duties.

The other argument has been a director is not an employee of the company, but an officer who is not entitled to claim employment rights.  The RPS place the burden of proof that a director is also an employee, firmly on the director.  Indeed, the RPS send directors a very challenging questionnaire that critics say is designed to draw the conclusion a director is not an employee.

However, there has been a glimmer of hope for directors following a recent Employment Tribunal case   This case arose following the RPS rejecting their claims, saying neither of the claimant directors were employees.  The case was heard on 15 April 2024 where the judge cited the factors, taken together, that demonstrated the claimant directors were employees included:

  1. They attended work for the duration of the operating hours each day.
  2. There was a clear distinction between their roles as an employee and their role as a director.
  3. They worked for set hours between 20 and 25 hours per week.
  4. They were paid a regular salary which was subject to the PAYE scheme.
  5. Pay slips and P60 tax documents were issued.
  6. They conducted themselves in the same way as other employees when absent and when booking leave.
  7. There is no evidence that they could substitute another for the role of an employee.
  8. There is no evidence that they used company money as personal money.
  9. They were accountable to each other and the accountant.
  10. They did not work anywhere else.

Both directors were awarded statutory redundancy and pay in lieu of notice.

Nobody plans for their company to fail.  However, directors should ensure they have a binding contract of employment in place that is up to date and commensurate to the employment role they carry out.  Together with the above points, this will help to reduce the chances of the RPS being able to reject a claim for payment of your employment entitlements.

If you need any advice or assistance on any corporate restructuring or 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.

Abusing a Winding up Petition

Woman sitting at desk with PBC logo on the screen

As everyone in business will appreciate, the phrase, “cash is king,” rings very loud when it comes to keeping your business going.  With many businesses across the UK fighting to get debts paid, it has resulted in recovery threats increasing. But just how far can you press a customer for payment?

In one case PBC were instructed to advise directors of a company that was literally days away from crashing into administration, following a threat of, “if you do not pay our client by 4.00 p.m. Friday we shall commence winding up proceedings.”  After some checking it turned out the client supplier had refused to supply the goods until they were paid for in advance.  After we pointed out the goods had not even left their client’s building, the threatening solicitor withdrew their threat.

A malicious winding up petition is one that has been presented wrongly.  It maybe the petitioner knows the debt is not due or payable, or it is disputed, where a more appropriate judicial process ought to be followed.  In short, it is designed to pressurise a payment that may not lawfully be due and this is regarded by the courts as an abuse of process.

Another action that is considered an abuse is when the petitioner advertises outside the parameters of the insolvency rules.  For example, emailing a copy of the endorsed petition to the respondent company’s bankers on the day the petition was presented can result in the petition being dismissed and, potentially a subsequent legal action against the petitioner on grounds of malicious prosecution.

There are two key messages, here, namely:

  1. As the creditor, you need to consider whether you have an enforceable debt and, if so, what is the most appropriate route for collection.  It also helps if you can put the emotion to one side and consider the outcome of your actions and whether there are better alternatives that will maximise recovery.  If in doubt, seek legal advice or, where an alternative insolvency procedure has been put forward by the debtor, consult with an insolvency practitioner for their views on that alternative.
  • For the debtor, at the first sign of experiencing difficulty in meeting your debts when they fall due, take advice from an insolvency practitioner.  Do not leave it until you have frustrated your creditors so much that they become focussed on seeing your business wound up and you investigated for potential misconduct.

It is all too simple to tell someone who is owed money not to become emotional, but threatening winding up when that is inappropriate or even malicious can come back and haunt you.  Yes, there is a desire to recover debts as quickly as possible, but beware of not falling into the malicious trap.

If you need any advice or assistance on any corporate restructuring or 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.