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.

Liquidation, Personal Guarantees, and Individual Voluntary Arrangement….

2 men sitting in office in conversation

During  the summer of 2023 PBC Business Recovery & Insolvency were in discussion with a director whose company was to go into liquidation.  It became apparent that he had provided a significant number of personal guarantees to company creditors that would crystallise and, with no dividend being paid from the liquidation, the guaranteed debt would fall on the director in its entirety.  The director was clearly concerned as to the consequences and we provided advice on how best he deal with these liabilities going forward – it was clear that it would be a choice of either Bankruptcy or propose an Individual Voluntary Arrangement (“IVA”)

Given our experience in dealing with personal insolvency and the fact that one creditor would have a significant vote if an IVA was to be approved, we approached that creditor, informally,  with a summary of the IVA to gauge their appetite to agree. We are pleased to report that the IVA was approved in October 2023 and the IVA has now been concluded 6 months on with the funds distributed to all creditors, resulting in the director being able to move forward.

If you require 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.

The right advice, part 2

a man and a woman shaking hands

We recently wrote an article in respect of receiving the right advice.

Subsequent to that article we received an enquiry via our website whereby the director had worries about his company’s finances.  As a result, he had sought advice, we were told, from two other insolvency practitioners.

Below is a summary of the position:

  1. Company liabilities were circa £28K to HMRC.
  2. No Bounce Back loans or other Government Covid support loans.
  3. No overdraft facility.
  4. The principal company asset was an overdrawn loan account of circa £47K.

The director claimed those who previously advised him did not mention that the overdrawn loan account would need to be recovered, if possible, in a creditors’ voluntary liquidation and just focused on the cost of the process.

Having asked searching questions of the director it transpired that, whilst he did not have the cash funds to make good some or all of the overdrawn loan account, he did jointly own a property and his share of the equity was circa £100K. At this point it was explained that should the company enter liquidation and given his equity in property; any liquidator would be duty bound to recover the loan account.

As it transpired, he believed his business was viable and could trade on, particularly if he could just get some breathing space. At this point he was urged he speak with HMRC and seek a time to pay agreement together with exploring the opportunity of realising some funds from his equity in property to try and pay in full or in part the loan account and for these funds to help in paying HMRC’s debt.

At the end, the director expressed his gratitude for the full and frank advice provided and would indeed look to trade on as opposed to the apparent pressure received from others to place his company into liquidation.   Unfortunately, this is one of an increasing number of cases where the advice has been inaccurate or incomplete.  At PBC, we understand the pressures individuals and company directors face and it is imperative they receive the right advice, that includes the wider issues that are all too often overlooked.

If you need honest and frank 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.

Are you getting the right advice?

2 men in an office

A recent news article claimed that business insolvencies were the highest since 1993.

As usual with the media, this report cited the overall numbers and proceeded to break them down into their individual insolvency types. However, at PBC we question how meaningful the breakdown is to the readers.

The fact is, for most companies there are no less than 8 differing formal options available under the Insolvency Act and (following COVID) The Corporate Insolvency & Governance Act. Add the other procedures available for special circumstances and the range of insolvency options increases still further.

Sometimes the option is clear. For example, if a company is solvent and the directors are looking at a solvent wind down (usually for a tax efficient way forward) then you are looking at a member’s voluntary liquidation. However, regularly PBC find the circumstances surrounding a company lend themselves to a wider choice of the options. This is where understanding the business, itself and the issues confronting the company, together with directors’ preference determine the right way forward.

At PBC, we pride ourselves in advising the Directors of the right option for the company. We explain each insolvency type and the reasons why (or why not) that option ought to be considered. Naturally, there are occasions where it is news the directors do not wish to hear (or were not looking forward to their views being confirmed) but often, the advice provided comes as a huge relief and aids removing that “Sword of Damocles” that has been causing stress and sleepless nights.

As Gary Pettit says,

“I have been in this industry for almost 35 years and throughout that extensive career, have often heard directors ask how to place their company into receivership or they need to, “Do a pre-pack”. When I ask them for their understanding, I am met with a blank look as they admit to hearing about that procedure or, a friend told them that is what they must do. It is understandable because insolvency is a highly specialised area with plenty of “Minefields” just waiting for a director to get something wrong. That is where PBC take pride in guiding those directors into adopting the correct way forward, based upon the surrounding issues and circumstance.”

If you need 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.

Winding up is the solution, right?

Woman sitting at desk using a mouse.

Pay or we will look at winding you up.  This is a threat that many debt collectors and credit controllers use as a means of persuading an errant debtor to pay.  However, at PBC we ask if those threatening such action appreciate the impact of winding up proceedings, both practically and in terms of petition costs that could be in the region of £6-8,000.

Before a petitioner can seek to recover their petition costs as a liquidation expense, the statutory fees must be fully repaid.  These include the official receiver’s fixed administration and general fees of £5,000 and £6,000 respectively.  Equally, the official receiver shall levy a 15% fee on any assets they realise.

In a recent report from the Insolvency Service an average of 10% of all compulsory liquidations over the past 5 years resulted in the official receiver fees being fully covered.  There can be many reasons for this but, ultimately it is suggesting in 90% of compulsory liquidations, the petitioner is writing off the petition costs they have paid out in addition to their original debt. 

There are times where winding up proceedings are justified.  However, a petitioner should also be aware of (and open to) the alternatives that are available.  This maybe creditors voluntary liquidation, where a wider degree of commercial thinking is often employed.  It could also be some form of restructuring that benefits creditors as a whole.  Often, the likes of a company voluntary arrangement will provide to repay the petition costs as an expense while the CVA, itself, offers a better return on your principal debt.

It goes without saying that everyone wishes to be paid for their services or goods supplied.  However, when a company is likely to enter into an insolvency event, reality turns on the question how do I  maximise recovery and does any alternative option being made available achieve that?

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.