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.

Informal full and final settlement – it can be done!

Settlement Agreement

Informal full and final settlement – it can be done!

We were recently referred a matter, which, was slightly unusual in the current climate and below is a summary of the facts:

 

  • Company had ceased trading.
  • Only asset was cash at bank of £67,000.
  • 6 Company creditors totalled £201,000 of which £75,000 was owed to the company directors.
  • No HMRC debt and no Covid support loans.

 

The directors asked could we deal with the voluntary liquidation of the matter and of course, given the net liabilities we said we could. However, given the nature of the matter and looking to think out of the box and, provide best advice, we suggested best try an informal full and final settlement which would provide the following:

 

  • A return of 33 pence in the £ (within 28 days) in the informal offer.

or

  • 21 pence in the £ (payment not likely to be received within 1 year) if 100% of creditors did not agree with liquidation as a result.

 

We are pleased to report that agreement was reached but this was mainly due to their being no HMRC debt and no Covid support loans (HMRC and liabilities in respect of Covid support loans are unable to informally agree this sort of offer) with the creditors involved being able to make a commercial decision.

 

Whilst it would have been easy for us to deal with the liquidation, we always to look to provide the best advice which, we believe, is certainly in evidence here.

 

If you require any advice on an insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

 

Thomas Cook directors avoid disqualification

Sky News are reporting no further action shall be taken against the directors of Thomas Cook under the Company Directors Disqualification Act.

Andrea Leadsam, the then business secretary at the time of the liquidation, sought an enquiry as a priority given the significance of this case and its implications for thousands of customers and employees.  She added,

“I ask that the investigation by the Official Receiver looks, not only at the conduct of directors immediately prior to and at insolvency, but also at whether any action by directors has caused detriment to creditors or to the pension schemes.”  Labour MP, Rachel Reeves added, “Its directors had exhibited a lack of challenge in the boardroom as the company piled up debt and Thomas Cook management missed opportunities to reduce debt levels and give the business a viable future”.

“Will I be banned?”

A question we, at PBC, get asked constantly by directors.

 

Like most high-profile companies, the Thomas Cook demise was subject to significant media attention.  However, regardless of the media reporting or the size of the company that enters into an insolvency event, it all comes down to what was the conduct of the directors?  In the case of Thomas Cook they engaged with the creditors, they took independent advice throughout and, when they were advised their efforts were going to be to no avail, they followed that advice and took what is an incredibly difficult decision.

At PBC we have an immense level of respect for every person that contacts us for advice.  It is often a period of heightened emotion and, at times, can feel intimidating.  However, taking that advice generally dismisses the “Pub talk” stories and can open up options to address those issues that are keeping you awake at night.

Taking early advice helps to control the situation, provides more options being available and helps avoid directors doing things that could see them getting embroiled in issues where disqualification and possible personal liability are a real threat.

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 info@pbcbusinessrecovery.co.uk.

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

Formal crackdown on directors who dissolve companies to evade debts

The Insolvency Service has been granted new powers to take to task directors who dissolve companies to avoid paying company debts. This is as a direct result of directors dissolving companies to avoid repaying Government backed loans put in place to support businesses during the Coronavirus pandemic.

The new legislation now extends the Insolvency Service’s powers to investigate and disqualify company directors who have been deemed to have abused company dissolution processes.

Previously the Insolvency Service had these powers to investigate directors of companies that entered formal insolvency such as liquidation and administration. It is also understood that the Insolvency Service may also be instructed to investigate live companies where evidence has been brought to their attention of wrongdoing.

In addition, the new legislation also allows for the Insolvency Service to apply to court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour.

Should you be a director and are concerned re the new legislation then please do make contact with Gary Pettit, Ian Cooke or Jamie Cochrane (01604 212150) to understand your obligations and responsibilities

garypettit@pbcbusinessrecovery.co.uk

iancooke@pbcbusinessrecovery.co.uk

jamiecochrane@pbcbusinessrecovery.co.uk

It is winding up, but not as we know it.

On 10 September 2021 the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 was laid before Parliament and comes into force with effect from 29 September 2021.

For most people, that maybe a case of, “So what?”  However, for those who are thinking of enforcing the repayment of debts it will have a logistical impact. 

As many will know, prior to the introduction of the Corporate Insolvency & Governance Act 2020 (“CIGA”) a creditor, owed £750 (or more) could present a winding up petition against a debtor, following either an unsatisfied judgment or the expiration of a statutory demand.  However, provisions within CIGA prohibited the use of statutory demands or winding up petitions, unless it could be proven the petition debt did not arise (or become unpayable) as a direct result of Covid-19.  These interim provisions were due to expire on 30 September 2021, having previously been extended on previous occasions.

We can all speculate on why the CIGA temporary provisions were extended.  However, suffice to say the continuation of Covid-19 and the feared impact of “Letting loose” frustrated debtors to pursue unpaid debt (and its impact on the economy) were clearly on the agenda.

In short, the temporary provisions being introduced:

  1. Increase the debt that must be owed to present a company winding up petition to £10,000.
  1. Creditors must seek proposals from the debtor business for repayment of the debt, giving 21 days to respond before they can proceed with a winding up petition: and
  1. Commercial Landlords must still demonstrate to a court that debts are not Coronavirus related until the end of March 2022.

Many believe the £10,000 limit should remain beyond these temporary measures but that is a discussion for another day.

The more interesting measure is the introduction of the 21-day notice.  At first, those who deal with debt recovery may ask what is the difference between a statutory demand (that provides 21 days to pay or secure the debt in any event).  You may even ask whether a statutory demand still needs to be served after this new 21-day notice has expired.

Thankfully, the amendments to the schedule provide the answers.

Paragraph 4 includes two distinct requirements (in addition to those already prescribed):to the schedule provides the 21-day notice must contain:

(e)          a statement that the creditor is seeking the company’s proposals for the payment of the debt, and

(f)           a statement that if no proposal to the creditor’s satisfaction is made within the period of 21 days beginning with the date on which the notice is delivered, the creditor intends to present a petition to the court for the winding-up of the company.

This is a significant shift from the requirements within a statutory demand as it appears to be steering an unpaid debt scenario down the road of Alternative Dispute Resolution.  This assumption appears to be supported by the fact a statutory demand is not required on the expiry of the 21-day letter.  However, Rule 7.5(1) of the Insolvency (England & Wales) Rules 2016 have been amended to include two statements on the winding up petition, namely:

(1)          that the requirements in paragraph 1 of this Schedule are met, and

(2)          that no proposals for the payment of the debt have been made, or a  summary of the reasons why the             proposals are not to the creditor’s satisfaction (as the case may be).

In theory, this appears like a sound compromise to ensure there is not a flood of winding up petitions from 1 October onwards.  However, the issue regarding whether any proposals are satisfactory, or not, appears subjective.  If a petitioner believes they are not satisfactory, what happens at the first hearing of the petition?  What if the court adopt the view the petitioner was unreasonable in either refusing the proposals or, in the alternative, had not engaged in settlement negotiations?  Worse still, if the petition is dismissed in favour of payment terms, who pays the costs, not to mention consideration of any damage caused by the petition having already been advertised?

At PBC we are taking the view these interim measures were attempting to allow debtors to pursue unpaid debts but in a commercial and understanding manner.  In short, avoiding the potential flood of recovery action that has been the fear behind previous extensions.  It also sends out a warning to those on the receiving end of debt enforcement and that is to act in a timely and appropriate manner when considering the viability of your business.

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

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