A step closer to compulsory mediation?

Mediation-service-northampton-milton-keynes

What goes through your mind when having to consider (or to defend) litigation that will involve court intervention? Frustration, demands on your time, delays in the process, or merely the uncertainty of a positive decision at court. Arguably, the core consideration must be costs, both your own and the exposure to an award against you to pay your opponents’ costs.

For those who recover their costs, litigation will feel like you have accomplished something. However, if there is a partial (or no recovery) then you can often feel hard done by.

From 1 October 2023, fixed recoverable costs will be extended across the ‘fast track’ and in a new ‘intermediate track’ for simpler cases valued up to £100,000 in damages. This means there will be a limitation on the level of costs you may recover. Whilst there are some exceptions to this, in general, cost recoverability becomes an important subject when considering the prospect of litigation.

At PBC, we believe this is another move by the Ministry of Justice towards encouraging alternative dispute resolution (“ADR”) or even the suggestion of compulsory mediation.

Mediation is a recognised form of ADR and is usually at a fixed cost, payable in equal share by the litigating parties. It is far quicker than the court process and provides the parties with an opportunity to settle their differences via the mutually agreed appointed mediator.

CEDR accredited mediator Gary Pettit of PBC said,

“All too often I discover the litigating parties are not that far apart in their thinking and sometimes they want the same thing but have simply not listened to one another.

Mediation is an opportunity to resolve a dispute more quickly and at less risk. Occasionally, no settlement can be reached, but I have known others to settle shortly afterwards, following both sides having had the opportunity to think a little more about the argument(s) and the commerciality of an early resolution.”

If you require any advice or assistance on a corporate or insolvency-related mediation, or any other 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.

Why should you negotiate?

Who remembers the scene in “The Life of Brian” where the trader insists the proposed buyer must haggle, rather than pay the price being requested?  That scene reminds our own Gary Pettit of what it can be like in dispute resolution matters, whether that is in relation to a financial claim or a dispute in management.

Taking legal action is a risky business for various reasons but, more so these days as the courts are demonstrating their preference to disputing parties avoiding court intervention and resolving their issues by way of alternative dispute resolution (“ADR”).  It does not matter how strong you believe your position is; the failure to engage in ADR could lead to a pyrrhic victory as you may win, but that ADR failure results in you being on the wrong end of a costs award.  In one reported case, the respondent won (as they confidently (and, as it turned out, correctly) stated in pre-court correspondence their liability amounted to £10,000) but, because they refused to entertain ADR, the court ordered them to pay some £200,000 in adverse costs!

The stance adopted by the courts is understandable.  At every stage of a litigious matter there is an opportunity to reach a negotiated settlement.  Yet, all too often a dispute deteriorates into a war of words and accusations where (particularly in management disputes) the original cause of the dispute can be forgotten.

The real danger of management disputes is, almost without fail, warring directors focus on the emotions of the dispute and forget they still owe statutory duties toward the company.  That oversight can often lead to more serious consequences for those directors, including personal liability.

As a CEDR accredited mediator, Gary Pettit of PBC says.

“A key problem with any dispute is that the parties argue.  I appreciate that sounds like I am stating the obvious, but they argue rather than listen or look at the reality of the potential consequences of the failure to consider ADR may cause.  It cannot be a coincidence that when I ask parties what it is they actually want, together with getting them to understand the potential consequences of not reaching a negotiated settlement more often than not, the dispute gets resolved.”

If you require any advice or assistance on alternative dispute resolution or 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.

Deal or no deal?

People Sitting around a table discussing

Are you a commercial tenant who has accrued rental arrears during the COVID-19 pandemic?  Alternatively, are you a landlord who is thinking about what action you can take against a non-paying tenant?

Since 21 March 2020 it has been reported that over £7 billion remains unpaid in respect of commercial property rents.  Landlords have been prevented from taking enforcement action under the Corporate Insolvency & Governance Act, where the moratorium against landlord enforcement has been extended to 25 March 2022.

The Government has been concerned of the post-pandemic debt enforcement bubble bursting to the detriment of the economy. As a result, various measures have been implemented to ease businesses back into some form of normality with the threat of debt enforcement being phased back in a more controlled manner.

One of these measures is the Commercial Rent (Coronavirus) Bill (“The Bill”) which is aimed to promote a swift resolution of commercial property rent arrears accrued during the pandemic and is currently going through Parliament with a view of becoming law on or before 25 March 2022.

There has been a steady promotion towards alternative dispute resolution in the UK, as opposed to litigating disputes through the courts.  The Bill is further demonstration of that drive to avoid court intervention and both tenants and landlords need to be aware of the mentality being adopted.

The Bill will only relate to rental arrears that fall between 21 March 2020 and the period when “The date when specific restrictions were last removed for the relevant sector” (“The Ringfenced debt”).  The Government code of practice in support of the Bill schedules the latter date for each industry sector and country within the UK.

Once the Bill becomes law it will introduce an arbitration facility where the decision is binding in law.  Both tenant and landlord are encouraged to reach a mutually acceptable resolution on how the ringfenced debt is to be repaid and whether that is paid in full or at a compromised figure.  If a settlement cannot be reached, then either party can unilaterally apply for an arbitration hearing.

Some of the key points recommended by the Bill include:

 

  1. The two parties are expected to share the pain by considering rent reductions or payment plans. However, no agreement can be made where it results in (or creates a real threat of) insolvency for either tenant or landlord.
  2. The parties will each need to provide evidence of viability in support of any offer (or counter-offer) put forward.
  3. Both can either agree to a public hearing or allow the appointed arbitrator to decide on the terms of resolution based upon the documentary evidence before the arbitrator.
  4. An application cannot be made for arbitration if either party is already subject to insolvency proceedings.
  5. The rent repayment agreement cannot exceed two years in duration.

 

The Government continues to urge businesses that can afford to pay their rent to do so.  Indeed, it would appear the conduct of the tenant (in terms of refuse to pay versus unable to pay) will be taken into consideration.  This draws up the key question of viability and some specific areas that can be expected to be considered, including:

 

  • If the inability to pay was due to the tenant adopting “Unjustifiable steps to alter the financial position” (e.g. the payment of excessive dividends) the arbitrator will have the option to disregard these transactions when assessing the award.
  • Where a tenant can prove the business is viable, but it is unable to pay all the rent arrears, the tenant should be entitled to a concession that does consider the balancing exercise between landlord and tenant.
  • Any concessions must be affordable to both tenant and landlord, in terms of financial impact on the landlord.
  • To assist determination of viability and affordability the arbitrator is expecting to receive relevant financial information.
  • It is not expected that tenant viability would include restructuring, borrowing, or the taking of further debts.

 

It is made clear in the Government guidance to the Bill that arbitration ought to be the last resort and that both tenant and landlord are encouraged to reach an agreement without arbitration. This does appear to suggest the arbitrator will look at the reasonableness (or otherwise) of any dissenting party, although that is only my assumption.

While it is likely the Bill will be subject to some minor revisions, the key message is clear whereby the Government are expecting both tenants and landlords to act in a manner that promotes the protection of businesses and their employees. A refusal to compromise or to approach this issue in a transparent and fair manner are not options on the agenda and are likely to expose the dissenting party to penalties, including cost consequences.

However, what is most likely to be the most difficult area for an arbitrator is the analysis of financial data and the reality check on viability of either tenant or landlord.  If a party to the arbitration get this information wrong or, if the message is unclear, it is likely to result in an award being made based upon a misinterpretation of the information available.  This could be damaging to the viability of the tenant or landlord, or both.

The message is clear for both tenant and landlord.  Be transparent, fair, reasonable but, most of all, take a commercial view that promotes saviour of the business and its employees.  The key area will be the viability check and PBC can provide such a report for either party of the negotiation surrounding the ringfenced debt (and non-ringfenced debt if applicable) as this will promote the chances of proposals being considered as both a fair and commercial compromise.

Should you have an insolvency-related issue 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

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

Alternative Dispute Resolution – The cost of disagreement

 

How many readers can remember the Monty Python sketch where a client wants an argument?  The provider says that will cost £10.  The client pays the fee only for the provider to say that will cost £10 please.  Enraged, the client says he had just paid only for the provider to deny receipt and so the debate goes on.

While that sketch is highly amusing the cost of a real dispute can be far from funny.  Some key points with litigation include:

Actual cost

In a recent mediation, the Claimant was seeking damages of £200,000.  When I asked the Claimant’s solicitor about the costs to date, together with the potential adverse costs his client could face I was told the figure had been put at somewhere in the region of £250,000!  It is not the first time this scenario has occurred as all too often the red mist prevails over commerciality or, simply the litigating parties are so far down the dispute path they feel they must now see it through to the end.

“Hidden” cost

Many litigating parties get embroiled in dispute with part of their focus on actual cost, together with the risk of adverse costs awards.  However, how many consider the hidden costs?  This will include your time dealing with the case itself, reading/approving witness statements, endless correspondence, gathering the evidence or having to look back into original agreements.  All of this before even attending court where a trial could last for several days.  Litigation can become a distraction from your daily business operations and be a drain on you generally.

Uncertainty

Outside of costs there is the uncertainties that come with litigation.  Your solicitor will prepare you and your argument in a concise and professional manner that best presents your position.  Naturally, litigating parties both believe their argument represents the facts that should prevail.  However, a judge is not emotionally attached to either side and will generally look at the arguments on a legal, reasonable and practical basis.  This will also include the general conduct of both parties as this could sway decisions, both on the principal argument and cost implications.

Mediation

There is clear guidance coming from the courts that a litigating party who unreasonably refuses to consider Alternative Dispute Resolution, such as mediation, runs a significant risk to an adverse costs award.  In one case I heard about the claimant won £10,000 but, because they were so certain of winning, they refused mediation citing it was pointless because they had a “Cast iron” case where there can be no point of negotiation.  While they were awarded the full amount of their claim that refusal to mediate cost them £30,000 in adverse costs!  A harsh lesson indeed.

Gary Pettit, a CEDR accredited mediator at PBC, says,

“All too often the warring parties are guilty of not seeing the wood for the trees.  In those cases where I have acted as mediator (whether it is an insolvency-related or general commercial disputes) it has been proven the reality of their situation had been lost.  It is the task of the mediator to bring that reality back onto the table as part of facilitating a settlement.”

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

What has 2018 been like?

 

When I get that call from Business Times informing me it is time to draft your editorial reviewing the past year a mild panic strikes like a bolt out of the blue! Is it really that time already?  What has happened over the past year and what can I write about?

The year started with PBC launching its mediation service.  So far, the PBC mediation service has successfully settled every dispute where acted, either on the day or in the immediate period thereafter.  It has included insolvency-related matters, a shareholder dispute and a professional negligence claim.  All but one were pre-legal action and it is fair to say in two of those the claimant was probably relieved that a settlement was reached!

For those who believe they want their day in court then beware. The courts are penalising those who refuse mediation as an alternative dispute resolution by imposing cost awards.  In one report I read the Claimant won £10,000 but because they refused mediation a cost order of £35,000 was made against them!

While mediation is proving successful our principal area remains insolvency and once again we have found ourselves being asked to act on some challenging assignments, including a deceased estate on the South coast and a corporate group that has two foreign subsidiaries (one in Canada and the other in Australia).  We were also delighted to accept our first nomination from HM Revenue & Customs for the appointment as liquidator, replacing the directors’ choice of insolvency practitioner.

The advisory side has also seen some interesting matters where PBC have assisted creditors of companies either entering into an insolvency process or, in one case, challenging the conduct of the residing liquidator. As we always say at PBC, awareness (of your rights) can often protect your financial interest.

The retail sector has taken a pounding this year as we witness the likes of House of Fraser and Toys R Us fall under the regime of the Insolvency Act. Until the retailers look at new ways of improving foot fall then the outlook continues to look bleak.

Gary Pettit was also invited to be party to the Government consultation on corporate governance, being proposals following the experiences of these large-scale corporate failures and the devastating legacy they leave. As the Government say, “When Parliamentary time allows” there could be some stark changes imposed, including the ability to pursue directors of companies that are struck off the register.

For the time being directors should be aware HM Revenue & Customs are continuing their campaign to recover tax from “Disguised remuneration schemes” such as Employment Benefit Trusts and other tax avoidance schemes. At PBC we have seen an increase of these incidences and with the constant pressure to reduce the level of unpaid taxes, it is an area that will continue to grow in recovery procedure terms.

It has to be said the final word must go to Jamie Cochrane who passed his accountancy qualifications. It is a great achievement and the PBC Team all congratulate him on his success.  That hard work and his dedication to PBC has also been rewarded with promotion to associate.

Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit and PBC Business Recovery & Insolvency on (01604) 212150 or email to garypettit@pbcbusinessrecovery.co.uk

What is mediation?

Alternative Dispute Resolution (ADR) is a very successful method of resolving financial and other business issues before they reach the stage of court action. In fact, the courts will often expect you to have tried ADR and may look unfavourably on you if you have not attempted to resolve your issues prior to legal action. One of the most common forms of ADR is to see an independent mediator who could resolve the problem at an earlier stage and save a considerable sum in legal fees and lost time. In this video, Gary Pettit, our in-house CEDR Accredited Mediator, explains more fully how mediation works, what the advantages are and how you could benefit from working with us to resolve your dispute.

 

Did you know PBC can offer mediation services?

gary-pettit

The philosophy behind Alternative Dispute Resolution is to encourage parties to consider resolution of their dispute by way of mediation rather than the (often) costly route of court intervention.

 

Insolvency is a highly specialised field that is constantly exposed to legal argument. At PBC, we say a dispute is most likely to be resolved if the mediator is equally specialised.  As a long-established and well-known appointment-taking insolvency practitioner, Gary Pettit is also an accredited mediator with CEDR and now offers to assist parties resolving dispute by way of mediation.

 

Indeed, Gary has recently received commendation from the chief executive of one of the country’s leading providers of finance to insolvency practitioners who said “I can recommend Gary very highly. He did a super and well balanced job on one of our cases recently. He is now on our shortlist for future cases”.

 

Should you be involved in an insolvency-related dispute where mediation has been (or is being) considered then we at PBC fail to see how the only known mediator who is also a current appointment-taking insolvency practitioner cannot be the right person for you.

 

For more information, see here or call Gary on 01604 212150.