Hit by the collapse of ISG? We are here to help!

The collapse of ISG into Administration will have a significant effect of many in the supply chain with monies owed not being paid any time soon or potentially not at all. 

If the loss of income is likely to mean financial difficulties going forward it is imperative to take advice and try not to panic.

Whilst undoubtedly the Administrators of ISG have a strategy in mind, it is likely to be a few months before the anticipated financial outcome will become public knowledge. All we know so far is some 2,200 employees were made redundant, with 200 employees retained to assist the Administrators.

Below is guidance to supply chain members until the financial outcome of the matter becomes more visible.

  • If you are struggling to pay your suppliers, communicate with them early, explaining the position. This should also include HMRC. We would expect they will be under some form of guidance to help as best as possible in this particular matter. 
  • If you are asked to complete work for the Administrator, look to leverage your position in this scenario. Payment up front or even better payment of part of all your old debt to continue working. Understand your importance to the Administrator if this request is made. 
  • Retention of Title Clauses – For companies that have supplied goods, look at your retention of title clauses. This may enable you to recover your products.
  • Trade Credit Insurance – if you have this make a claim immediately.
  • Take advice from your accountant/solicitors or even an Insolvency Practitioner to see what options are available.

At PBC Business Recovery & Insolvency we advise companies daily and,  first and foremost, aways look at recovery options for those we advise – trying to prevent them entering a similar process to that of ISG.  Sometimes, this is unavoidable, but the sooner advice is sought the greater the opportunities are.

If you need any advice or assistance on any corporate recovery option 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.

HMRC – Preferential financial recovery in insolvencies, but at what cost….

Analysis has found that HMRC has received an extra £14.4 million in tax owing from insolvencies since it regained its ‘preferential creditor’ status in December 2000.

The preferred status enables HMRC to be paid from a formal insolvency process ahead of unsecured creditors, which is effectively the general body of suppliers to that business. Given the forbearance from HMRC during Covid, the level of HMRC debt we often see with insolvency matters is significant, meaning asset realisations will need to be significantly greater to enable a return to the general body of suppliers.

In many instances, there will be no financial return at the bottom end and the best suppliers can hope for, if they don’t have bad debt insurance, is VAT bad debt relief on the sum not payable.

In our opinion, the preferential position HMRC find themselves in has the following consequences:

  • Some banks reducing the amounts they can lend to business and increasing the interest rates they offer on business loans.
  • Banks looking to mitigate exposure by way of invoicing discounting facilities, fixing their debt against the sales ledger. This is more costly than “normal” bank lending products, squeezing margins and reducing HMRC gain from corporation tax recoveries going forward from a viable business.  
  • Banks even more so, looking for personal guarantees from directors for business borrowings because if the ship goes down, they want a life raft to jump on to.  

In the overall scheme of things, the sum received through preferential status since December 2000 is not substantial for HMRC and we have no doubt that these funds would be far better off in the pockets of unsecured creditors as a whole. Indeed, it would be more beneficial if HMRC’s preferential status was abolished altogether, as it was in 2003, which, in turn, will allow greater lending opportunities for companies to recover, potentially avoiding a formal insolvency process while also increasing future tax receipts.

If you need any advice or assistance on any 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.

Unlicensed Insolvency Practitioners – wound up!

A week or so ago, we posted about being careful taking advice from unlicenced insolvency advisors. As they say, timing is everything, and on 15 July, The Insolvency Service published details of such an advisor being wound up by the court in the public interest.

https://www.gov.uk/government/news/court-winds-up-manchester-firm-offering-unlicensed-insolvency-practitioner-services

At PBC, we are aware some directors fear approaching an insolvency practitioner as they hear stories of the ramifications a director faces.  To the contrary, an insolvency practitioner will advise you of your options, duties, and will discuss potential issues with you.  Those who chance engaging an unlicensed advisor merely promote the likelihood of allegations of a breach of duty where personal liability for any loss suffered may arise.

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.

Insolvency and mental wellbeing.

Insolvency can significantly impact upon the mental health of individuals as a result of the stress, anxiety and uncertainty that is associated with financial difficulties.  Where someone is already suffering from mental welfare, financial difficulties may also exacerbate those existing mental health issues.

At PBC, we are acutely aware, that potential insolvency, at times,  can bring feelings of shame, guilt, and failure.  It is human nature to feel that way irrespective of the underlying reasons behind their difficulties.  It is, therefore, vitally important for those having insolvency issues that they seek support from financial advisors and insolvency practitioners at the earliest practicable date as this may ease those negative and damaging thoughts.

From PBC’s perspective, when providing advice, there is no judgement.  We are very likely to have seen worse financial positions and have no greater respect than those that make contact to seek advice, either by phone or attending our Northampton or Milton Keynes Offices for a meeting. All initial meetings are completely free of charge, without obligation and we promise those we advise they will be more informed as to their options (don’t rely on google!).

Reaching out early for advice is crucial in managing both the practical and emotional aspects of insolvency and it is even more important to prioritise self-care, remembering that there are resources and people available to support you through difficult times.

Should you or anyone you know/advise require any assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton) or 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

The cost of disputes?

Picture this.  There are two directors – one responsible for the day-to-day operations of the business while the other managed all contractual matters and the bookkeeping.  A dispute arises between the directors, trust rapidly dissipates and accusations start flying.

The above is not an all too untypical scenario PBC have witnessed, whether that is while using our mediation services or a precursor to the company entering into an insolvency event, usually as a result of the management dispute being irreconcilable.

The courts will show little (if any) remorse towards a director who demonstrates a failure to meet their statutory duties as they adopt the stance that duties prevail over any personal feelings or negative impact meeting those duties may cause.  The latest demonstration of the court’s views was on 8 March 2024 when, in the case of Manfuku London Ltd and Cocoro Restaurants Limited [2024] EWHC 457 (Ch) the court held a director personally liable for costs.

The main issue in the above case was surrounding access to company records, held by one of the directors but also had wider disputes including allegations of theft.  The court refused to consider the wider disputes and ordered for the records to be delivered up, as these could be easily produced. 

The key message, here, is should a management dispute arise, take advice at the earliest opportunity.   Not seeking that early resolution can be very costly on several levels.

If you need any advice or assistance on a management dispute or any corporate restructuring or 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.

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 liquidator says I owe the company

Lady working at desk

Have you been told you owe money to your company under a director loan account (“DLA”)?

Sometimes directors follow a practice of borrowing from their company, only to extinguish that borrowing with a dividend around their financial year end.  Others simply take a loan with a view to repay over an agreed period of time.  However, an adverse loan account can also arise where purchases cannot be allocated to anywhere specific so, in default, are posted to a director loan account.

An adverse DLA is a debt repayable on demand so, if you resigned or the company entered into an insolvency event, you could find a demand for the full balance to be repaid forthwith.  In saying this, where a company is profitable then “Repaying” by way of a dividend is a common practice.  However, what happens if the company is (or is likely to become) insolvent?

Where insolvency is looming, the duty of the directors is owed primarily to the company creditors as a whole.  Even if the company appears to be balance sheet solvent, the fact you are not paying your debts as they fall due means the company is insolvent.  In this scenario paying dividends are likely to be declared as unlawful, resulting in a director having to address payment of the DLA if personal funds permit.

At PBC we have experienced directors being oblivious of any loan existing and, indeed, an analysis may show nothing is due or payable as the DLA was actually built up by genuine business expenses.  However, the burden of proving the amount claimed is wrong falls upon the director.  If they cannot prove the transactions were not for their personal benefit then the director is liable for the DLA.

The importance of maintaining a record of how a DLA is constructed was demonstrated in a case known as Re: Mumtaz Properties.  In that case three directors were taken to court by a liquidator who was claiming repayment of three DLAs.  The defence put forward was, if the liquidator had the books and records they would see the DLAs were not correct nor any debt owed.  The court noted the directors were in breach of their duty whereby they had not delivered up to the liquidator the books and records.  In pointing out that breach the court not only upheld the liquidator’s claims, but he made the directors jointly and severally liable for the aggregate total of the three DLAs, together with costs of the proceedings.

PBC have previously raised this subject, which is becoming a regular occurrence and repeat our advice where:

  1. First, ensure the balance is correct.  All too often a DLA becomes a “Dumping” ground for unallocated accounting entries.  Make sure you have an agreed balance.
  • Does the company owe you money?  If you have paid for goods or services using your own funds or credit card, have these been posted to the DLA?  This may also include your employee entitlements, in terms of wages and accrued holiday pay.
  • If you can, repay the agreed balance, which in turns prevents the Redundancy Payments Service from using an adverse loan to reject a director’s potential  employee entitlements.
  • Offer to repay the agreed balance to an appointed liquidator by way of instalments.
  • Alternatively, offer a one-off payment in full and final settlement.

Settlements (either by way of instalments or otherwise) are always open to negotiation but can make repaying a DLA more manageable or, in the case of a lump sum settlement, remove that burden from a directors’ mind.

The key message is where a DLA exists, take advice, and be prepared before taking that next step.

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.