Director duties reinforced (again!)

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

What can appear to be straightforward is sometimes never the case as demonstrated by the numerous questions we get from Directors in respect of their statutory duties. This was recently highlighted on a seminar hosted by Gary Pettit where many questions were raised following a short presentation.

All too often directors can find themselves getting embroiled in the emotion of the situation, particularly where there is a dispute within the board of directors with the issues prevailing over their duties.

The court adopt the view you are a director first and foremost, while personal opinions or conflicts of interest are immaterial.  This has recently been demonstrated in the High Court decision of Jacob Beake and Paul David Allen (Acting As the Joint Administrators of London South West SW Limited) and – (1) Jamie Richard Chapman and (2) Bodman House Management Ltd [2023] EWHC 1986 (Ch).

In this case, the director refused to sign a lease to a property, jeopardising the sale.  It is understood the director tried to use his refusal to sign as leverage against a personal dispute with the administrators of a connected company.  The court took the view this refusal was a breach of duty and was interfering with the duties of an administrator.  As a result, the director was ordered to sign the lease and costs were awarded against the director.

This decision should act, as yet another warning to directors who choose to put their personal issues before their statutory duties, particularly if it results in the interference of the duties carried out by an office holder.  It also serves as a warning for those directors who are embroiled in a management dispute whereby, if you fail in meeting your statutory duties then you must be prepared to face the consequences.

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.

Is the risk of insolvency increasing?

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This morning (31 October) the BBC reported, “The number of firms in “Critical financial distress” jumped by 25% in the last three months.”  Indeed, the number of companies falling under this description was almost 38,000 and is based upon a report that county court judgments (“CCJ”) exceeding £5,000 have increased significantly.

Firstly, some perspective.  There are over 5 million businesses registered in the United Kingdom.  However, that is small consolation if you are one of the 38,000 (or close to becoming one of that number).

A CCJ can be damaging to a business as it effects credit ratings, can impact on the ability to obtain supplies and, sometimes, can be a precursor to corporate failure.  However, you may get a CCJ for several reasons, including:

  • You have lost a legal claim, so judgment was made against you; or
  • There had been an innocent oversight; or
  • You have cash flow issues where you are unable to pay debts as they fall due.

Losing a legal claim can have obvious and direct consequences that may even result in the demise of your business.  However, cash flow issues can be something that creeps up on a business – sales may take a slight dip, that invoice you were expecting to be paid is delayed, or simply not paid at all.  A common issue we are seeing frequently is costs of materials have increased, resulting in a reduced profit margin on a job you are contractually bound to complete.  In business, you can be so focussed in doing the business that you take an eye off the business itself and these operational issues do not get recognised as early as they might.

Just because a company is struggling, it does not automatically mean failure.  As PBC have demonstrated time and again, taking early advice has enabled us to consider the options available and it enhances the prospect of turning your fortunes around.  It should be said that it is rarely too late to take advice.  However, the longer you leave it until you do, generally narrows the options available.

If you require 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.

A step closer to compulsory mediation?

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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.

Highest liquidations since 1960

That is the headline from the corporate insolvency statistics for the second quarter (1 April – 30 June 2023) that were published on 28 July by the Insolvency Service. 

In total there were 6,342 company insolvencies of which 93% were either creditors voluntary liquidations (5,240) or compulsory liquidations (637).  Collectively in the year (Q3 of 2022 to Q2 of 2023) the recorded number of creditor voluntary liquidations (“CVL”) is the highest since 1960, which is remarkable when you consider arguably our worst recession that peaked in 1993.  The latest figures mean the rate of liquidations is 52 in every 10,000 active companies registered as compared to 43.9/10,000 one year ago.

The remaining numbers reported were 409 administrations and only 56 company voluntary arrangements.  In addition to these numbers the two new rescue procedures introduced under the Corporate Insolvency & Governance Act have hardly been utilised.  From 26 June 2020 to 30 June 2023 there have only been 45 Moratoriums and 21 Restructuring Plans.

The big question must surely be why?  In short, the common features appear to be:

  1. The combination of Brexit, quickly followed by Covid-19 has had a severe impact on the world-wide economy.
  2. Cash flow has been adversely hit following the withdrawal of the Government’s fiscal and other measures put in place to support businesses during the pandemic, together with the legacy the financial support and the pandemic have left.
  3. Because of that support, companies that would ordinarily have ceased trading in 2020-21 were able to continue longer than envisaged.  This means the 2022-23 figures are swelled by the legacy of the higher than usual company survival rates during the pandemic.

Something that you will not see in Government dispatches is that many companies are using CVL as a vehicle for selling the business and assets, or even to “Phoenix” into a new company.  This is because of the much-contested decision to make HMRC a secondary preferential creditor, resulting in the restructuring procedures being no longer viable in many cases.  The low numbers of administrations, CVA, moratoriums and restructuring plans are indicative of this problem.

The saying, “Lies, damn lies and statistics” has some merit when considering the insolvency numbers because it is the devil in the detail beneath those core figures that matters and the signs are many businesses are finding themselves the subject of a merger or acquisition.

At PBC we are finding ourselves assisting companies and their professional advisors with going concern sales more often than in the past and we see no reason for that current trend to change in the short term.  However, more often than not, the key to an organised resolution is to seek advice at an early stage.  It is a long-standing piece adage but there can be no coincidence that most businesses are saved in one form or another where the directors sought advice early.

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) or 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

The right advice

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

It is not very often I agree with the media when they are talking about insolvency matters, but the Panorama documentary broadcast on 24 July found me shuffling around on the sofa, while muttering in horror and frustration!

Why?  Because if you watched, the subject was people who are struggling with debt being persuaded to enter into an individual voluntary arrangement (“IVA”).  One lady who owed £17,000 was on maternity leave when she agreed to pay £185 per month into an IVA.  Another chap owed £8,500 in total and was on benefits.  Both picked up advertisements on social media and were “Sold” an IVA like someone would sell a car, or some other goods.

Had those victims cited in the Panorama broadcast seen an insolvency practitioner or a recognised body such as Citizens Advice Bureau they would have received advice on the range of options available.  In short, these are:

OptionDebt parameterAsset parameterDuration
Debt Relief OrderLess than £30,000Motor vehicle worth less than £2,000 Savings/other assets less than £2,000 Surplus income less than £75 a month12-months but can be extended.
Debt Respite Scheme (standard breathing space)No limit – restricted to qualifying debt, such as credit and store cards.No parameter citedUp to 60 days protection
Debt Respite Scheme (Mental health crisis breathing space)No limit – restricted to qualifying debt, such as credit and store cards.No parameter cited30 days after the mental health crisis has been resolved.
BankruptcyNo limitationNo limitationAutomatic 12-month discharge period. Can be extended up to 15 years where wrongdoing arises, or it is classed as a “Second bankruptcy”.
IVANo limitation, although questionable for debts less than £30,000No limitation, but generally best entered into where there are assets to “protect”.Generally, payment in full or a 5-year period, whichever comes first. Often varies, depending upon the circumstances.

As Panorama mentioned, people who are struggling with debt are at their most vulnerable and accordingly, easily persuaded by someone offering them a way of resolving their troubles.  At PBC, we strongly advise people to seek early advice and by way of a face-to-face meeting with a qualified person, whether that is a member of our experienced team or the likes of Citizens Advice Bureau or the Council Financial Advisory.  Do not place your life in the hands of someone on a social network (which is likely a paid for advertisement being funded by referral fees) and comments on the end of a telephone.  Get the right advice to suit your needs.

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) or 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

How confident are you?

Settlement Agreement

As is typical of the media, they regularly report UK insolvency figures and how they appear to be rising.  However, there are two things that are not mentioned in their reporting.  The first is putting insolvency figures into perspective, by comparing corporate insolvencies with the number of active businesses in the UK.  The second statistic that never gets reported is the number of solvent liquidations.

A solvent (or a members’ voluntary liquidation) is a tax-led winding up of a company where there will be a return paid to shareholders.  It could be the company was a single-purpose vehicle or, simply a successful business that is being brought to an end due to the retirement of its owners.

The first thought must be that it is a real positive as business owners can retire, having paid all of the company creditors and they are the beneficiary of funds to assist (or facilitate) retirement.  However, on the other side of the coin, you could argue these are the people who have a proven record of having a good business acumen; a skill we are losing.

In some recent research, it was suggested 23% of business owners have hastened their plans to wind down or sell.  The report suggests the expediting of activity has come from an uncertainty on where the UK economy is heading.  That uncertainty covers many areas, but is primarily the legacy of Brexit, COVID-19 pandemic and the threat of a government change, where changes in policy and taxation are a real threat.

Confidence is often dismissed as a business quality and there can be no doubt business confidence has taken a beating over these past three years.  However, before you launch into a solvent winding up you should plan ahead, both in terms of how best to wind down the affairs of your company (whether that is a sale, succession planning or closure) and your own personal tax position.

At PBC we are seeing an increasing number of solvent liquidations where we will assist the directors and their advisors to ensure the winding down is completed in the most cost-efficient manner.

If you require any advice or assistance on mediation or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 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.