Are Members’ Voluntary Liquidations (MVLs) under attack again?

A couple of years ago, the Finance Act 2016 introduced a new anti-avoidance rule which targeted MVLs to counter ‘phoenixism’ – starting a new business soon after winding up the previous one. This was to stop what was seen as an abuse of Entrepreneurs’ Relief.

More recently we have seen HMRC now demand statutory interest on tax liabilities from the date of the solvent liquidation even though, in the case of Corporation Tax, these tax liabilities are not technically due until 9 months later.

The latest attack is that HMRC are running a test case to challenge the approach of distributing overdrawn directors’ loan accounts in specie and reclassify the distribution as income, rather than capital, and therefore claim more tax.

It has been common practice to distribute overdrawn directors’ loan accounts in specie to save the directors having to repay the loans back to the liquidator and then wait for a distribution back to them as shareholders.  In the vast majority of cases the director and shareholder are the same person or husband and wife.

It is also our experience when the Company is brought to an end that directors will dip into Company funds before appointing a liquidator, thereby leading to an overdrawn director’s loan account.

We have spoken to both tax advisors and compliance firms within the insolvency world and currently what is certain is that there is uncertainty. However what is certain is that Schedule 11 of the Finance (No 2) Act 2017 seems to put an end to the approach going forward where the loan is not repaid before 5 April 2019.

As always as with any MVL it is now more important than ever to meet with your accountant and an insolvency practitioner before you bring the Company to a close to avoid any of the common pitfalls.

As always, PBC offers free initial meetings which are confidential and impartial.

The New Rules – 12 months on

The 6th April will mark the first anniversary of The Insolvency (England & Wales) Rules 2016, (commonly referred to as the “New Rules”). Doesn’t time fly?  So, we thought the anniversary was an opportunity to reflect and comment on the major changes introduced by the New Rules.

The right to opt out of receiving future correspondence – this has been used by about 5% of creditors, typically where there will be no return to creditors or where the creditor decides to write the debt off and does not want to keep being reminded of the bad debt every 12 months. This appears to be a well thought out change to the legislation and one which is well understood by creditors, particularly when you bear in mind that any notice of intended dividend must still be sent to these creditors, giving them the chance to opt back in when appropriate.

The right for an IP to post all documents online, having given notice to creditors they will do so – this rule change has not really been tested. The proof of how well creditors understand this change will come in the next few months as the second report since the New Rules is uploaded with no notice to creditors. The rule has been brought in to cut down on the copying and postage costs associated with each report to improve returns to creditors, but will that cost be replaced by phone calls with creditors asking for updates? Time will tell.

The abolition of physical meetings and the new decision procedures – this is probably the most fundamental change and is explained in detail in our blog here. Put simply, physical meetings can only be requisitioned by creditors (under a set criteria) and creditors’ views are now sought by virtual meetings, correspondence, electronic voting or deemed consent. We have had two instances where creditors have asked for physical meetings and, in both occasions, it was probably unnecessary (indeed in one the physical meeting was adjourned and nobody attended the adjourned meeting). Some good points of this rule change include the removal of final meetings (which nobody ever attended and were a waste of time and money) and the increased flexibility the New Rules now offer meaning two different cases, say a “Burial” liquidation of a company with minimal assets and a large complex company can be administered differently rather than applying a “one size fits all” approach which was excessive in many cases.

Standard Forms now longer exist – in their place have come a prescribed list of information in a set order (sounds like a form doesn’t it!) Despite the abolition of prescribed forms, Companies House have issued new forms for their purpose, which must be used when filing. The real purpose of this rule we suspect has not yet been met yet; at PBC we believe the purpose here is to allow online filing of the information at some point in the future.

The formation of creditors’ committee has changed – previously creditors had to vote for both the formation of a committee and its members at the same time. If the former happened but the minimum of three members were not forthcoming, then the committee was not formed. Now the New Rules mean that creditors can vote for the formation of a committee but not its members. If this happens, the IP then has to seek nominations for the minimum number of members and only then if there are insufficient members does the committee not form. At PBC we have seen this occur on several occasions, probably because of the creditors not understanding what a vote in favour of a committee means.

The New Rules have introduced many changes which are too numerous to list but these are, in our view, the major changes affecting creditors. It is also interesting to note The Association of Business Recovery Professionals, the industry’s trade body, took nearly ten months to update the standard terms it issues which form part of IVAs and are yet, at the time of writing, to update their Creditor Insolvency Guide website!

So in summary, are the New Rules good or bad? In theory our short experience is they are, in the main, a positive move forward.  However, it is a question that cannot be fully answered until they are tested in court over the next year or so.

Early advice aids survival of business

At PBC, we have written numerous blogs and articles about how taking early advice about a worsening financial situation can lead to more options being available and the earlier the advice is taken the more likely a recovery process can be instigated. This message was true in the recent administration of Noble Express Ltd.

The most common reasons why businesses fail

The company, which supplied catering equipment, cleaning chemicals and other non-food essentials to the hospitality industry, entered into administration on 16 January 2018. However, the board of directors first sought our advice in the autumn of 2017, at which point the sale of the company remained a genuine possibility.  Unfortunately, no sale could be secured but the traded during its busy period in the run up to Christmas.  The director then sought advice again at the beginning of January.

Following the company entering administration, the joint administrators (Gary Pettit and Gavin Bates of PBC) traded the business with a view to finding a buyer. Several expressions of interest were received and a sale of the business was secured in February.  The sale has seen the majority of the company’s employees retain their jobs as well as an increased return to creditors.

Gavin Bates said, “It is always pleasing to see directors take advice at an early stage when their company is faced with financial pressures and difficulties rather than burying their head in the sand only to emerge when it is far too late. In this instance, I was approached early enough to enable viable trading to occur whilst searching for a buyer.  The early approach ensured there was both cash available to fund trading and stock in the company’s premises which meant I could trade without seeking further supplies from creditors.  I am delighted with being able to secure a sale of the company’s business and assets, and look forward to distributing the funds I am holding to creditors”.

CHARITY QUIZ A GREAT SUCCESS

Greens Restaurant was filled with the sound of brains whirring as fourteen teams did battle at PBC’s charity quiz in aid of Ronald McDonald House at Alder Hey.  It was a night which saw the teams discover 12 is the only number which scores itself in Scrabble and 23 is the next number in the sequence 1, 40, 4 and 3.

The winners were Hewitsons (below), with a score of 128 out of a possible 150, with Tollers taking second place only 3 points behind in a good night for the lawyers.

PBC would like to thank everybody who attended and made the event such a success, with £1,799.88 being raised for charity as PBC have covered the costs for the evening.

The team’s tuck shop has also raised £71.29 so far this year, bringing 2018’s current total raised to £1,871.17. Further details about the abseil and other events will be released shortly.

And 23. Motorways with M25 junctions (anticlockwise around the M25).

Time to pay thanks to Carillion?

Following the demise of Carillion, HM Revenue & Customs have announced their Business Payments Support Services are open to approach by any company or business that has suffered a short-term cash flow problem as a result of the large scale failure.

The Support Service will consider:

  • Instalment arrangements of tax due that cannot be paid on time;
  • Suspension of recovery action/proceedings;
  • Review penalties for missing statutory deadlines;
  • Reduce any payments on account;
  • Agree to defer payments due to short term cash flow difficulties.

 

Should you find yourself facing difficulties to meet your tax liability as a direct result of the Carillion failure then you may apply to the Support Service on 0300 200 3835 or go on the website at www.gov.uk and search “Dealing with HMRC-payment problems.”

The obvious question this raises is, “Why is this offer being made for Carillion creditors?” At PBC we believe this could set a precedent for others who are caught under an insolvency process.  After all, what is different between a supplier losing (say) £5,000 in the Carillion liquidation to that under “Standard” UK liquidation?

At PBC we are often approached to assist companies with addressing tax issues whether in respect of trying to secure a time to pay agreement or by other formal means where appropriate. Should you require advice in this respect then contact PBC and speak to one of our insolvency practitioners on (01604) 212150 or email info@pbcbusinessrecovery.co.uk.

PBC announce Charity Quiz

 

PBC are pleased to announce a charity quiz to raise money for Ronald McDonald Charity Houses.

The quiz will be held on Wednesday 21 March 2018 at 6pm at Greens Restaurant, Collingtree Park Golf Club.

For further details about the evening, please find the invite and booking form here.

For further details about why PBC support the charity, please click here .

Second Edition of The Leaf Released

PBC are pleased to announce the release of the second edition of The Leaf Magazine, which can be read here.

Topics in this edition include:

  • Beware the Unregulated Insolvency Advisor
  • Focus on Mediation
  • Statutory Interest on Corporation tax in Solvent Liquidations
  • And Many More

A Round Up of Recent Insolvency Statistics and Perhaps More Trouble Ahead!

Last week The Insolvency Service released the insolvency statistics for the fourth quarter of 2017. Whenever these are published, the newspapers will always look for the story without going into the details.

So for example, the press reported that personal insolvencies in 2017 increased by 9% as compared to 2016, Of course that is correct, but they didn’t report that personal insolvencies fell by 11% in Q4 2017 as compared to Q3.

It is of course true that when inflation is higher than increases in wages then it will have an effect on individuals’ surplus income and in many cases (99,196 in 2017), will lead to personal insolvencies. In the short term this is expected to continue.

Another story that didn’t seem to hit the headlines was a 2.5% rise in corporate insolvencies in 2017 as compared to 2016. First this is a small increase in any event. However, it should also be noted that corporate insolvencies have been at a historically low number for a few years now, so a small increase on what is already a small number is not worth mentioning.

So this all seems like reasonably good news for the economy as a whole. On face value it does but at PBC we are starting to see growing signs of trouble ahead.  Over the last 3 months we have seen a growing number of enquiries and work.  It is fair to say that the retail sector (the high street in particular), is struggling, partially because of the reduction in personal incomes., and also businesses which deal with discretionary spend items (for example, new car sales are down).

At some stage we also expect fallout from the Carillion failure as subcontractors and those further down the chain come to terms with the lost income and future work.

It was also interesting to see that the FCA has started to address the issue of interest only mortgages. The FCA estimate there are 1.67 million full interest only and part capital repayment mortgages in the UK and the most of these will conclude in the next 10 to 14 years. Clearly as these come to a conclusion it will have an effect on those consumers and therefore the economy.  Only time will tell.

As always if you or your business is starting to struggle we would always recommend that you take advice at an early stage. Initial meetings with PBC are free and confidential.

PRESS RELEASE – NOBLE EXPRESS LIMITED – IN ADMINISTRATION

Noble Express Limited, the Northampton based supplier of catering equipment, cleaning chemicals and other non-food essentials to the hospitality industry, has been placed into administration.

The company has experienced difficult trading conditions over the past two years, which affected cash flow and led to the appointment of administrators PBC Business Recovery and Insolvency last week.

The full level of debt is being quantified and known creditors have been notified of the administration. However, appointed administrator Gavin Bates of PBC is hopeful that a buyer can be found, and procedures are in place for the company to continue trading at this time.  Gavin added “Noble Express is well-known in the industry and consequently this has generated some interest in the purchase of the business.  We remain hopeful that we can secure the right buyer and Noble Express will be able to continue to build its reputation in the hospitality sector.”

It has been necessary to make two staff redundant, but the remaining 5 staff have been retained to assist with continued trading under the management of the Administrators.

For businesses interested in purchasing Noble Express Ltd, please contact Gavin Bates at PBC directly on 01604 212150 or gavinbates@pbcbusinessrecovery.co.uk and a Sales Pack can be despatched.