Brexit vs Cash

How many readers like change?  Do you remember the constant barrage of doom and gloom surrounding the Millennium Bug or what about GDPR?  Let us face it, in general we all fear changes that may interfere with our comfort zone.

The “B” word has been with us for 2 years and, personally, I have adopted the position of why write about it?  After all, nobody knows what post EC departure means so anything written pre-Brexit surely must be rhetoric or simple guesswork.  Admittedly, the older generations know what it was like before we joined but times have moved on since then and the economic World is vastly different.

So, let us focus on what we do know.

I bet when asked about your salary you cite your gross earnings.  However, gross earnings cannot be taken into account when it comes to paying the bills; you have to look at your take home pay and hopefully it is sufficient to meet your domestic needs.  Similarly, in business there seems to be a heavy focus on the level of turnover rather than the net profit or, more importantly, cash flow and the ability to meet debts as they fall due.

Through 2018 the average amount owed to a company was £80,141 rising to £82,000 for professional services.  Late payments are the most significant threat to SMEs and the longer they remain unpaid, the higher the risk of an inability to collect.  If your business had to write off £80,000 how much additional business would you need to secure in order to recover that loss?  Going back to the salary scenario if your employer paid you late could you still meet your debts as they fell due?  There is little difference.

At PBC we would say most of our clients have suffered from poor cash flow.  Some are due to poor credit control, some through a slow burn as the business suffers for one of many reasons, while others fall victim to a one-off catastrophic write off.  In one particular case PBC are handling the company suffered a 7-figure debt as their customer went into liquidation, bringing the company to its financial knees.  Thankfully, the director took early advice and we had time to restructure his company via a company voluntary arrangement, safeguarding all of the employees and the company going forward.

So, our message to you is Brexit is currently uncertain whereas cash is king.  Look after your cash controls and let Brexit unwind in whatever format it is destined to take.

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 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

HMRC to be a preferential creditor once again

 

The 2018 Budget has seen the announcement that HMRC will regain their preferential creditor status, a position which they lost in 2002 under the Enterprise Act. Since then they have ranked alongside unsecured creditors (such as suppliers, landlords etc).

Chancellor Philip Hammond, speaking in Parliament said, “We will make HMRC a preferred creditor in business insolvencies…to ensure that tax which has been collected on behalf of HMRC, is actually paid to HMRC”.

Further detail announced by HM Treasury states, “Taxes paid by employees and customers do not always go to funding public services if the business temporarily holding them goes into insolvency before passing them on to HMRC. Instead, they often go towards paying off the company’s debts to other creditors.  From 6 April 2020, the government will change the rules so that when a business enters insolvency, more of the taxes paid in good faith by its employees and customers but held in trust by the business go to fund public services as intended, rather than being distributed to other creditors such as financial institutions”.

It is understood HMRC will become a “secondary preferential creditor”, ranking after current preferential creditors, which includes the Redundancy Payments Service and employees for certain elements of their employment rights. HMRC will only become preferential for debts collected by the company on behalf of HMRC, such as VAT, PAYE and employee’s NI contributions but will remain unsecured for Corporation Tax and employers’ NI contributions.

The Government believe this measure will result in an extra £185 million in taxes being recovered each year. However the policy will have other consequences such as:

  • Banks and other lenders may be unwilling to support companies, or charge higher interest rates on lending, as their risk will increase.
  • Other unsecured creditors, including small businesses, landlords, pension funds, suppliers and employees will see the amount they receive reduced.

The full release from HM Treasury is available here:

The budget also included confirmation of proposals whereby directors could be held liable for debts due to HMRC where there is a risk that the company may deliberately enter insolvency. Following Royal Assent of the Finance Bill 2019-20, directors and other persons involved in tax avoidance, evasion or phoenixism could be jointly and severally liable for company tax liabilities in certain cases.

Abseil Total Exceeds Target

 

 

Back in August 2018, Natasha Pink and Jamie Cochrane took part in an abseil event which was organised by the Ronald McDonald charity to help raise much needed funds for families of sick children.

There are 14 Ronald McDonald Houses as close as is possible to specialist children’s hospitals across the country, from Southampton to Liverpool.  They provide accommodation for families whose child is receiving treatment at the hospital, free of charge, so parents can stay close to their children.

PBC are supporting the charity because of the support they have given to Kym Carvell’s family.  Kym’s baby grand daughter, Billie-Marie was born 10 weeks premature with a number of health issues.  In total, Billie-Marie has spent approximately six months of her short life in hospital (she turned two in August), and on almost every one of those days, Ronald McDonald House has provided a room for her parents to stay.

Both Natasha and Jamie really enjoyed the abseil and everyone at PBC are very proud of them.  Natasha said that it was an amazing experience and that she was very grateful to be able to support such an important cause. She is also very grateful to all those that have supported her and Jamie and donated so generously, with the latest donation taking them past the £1,000 target.  It has also taken the total earned this year from all of PBC’s events past £3,250.

If anyone else would like to donate to this very worthwhile cause, and recognise Natasha and Jamie’s bravery, please click onto the link here.

Restoration of Company Results in Dividend to Creditors

PBC are pleased to report that a dividend of 66.40 pence in the pound was paid to unsecured creditors in a liquidation that, at first, appeared to have no distributable assets.

The company was placed into creditors’ voluntary liquidation in June 2012 and following closure of the liquidation the company was dissolved. PBC were subsequently approached to restore the company to the register and act as liquidators to realise a refund of fees from the company’s former bankers.

With the assistance of Katie Summers, a partner at Howes Percival LLP, a successful application was made to restore the company to enable the fees to be recovered and subsequently a payment to be made to creditors.

PBC CONFIRM DIVIDEND PAID FROM AN IVA

PBC are pleased to announce a first and final dividend to creditors from an individual voluntary arrangement (IVA).

The debtor’s proposals for an IVA were approved in November 2017 and comprised a lump sum following the sale of an investment property. The arrangement included the removal of a second charge against the dwelling property, with the creditor in question submitting a claim in the IVA.

Joint Supervisor, Gary Pettit said, “It is pleasing to see this dividend paid to creditors and the IVA nearing a successful completion. The IVA has successfully dealt with the debtor’s financial difficulties, which were not helped by the debt management plan he was previously using”.

For more information on IVAs, please see this video.

Jamie and Natasha abseil for Ronald McDonald

 

Here at PBC, we are determined to raise as much money as possible for this excellent cause.  So far we have had a charity craft fair, Kym and Jamie walked 80 miles from London Euston to Northampton and the quiz night.  We also have an extremely popular tuck shop in the office!  To date, PBC have raised an amazing £3,303 in 2017 which equates to keeping the Ronald McDonald House at Alder Hey Hospital open for two whole days and in 2018 we have raised £1,817 so far.

But we’re not stopping there!

Jamie and Natasha have taken on the next charity challenge in August 2018 which is a 500ft abseil down Liverpool Cathedral and they can’t do it without your support!  Jamie and Natasha have set up a JustGiving page so please help us made a difference for the Ronald McDonald House Charity and all the families that use it.

Further details on why PBC support Ronald McDonald, can be found here.

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.