Pre-packs, or pre-packaged business sales, have always been controversial. In essence, they involve placing a company into administration and the business being immediately sold, often to the current management. The common allegation is that the sale does not necessarily achieve as great a realisation as could have been achieved had the business been openly marketed, resulting in detriment to creditors, and that that the process simply allows the management to “dump debt”. Naturally enough, politicians and the media have been quick to jump on the bandwagon, demanding changes to the legislation to make pre-packs more difficult.

Whilst it is no doubt possible to point to examples of pre-packs being used inappropriately, there is little evidence of widespread abuse, or that unsecured creditors have suffered losses that otherwise could have been avoided. On the contrary pre-packs can often maximise realisations. Used properly and in the right situation, pre-packs can secure businesses and preserve jobs.

Nevertheless, the government had been promising a raft of changes to the relevant legislation, the most significant being to impose a requirement that creditors should be given three days’ notice of any intention to sell the business to connected parties. That period was intended to give creditors an opportunity to object to the sale and mount their own offer. The unintended consequences would probably have been to reduce the business value, particularly in cases where there is no funding to continue trading or engage in extensive marketing. Staff and customers would probably walk, leaving nothing to sell. We therefore welcome the government’s u-turn.

However, there is now an onus on us all in the insolvency profession to work hard to restore creditor confidence, and to ensure that pre-packs are used properly. They should not be used without examining all alternative options; we are, after all, supposed to be acting to protect creditors’ interests.

If you’re facing tough times, and would like to talk through the available options, including the possibility of a pre-pack, please get in touch with me or a member of my Team. As always, the earlier we talk the greater the chance of finding the best outcome for all the parties involved. An initial conversation will always be without any obligation.

In January 2011 Andy Carroll was transferred from Newcastle United to Liverpool for £35 million, and in the process became the most expensive British player in fooballing history, and the eighth-most expensive player worldwide. Yet it has now come to light that Carroll’s ex-agent was depending on a percentage of the transfer fee in order to help him remain solvent.

It’s emerged in the High Court that Peter Harrison, the agent in question whose previous clients included Brazilian football star, Rivaldo, is reported to have debts of £1.9 million. He is currently in the midst of a legal battle with former Newcastle boss and current West Ham manager Sam Allardyce, and it’s been disclosed that Harrison  was relying on a slice of Andy Carrolls’ transfer deal. He is attempting to come to an agreement with his creditors after leaving a meeting with the player and the Football Association earlier this year, empty handed.

Harrison’s problems have emerged from a £300,000 loan made by Allardyce to him and ex-Australia captain Lucas Neill whom he represented in 2005. The pair planned to use the money in order to purchase a dilapidated farm and convert it into 14 new homes, paying back £600,000 in total. In 2009 the court ordered Harrison and Neill to repay £752,000. Currently Harrison disputes this as he claims to have paid back the original sum and therefore actually owes much less. It was also revealed in the current court case that he told his creditors that he would be able to give them their money back once he had his commission from Andy Carrolls’ sale. And FA attribution meeting meant that he did not receive any money he is therefore now in the process of agreeing an IVA to avoid bankruptcy. If an agreement cannot be reached with his creditors to pay back 28.5p in every pound, then Harrison is likely to be made bankrupt, which means that he would not be able to operate as a football agent based on the game’s current rules.

If you are in need of corporate recovery or insolvency advice Burton Sweet Corporate Recovery are able to help find a solution to your difficulties. We do not charge for an initial discussion about your problems, and our advice will be tailored to your specific needs.

We attribute credit for this article to Debt Management Today.

Hartson stated that, despite signing the arrangement he is still being chased by creditors for more than £300,000 of gambling debts. The ex-footballer stated that there are people are constantly “hassling” him for money. The 36-year-old is a father of four and he has been quoted as saying that “Some people just can’t let it go and they are still hassling me. They are still offering me the opportunity to bet, trying to make a way into my friendship. I don’t want to go down that road again.” He has previously admitted that he has owed up to £400,000 because of his gambling habit.

Hartson, who was born in Swansea, South Wales earned 51 caps during his international football career. He retired from professional football after being released by West Bromwich Albion in January 2008, and has survived a battle with testicular cancer. The football star has said that bookmakers are still attempting to entice him back into the gambling world, despite being signed up for the IVA. The agreement states that John will repay 12p of every £1 he still owes and is living off £250 a week, a figure which was agreed between Hartson and his creditors. In addition, his pension has been taken away in order to pay creditors.

He also stated “I’ve paid back as much as I can of my debt. I cannot physically afford to repay any more. At one point I owed between three and four hundred grand… I have done my best to pay back what I can because I have never knocked anyone in my life. I’m a good guy. I was struggling with an illness: gambling.”

If you or your business is suffering because of debt problems, Burton Sweet Corporate Recovery can offer you insolvency advice. We recognise that debt problems are not simply numbers on a sheet of paper, we understand that financial difficulties can create enormous distress and that advice about debt is much more than  just juggling numbers.

We attribute credit for this article to Debt Management Today.

Given the clear and well-established link between debt and health problems, particularly mental health issues, we felt that it would be particularly appropriate to support MIND, the mental health charity.

Graham Down, managing director of BSCR, said: “Sadly, mental illness still carries a great deal of social stigma, and seems neither to be taken seriously by society nor given the priority it deserves by the health services. Charities like MIND are all the more vital because of this.

“We will also be continuing our longstanding support of the Juvenile Diabetes Research Foundation in their attempts to find a cure for type 1 diabetes, which is caused by problems with the immune system and not linked in any way to lifestyle factors.

“We’ll also be rooting for Amelia Lily on the X Factor. Amelia, who has type 1 diabetes and has spoken openly about the condition, will be an inspiration to other children and young people living with it, and perhaps help them achieve their dreams.”

Compulsory liquidations: 1,203 (-6.6%)
Creditors’ voluntary liquidations: 3,039 (+3.1%)
Receiverships, administrations and CVAs: 1,253 (+1.7%)

As regards personal insolvencies:

Bankruptcies: 9,567 (-13.9%)
Debt relief orders: 7,604 (+4.8%)
IVAs: 13,048 (+7.4%)

Overall, therefore, there was a very slight increase in company failures (although in a quarter in which a fall in the number is more usual), and a reduction in personal insolvencies. If you would like to see the statistics in greater detail, please visit the publications page of our website.

Meanwhile the unrelenting diet of economic doom and gloom, both in the UK and internationally, continues. The National Institute for Economic and Social Research is the most recent to predict a “strong chance” of a return to recession in the UK, even if the Eurozone manages to find a speedy solution to its woes. What is certain is that the UK economy faces a bumpy ride for the foreseeable future. In the real world of business, many continue to struggle in a weak and volatile trading context. The most recent Business Distress Index from R3, the insolvency trade body, found increasing signs of distress in almost all of the key indicators measured, particularly those around cash flow difficulties. The sharpest increases were in frequent use of the maximum overdraft facility, decreased profits and reduced sales volume. The number of businesses taking on new borrowing to pay down existing debt has doubled. More businesses are finding difficulty in paying invoices on time and more report selling assets in order to maintain cash flow.

Taking early advice on options and restructuring has never been more crucial. We always maintain that winding up should be seen as the last resort, and that where advice is sought at an early stage, it may often be possible to rescue at least part, if not all, of a struggling business.

Betwee us,the four most senior members of the BSCR Team have, frighteningly, more than a hundred years’ of experience in business recovery, and so there is not very much that is new to us.  We will always be driven by the need to give the best advice, not to maximize our fees; integrity matters.

Ms Sharples held an assured tenancy under the Housing Act 1988. She fell behind with her rent, and the landlords commenced possession proceedings. Five days before the scheduled hearing of the possession proceedings, Ms Sharples filed a bankruptcy petition and was made bankrupt.

She argued that, since the rent arrears were a debt which was provable in her bankruptcy, then the proceedings could not be brought. She claimed that the purpose of section 285 of the Insolvency Act (which restricts proceedings against bankrupts) was to prevent one creditor getting in through the back door, and gaining an advantage over others. She argued that possession proceedings were a means by which landlords forced tenants to cough up rent arrears, and that if she paid the arrears in order to avoid repossession then the landlord would gain an advantage over other creditors.

Happily, at least from the landlord’s perspective, the Court of Appeal was having none of it. It decided that possession proceedings were not to enforce payment, but to allow a landlord to regain possession of his property.  Any payment of arrears would only be an indirect result of possession proceedings, and the proceedings were not therefore a means to extract payment ahead of other creditors.

Good news for landlords, then. Even so, possession proceedings can often be long, drawn out and costly affairs, so much better to apply diligent credit control principles to make sure that arrears don’t arise in the first place.

With that in mind we’re organising a series of FREE breakfast seminars at which speakers from Burton Sweet Corporate Recovery will explore some of the issues which can arise in an investigaation into an insolvent company. We’re delighted to be joined by Emma Davy, a solicitor specialising in insolvency and a Deputy District Judge.

The seminars will be held at:

BRISTOL – 30 September 2011

CHELTENHAM – 7 October 2011

BOURNEMOUTH – 14 October 2011

To reserve your place, please contact Alison Manning on 0330 1000 371 or by e-mail at alison.manning@bscorprecovery.co.uk

There is a widespread – but wrongly-held – view that the guarantors will only be pursued for payment under their guarantees once the company’s own assets have been realised and there is a clear shortfall. The recent case of White v Davenham Trust Limited confirmed that it’s up to the creditor to choose for itself how to enforce a debt.

Mr White had given a guarantee to Davenham to support borrowing by his company. Davenham also had the benefit of a legal charge over property owned by the company. The company went into administration and Davenham demanded payment from Mr White under the guarantee. He failed to pay and Davenham duly served a statutory demand as a first step towards making him bankrupt.

White tried to have the statutory demand set aside, arguing that it was unjust for Davenham to pursue him when they still held the security over the company’s assets. The Court of Appeal sided with Davenham, holding that the existence of the security was not a reason which would prevent them proceeding against the guarantor.

The upshot is that it is clear that, where a guarantee liabilty is not disputed, neither the Court nor the guarantor can dictate the creditor’s strategy for recovering the debt. There are, of course, good reasons from a creditor’s perspective for pusuing the guarantor from the outset, not only for the creditor to get its money back as quickly as possible, but also to avoid any problems arising from guarantors putting, or trying to put, their assets out of reach.

Mr Davies was the president and a member of the management commiittee of a club. The club wanted some building work done, and entered into a contract with Barnes Webster for that work.. The contract was signed by the club’s treasurer on the committee’s authority. In due course the club failed to pay the money due under the contract.

Imagine Mr Davies’ shock when a statutory demand was served on him as a first step to making him personally bankrupt! He applied to the Court to have the demand set aside, but the Court, although having some broad sympathy towards him, was having none of it. Whilst the Court agreed to give him some extra time to organise payment, it decided that his personal liability stood.

In our experience, members of club committees are often shocked to discover that they may be personally liable for their club’s debts. A case, perhaps, of not understanding what they’re getting into when standing for election.

How times change. It’s probably fair to say that, in the early days, HMRC managed to provide a cash flow boost to businesses that had no particular cash flow problems whilst, at the other extreme, putting off the evil day for a number of hopeless basket cases.

It’s estimated that, since the scheme was introduced in the autumn of 2008, over 400,000 business have benefited from time to pay arrangements, with approaching £7.5bn worth of taxes deferred. According to the most recent figures there’s getting on for £1bn still outstanding, with about two-thirds of that not paid within the initially agreed period.

Certainly anyone asking for an arrangement today can expect far more probing questions than in the past, and those asking for deferrals of very large debts – over £1m – can expect to be asked to go through an independent business review.

Although the overwhelming majority of requests, especially for first timers, are apparently agreed, the proportion of refusals has increased substantially. And now there’s a fear that time to pay arrangements could be on their way out.

Recently, HMRC announced that, although the scheme is due to run until 2015, they would no longer publish statistics about deferrals after Q2 2011. Does this signal the first step towards phasing out the scheme?

Hot on the tail of that announcement, it’s been revealed that time to pay arrangements will not be agreed for companies that pay dividends, even where those dividends are used as a tax-efficient way of paying remuneration. We could perfectly understand that stance where dividends are used to distribute profits to arm’s length investors, but where they’re paid as part of sensible remuneration planning?

Although HMRC is not a bank, time to pay arrangements have provided a vital lifeline to businesses struggling with temporary difficulties. But are we seeing the beginning of the end?