Given the state of the British economy and the difficult business climate, you might have expected insolvency practitioners to be rushed off their feet. In fact, the level of business insolvencies, both company insolvency and for individuals, has been remarkably low.
So an article in a recent edition of The Economist makes especially interesting reading. Research quoted there shows an increasing number of businesses incurring losses. Of course, even the best of businesses run at a loss from time to time particularly, for example, when a new product or service line is being developed or a major restructuring is taking place. There’s no problem with taking high costs in the short term for big profits in the long term.
The research quoted in The Economist, though, shows that for some companies losses are becoming something of a habit, and the number of quoted companies issuing profit warnings is on the up. Many businesses – “zombie companies” – are only being kept alive thanks to the forbearance of their banks and, to some extent, a fairly relaxed approach by HMRC. Low interest rates are keeping some businesses on life support. But an economy in which firms can only operate at rock bottom interest rates is clearly a pretty brittle one.
The prevalence of weak businesses means that a pick-up in the company insolvency rate is more than just a distinct possibility. More failures would not only create higher unemployment, it could also cause more problems for the banks; loans are often secured against equipment or machinery which has little resale value, leading to losses and further provisions.
So it’s very much a case of “watch this space”. A business insolvency boom may yet happen. Meanwhile businesses which are struggling ought to be advised to take advice about their position. Where corporate recovery advice is taken early enough, it is often possible to salvage something from what might otherwise be a lost cause.
An initial meeting with an experienced member of our corporate recovery Team will always be without obligation so contact us now.
In every company insolvency (administration or insolvent company liquidation), the insolvency practitioner’s statutory duties include submitting a report to the Department of Business (BIS) on the directors’ conduct. The purpose of the report is to enable the Secretary of State to decide whether the director is fit to be allowed to act in the management of a company, or whether they should be disqualified for a period of time.
Officials at BIS seem to take a particularly dim view of directors whose companies fail to pay taxes. They maintain – and who could argue with them? – that companies which do not pay tax gain an unfair advantage over their competitors.
In January 2013 alone:
Benny Albert Lazar ran The Synergy Spa Limited, a beauty salon, which traded from January 2008 until it went into liquidation in July 2010. When it ceased trading it owed creditors £153,391, including £110,174 to HMRC. During its whole period of trading it had paid just £20,163 in taxes. Mr Lazar also owned a bar, 19th Hole Ealing Limited, which went into liquidation on the same day as Synergy with total liabilities of £74,934, including £50,934 to HMRC.
The assets of 19th Hole were sold to another of Mr Lazar’s companies, R & L Ruislip Taverns Limited for £6,000, but that company also went into liquidation, less than a year later, owing HMRC £21,058.
Mr Lazar has been disqualified from acting as a director for four years.
Paul Andrew Charles Sterry and Darren Alan McGaughey ran a suspended ceiling company called BCP (NW) Limited which went into administration in November 2010 with total debts of £1.3 million. Of that, £598,547 had accrued to HMRC in the last 12 months of trading. There were also issues over the adequacy of the accounting records.
Sterry and McGaughey were disqualified for six years and five years respectively.
Gareth David Onions was a director of Deltaworld Limited, a company which field staff for merchandising. The company went into administration in March 2011 owing HMRC some £648,137 for PAYE and NICs. Between December 2008 and October 2010 the company had made only one payment (of £3,300) to HMRC, whereas Mr Onions had drawn £240,000 for himself.
Mr Onions has been disqualified for five years. Mr Onions had previously also banned for four years in relation to another company failure. The two bans will run concurrently.
Finally, there’s the case of Brett Jones, Andrew O’Dwyer and Loretta Jones, who were directors of BLA Trading Limited. BLA sold small electrical goods on E-Bay. The company went into liquidation in January 2011. an investigation found that the company had submitted incorrect VAT returns between December 2008 and June 2010. The returns disclosed VAT due of £3,140, whilst the true figure was £303,591.
Brett Jones has been disqualified for 9 years, O’Dwyer for 8 years, and Loretta Jones for 3½ years.
For a company that’s struggling with its cash flow, it must often be tempting to delay tax payments. After all, aren’t the priority payments to employees and to make sure that the company gets the supplies which are needed to keep trading? The message of these cases is that there may be long term consequences from the short term gain. And with the impending introduction of RTI, the chances of getting away with it for very long are even more remote.
For advice on company insolvency or for bankruptcy advice contact Burton Sweet Corporate Recovery today to speak to one of our highly skilled insolvency practitioners.
My biggest customer’s gone bust owing me a lot of money. Now my business can’t meet its own debts and the taxman’s threatening to wind the company up. The business is sound but can’t carry on with its existing liabilities. It needs a clean break and a fresh start. I’ve heard about “pre-packs”. What are they all about?
Businesses are about creating prosperity and jobs, but company insolvencies are a fact of life in a modern economy.
A pre-packaged sale (hence “pre-pack”) is a pre-arranged sale of an insolvent company’s assets at market value to a new company (“newco”), and may often involve the existing management. The newco re-employs the existing staff, probably produces the same products from the same premises, uses the same equipment, and with a similar name!
The process involved is not, perhaps surprisingly to some, illegal and pre-packs have been sanctioned by the government, the Courts and regulatory bodies. The majority of pre-packs are perfectly legitimate (although some look decidedly dodgy!) and actually provide a better outcome for creditors.
The justification for pre-packs is that, by the time a company goes into formal company insolvency, it’s probably exhausted its cash reserves and suppliers’ credit. Once an administration or liquidation starts, invariably customers stop paying, suppliers stop supplying and key, highly skilled employees may leave, perhaps going to competitors. What’s more, it may be difficult to raise the cash needed to carry on trading even for a short period.
All those are reasons to avoid a protracted, publicly advertised sale procedure. You might argue that a “secret sale” is better than no sale at all. And since the directors know the business and its assets better than anyone, they may well be prepared to pay more than an arm’s length purchaser.
However, a word of caution. Selling an insolvent company’s business and assets is a complex and highly specialist process with many potential pitfalls, and pre-packs are not appropriate in all cases. Doing the job properly calls for detailed business insolvency knowledge and experience, and should never be attempted without the input of a qualified insolvency practitioner.
The team of insolvency practitioners at Burton Sweet Corporate Recovery has vast experience of advising directors of distressed companies. Call us today for advice on company insolvency or for a free, no obligation discussion of the options available.
According to research carried out by Credit Action, the financial education charity, outstanding personal debt in the UK stood at £1.420 trillion at the end of November 2012. That means that UK individuals owed almost as much as the entire country produced in the whole of 2011!
Credit Action’s latest report also shows that every day:
• 307 people are declared bankrupt or become formally insolvent – one person every 4 minutes 42 seconds
• 1,556 County Court judgements are issued against consumers
• 155 mortgage possession claims are issued and 111 possession orders made
• 426 landlord possession claims are issued and 281 landlord possession orders made
• In the year to September 2012, Citizens Advice Bureaux dealt with 8,308 new debt problems
Meanwhile, Citizens Advice research has highlighted some of the ways in which problems which affect people who are making ends meet:
• 51% of individuals with debt problems said their work performance was suffering
• 56% said they had seen personal relationships falter
• 79% reported sleepless nights
• 51% had suffered an anxiety attack
The good news is that there is light at the end of the tunnel for anyone who is concerned about the level of their debts. Debt problems are rarely insuperable with the right advice. For example, it may be possible to negotiate an informal debt management plan with your creditors, or you may qualify for an individual voluntary arrangement (or IVA) if something more formal is needed there is also bankruptcy advice readily available.
What’s vital is that, if debts are becoming a struggle, you should take advice sooner rather than later. At Burton Sweet Corporate Recovery we won’t charge simply for listening to your problems and suggesting solutions in a clear, jargon-free way.
Why not call us today for a conversation, completely free of charge? We can talk you through your options including IVA advice and bankruptcy advice.
There’s no doubt that we are living in extraordinary – perhaps unprecedented – times. Scarcely a week seems to go by without news of another company failure – retail company failures seem to have been particularly in vogue, with Blockbuster Video, HMV, Jessops and Comet all falling into administration in the last few weeks.
Yet very few companies fail overnight. In most cases the warning signs are there to be seen many months, perhaps even years, before the axe falls. Like ships, most sink gradually; very few hit icebergs.
A business on the slippery slope starts by underperforming, making less profit than it ought. That results in less to invest in new products or processes, and slowly, insidiously it starts to fall behind the competition. Its reputation in the market starts to suffer and, before long, it starts incurring losses.
In order to fund those losses it starts to juggle its cash. Very often the bank will want extra security, or personal guarantees from directors, as the account is constantly up against its overdraft limit. It will start extending credit terms with its suppliers, perhaps making round sums on account instead of paying balances in full. Staff morale will start to suffer and the quality of output may deteriorate.
The distress leads to crisis as the business is “on stop” with suppliers. If the company can’t get supplies, then it can’t finish orders, which means it can’t bill its customers, which means it can’t get paid. Suppliers’ solicitors’ letters and legal threats lead to legal action.
And if it can’t get cash to pay the wages or the rent, then it’s all over.
Many insolvencies could have been avoided if only the warning signs had been spotted and insolvency advice and action had been taken, earlier. As insolvency practitioners, we view winding companies up as being a last resort. We always start with the objective of trying to rescue, or turn around, companies in financial difficulties.
However, when the bailiff is knocking on the door, the landlord is threatening to distrain, the winding up petition is due to be heard and the bank won’t pay the wages, it’s usually too late. So the earlier our insolvency advice is sought, the greater the chance of success.
When a fire is just smouldering, it may be difficult to see, but it can be reasonably easy to put out with relatively little damage. Once it becomes a conflagration it which will much more difficult to control and the damage will be considerable. In just the same way, business problems may be hard to spot in their early stages, but if they are dealt with early on they are much easier to address and the consequences will be much less damaging than they might be otherwise.
So don’t be an ostrich – don’t bury your head in the sand. Take insolvency advice as soon as you can.