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Let me ask you a simple question. At what time do you throw in the towel at the end of the working day? When do you think enough is enough and head for home?
Flexi working has encouraged employers and employees to open the mind and think differently about their start and finish times but one High Court judge has given lawyers and clients a warning about setting unrealistic deadlines, after receiving an evening email to say a hearing could not wait.
The Honourable Mr Justice Fancourt explained that his clerk was recently emailed by lawyers at 7.52 pm asking for an urgent hearing that same evening, to deal with the pre-pack sale of Nationwide Crash Repair Centres Ltd. The weighty email comprised of bundles, a skeleton argument, as well as the required certificate of urgency.
Initially, it was thought that applications to appoint administrators would be heard the following morning, but another email from lawyers at 9.16 pm said that a deal agreed with a purchaser would be pulled if not completed by midnight. The hearing was held by telephone that same evening and the order was finally made at 11.56 pm. It later transpired that the midnight deadline had been included in contract documents negotiated over the preceding days.
The High Court Judge involved in the matter said there was nothing in the circumstances that required such urgency, and the deadline was only necessary because of terms agreed outside the court’s control. Honourable Mr Justice Fancourt added: “It is wholly unacceptable for clients and lawyers and other professionals acting for them to negotiate terms that have the effect of presenting the court will (sic) an artificial ultimatum and require important matters affecting the livelihoods of thousands of people to be decided under undue pressure of time.”
He went on to stress that the court was not to be treated as a “rubber stamp” for the appointment of administrators and warned that applicants should allow time for a fair hearing to be held.
Administrators were appointed to handle the sale of the repair business. The court was told that the sale would bring an immediate return to secured lenders of around £26.7m and save almost 2,900 jobs. The only realistic alternative was to force the repair centre into liquidation, with all jobs lost and returns reduced to £19m.
We bring this story to light because it is important to note the judiciary’s standpoint on these apparent urgent midnight hearings. In our experience, parties use these artificial pinch points to apply unfair pressure to bolster their already unequal bargaining power. We believe the best all-round results arise from situations where due care and attention, together with some reflection time, is afforded to the matter in hand and then planned accordingly in advance. We urge you to contact us to discuss any potential situations you have and consider working alongside us as trusted strategic partners to maximise the benefit to you in your business, rather than the last-minute rush which is often both damaging and costly.
It has been confirmed that from 1 December 2020 the UK tax authority, HMRC will move back up the creditor rankings in English insolvency proceedings in respect of certain taxes. It means they will rank ahead of floating charge holders and unsecured creditors in respect of certain taxes, including VAT, PAYE income tax and employees’ national insurance contributions. The new change will not affect corporation tax and employer national insurance contributions, in relation to which HMRC will remain an unsecured creditor.
The new regime will not harm secured creditors with fixed security, who will continue to take priority over preferential creditors. It will, however, affect lenders with floating security, especially as the portion of floating charge realisations set aside to be paid to unsecured creditors in an insolvency will increase from £600,000 to £800,000. The payments to HMRC will be made from the proceeds of floating charge assets before amounts owed to the floating charge holders are paid. As a result of this change, smaller businesses may find it harder to have access to significant borrowing if the only security available for borrowing is a floating charge, especially in what is already a difficult economic environment.
Another important consideration is that, with the introduction of the new law, HMRC will have its preferential status even ahead of floating charge holders under floating charges created before the law was introduced. The effect is, therefore, retrospective as there are no time limits or financial caps.
So, what does this all mean? Martin Kingman, CEO of Professional Legal Collections Ltd, is an experienced insolvency lawyer: “Ultimately, the impact is likely to mean less cash for businesses, at a time when businesses need it most. The Regulations will lead to a reluctance in lenders providing corporates with funding, and many lenders will be concerned about the existing loans given the lack of time bar to the Regulations. One benefit may be that there is greater transparency and dialogue between a lender and the borrower. Lenders may consider requiring borrowers to make certain disclosures about the tax position of the borrower, provide financial updates during the duration of the loan, and allow the lender access to the relevant company records. I expect to see a sharp rise in the demands for Director personal guarantees”
At a time when business is still suffering the impacts of the COVID-19 pandemic and access to finance is more crucial than ever to keep cash flowing in business, the re-introducing crown preference is likely to impede the recovery of many viable companies. If you have any queries relating to any of the matters above, or require some further guidance then help is at hand. Please contact us at Professional Legal Collections Ltd for expert advice.
NOTE: Nothing in this article constitutes legal advice or gives rise to an advisor/client relationship. Specialist legal advice should be taken in relation to your specific circumstances. This article is provided for general information purposes only. Whilst we endeavour to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and we do not accept any liability for error or omission as it is based upon our interpretation of the law. Please be aware that the legal circumstances may have changed since this article was first published in November 2020 and you should contact us for specific up to date advice on your circumstances.
It Can Pay To Play A “Home” Fixture
If you are thinking of trading internationally, it is worth remembering you face the same problems with debtors that you do on home turf; with the added headache of defining whose laws govern the agreement. Before you enter into any contracts overseas you must establish who it is you are dealing with, be confident it is a legitimate request and be aware of the company status. It also helps to understand the legal process of the country and potential political issues which may arise to cause you further problems and complications.
Generally, you want to do business on your standard terms, which have been prepared for you by an expert who has a thorough knowledge of what it is you do and mirrors your exact processes. If the other company has its terms, then the rule of thumb is that the final one sent to the other before the contract is formed becomes the terms of the agreement. Of course, the terms have to be incorporated into the contract (but we will take it as read that they have been). Let’s assume that your terms apply to the contract, we can now examine how they can assist you in recovering your money:
This is the daddy of all clauses if you are trading overseas. It needs to be specified that the contract is governed by the English law and that the English courts have the exclusive jurisdiction to hear and determine any claims or disputes. In essence, this means that you get a home game if the matter is disputed and you will not have the inconvenience of trying to find an advisor in another country or trying to understand the finer points of their commercial legal system to bring a claim. This also avoids any additional complication with translations.
Your terms should include:
- Full recovery of your legal costs and expenses in the events that your invoices are not paid within the terms;
- Provisions that interest and compensation are added on to the outstanding balance; and
- if you are providing goods, a retention of title clause over any goods until paid in full means you can collect any of your items if they have not been paid for.
If you are doing a lot of international trading you may want to use incoterms – laid down by the International Chamber of Commerce to define where the risk and liability take place and passes from one party to the other. We always recommend you seek specialist advice on this.
You also can consider arbitration under the New York Convention or to give it its proper title The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 163 countries are currently signatories. This is an attractive option where enforcing a judgment in the jurisdiction of your debtor may be difficult and it may be cheaper to arbitrate than to issue legal proceedings.
A quality set of drafted terms do offer a whole scope of protection and we urge you to contact us should you wish to have your terms of business either overhauled or completely rewritten.
Martin Kingman – 19 October 2020
Insolvency measures to be extended
Many business owners are breathing a sigh of relief after the recent government announcement (24 September 2020) that measures put in place to protect businesses from insolvency will be extended to continue giving them much-needed breathing space during the ongoing Covid-19 pandemic and economic downturn.
The many changes introduced by the new Corporate Insolvency and Governance Act 2020, designed to protect businesses from insolvency, were due to expire on 30 September. These temporary measures include:
- The use of Statutory demands and winding-up petitions will continue to be restricted until the end of the year to protect companies from aggressive creditor enforcement action due to coronavirus related debts.
- Termination clauses are still prohibited, stopping suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process. However, small suppliers will remain exempted from the obligation to supply until the end of March 2021 so that they can protect their business if necessary.
- Modifications to the new moratorium procedure, which relax the entry requirements to it, will also be extended until the end of March next year. A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months.
- Measures will also ease access for companies subject to a winding-up petition. The temporary moratorium rules will also be extended for the same period.
- Companies and other qualifying bodies, with obligations to hold AGMs, will continue to have the flexibility to hold these meetings virtually until the end of 2020. This means that shareholders can continue to examine company papers and vote on important issues remotely.
Commenting, Business Minister Lord Callanan said: “It is vital that we continue to deliver certainty to businesses through this challenging time, which is why we are now extending these important and necessary measures to protect companies from insolvency. Through this measure, we want to ensure businesses are able to not only come through this testing period, but also to plan, adapt and build back better.”
So, what does this all mean in brief?
- Statutory demands made between 1 March and 31 December 2020 are void.
- Winding-up petitions presented from 27 April to 31 December 2020 are suspended where a company’s inability to pay is the result of the Covid-19 pandemic.
- Restrictions on the court’s jurisdiction to make a winding-up order will apply until the end of 2020.
- Small business suppliers are exempt from the prohibition on enforcement of ipso facto clauses until the end of March 2021.
- Landlords are prevented from using commercial rent arrears recovery (CRAR) before the end of this year.
- Commercial leases cannot be forfeited for non-payment of rent or other sums due between 26 March and the end of December 2020.
Martin Kingman, CEO of Professional Legal Collections Ltd, observes that this will be a double-edged sword: “It will give some businesses certainty and protection but it could also damage others whose debtors are not paying up and using the protection not to keep their business afloat but as a mechanism to avoid and delay payment as long as possible. Despite these restrictions, we urge any struggling businesses to contact us for specialist advice and protection in these uncertain times.”
Information correct as of 25 September 2020
I am often asked by prospective customers and new contacts how do I know that I am using a legitimate firm and that firm will act in our best interest when recovering our debts?
I always maintain that as a starting point you need to understand the values of the firm that you are instructing and the identity of the people behind it and their values. As an example, as a business, Professional Legal Collections prides itself on its professionalism and its mirroring of your ethos so that we become an extension of your business. As the owner of the business, I am a qualified lawyer and have been working in law for 20 years. I am a Fellow of the Chartered Institute of Legal Executives and a Fellow of the Chartered Institute of Credit Management. This means I have professional qualifications and years of direct experience in the field. This should provide some confidence and credibility as Fellowship is the top level of these Institutes and is not just given away. I hold an annual practising certificate which means I must keep my skills and knowledge up to date by undertaking continued professional development and every year to the exacting standards set by the Institute. So many other debt recovery firms are run by unqualified people who have no grounding in law to fully understand the complete and complex needs of their client.
In addition to this is the need for honesty and integrity. We pride ourselves on building long-term lasting relationships and we are not interested in ripping clients off with extortionate fees or any form of membership scheme to become one of our clients. Recently we became aware of a debt recovery firm who charged over £2,000 to take on a new client, after being paid this they did very little if anything to collect the debts and the client was deeply unhappy. The client came to us and we recovered the debt for them with little issue or effort required which affirmed our suspicions that once these initial fees have been paid these firms are not genuinely interested in recoveries, they are simply interested in making fees. This will never be the position of Professional Legal Collections; it is not only unethical it is also completely unacceptable.
Finally, the debt recovery business needs to be accessible to speak to you when you need them. The use of technology is fantastic and streamlines processes but this cannot replace a skilled person. Each case is different, therefore at certain milestones, human intervention is required to understand and appreciate all the elements and aspects of that case and then to consider and advise on what is the best option going forward for that client, it is not a one size fits all solution. We fully maximise the use of technology to streamline where possible whilst always making sure that our skilled staff have the necessary information to make informed decisions and provide you with tailored advice.
If you are not using Professional Legal Collections then we urge you to question the credibility and plausibility of your current debt recovery firm as they are representing you and your business and you need to be entirely sure that you will entrust them with your reputation for them to carry out a professional job in a legal and ethical manner. We value that we say what we do and we are completely authentic in this and we welcome any client who challenges us to demonstrate our skills and prove our credentials to reassure them that we the best solution for them when collecting debt or providing specialist insolvency advice.
Martin Kingman (FCILEx, FCICM)
Dishonoured Cheques and Direct Debits
With the increased use of debit cards and chip and pin technology, the humble cheque is being accepted by fewer and fewer retail outlets as a means of payment. It remains, however, a popular method of payment for business. Cheques are written orders from account holders, instructing their banks to pay specified sums of money to named beneficiaries. They are not legal tender but are legal documents and their use is governed by several Acts of Parliament. The law relating to cheques has remained in force and relatively unchanged since the passing of the Bills of Exchange Act 1882. The Cheques Act 1957 and 1992 have slightly amended the Bills of Exchange Act 1882, which remains otherwise fully intact. The introduction of the 1882 Act sets out the law that had previously been developed by the Courts of Exchequer in over 2,500 cases since the Industrial Revolution.
Read on as we take a closer look at exactly what a cheque is and how it may be of benefit to your business.
A cheque is a promise of payment by a specified bank for a sum on a date. If the cheque is not honoured upon presentation, for whatever reason, the debt will be honoured if it is not discharged. Therefore, once you have a cheque received, the chances of having a claim defended can only be defended in a few limited ways:
The person signing the cheque is made to do so because of unlawful pressure, brought to bear against them. The law relating to duress, which has developed largely through the courts on a case-by-case basis makes the burden of proof very difficult for the person alleging duress and it is quite rare for this to succeed unless good cause can be shown.
The person who signed the cheque was not the signatory or the person purported to be. Again, the person who wishes to rely on the defence faces a difficult task in proving their claim as the evidential burden is once again high.
Failure of consideration:
This means that no bargain is given in return for the cheque. Providing there is some consideration, however small, then this defence will fail as the courts are not there to determine whether you have got a good deal, but just to determine whether there was sufficient consideration.
In respect of an illegal contract:
A contract which is illegal to enter into and, therefore, unenforceable. Once you have received the cheque, the chances of not receiving payment are relatively small as this is an unequivocal promise to pay.
A further problem for the party who dishonours is when they dishonour a cheque for over the insolvency limit (£750 for companies, £5,000 for individuals), where the cheque is marked “refer to drawer” as there are insufficient funds in the account. This, therefore, gives the creditor (the person to whom the cheque is made payable to) the legal right to present a winding-up petition, if against the company, or a bankruptcy petition, if against an individual or sole trader, as they have an inability to pay their debts as set out in Sections 123/222 of the Insolvency Act 1986. The cheque must be for more than the insolvency limit for a petition to be presented and creditors can join their debts together to reach this threshold. Where there is a dishonoured cheque over the limit, the need for a statutory demand is extinguished. Interestingly, the law relating to dishonoured cheques now applies to dishonoured direct debits and, therefore, providing a direct debit is a promise to pay in the same way that a cheque is. This was confirmed by the Court of Appeal in the case of Esso Petroleum Co. Limited v Milton .
Nowadays, it is also common practice to have a cheque supported by a cheque guarantee card. This can also strengthen your position as the bank is obliged to honour the cheque up to the value of the cheque guarantee card, whatever happens. The bank is only obliged to pay you once you have complied with the following conditions:
- That the cheque was from a pre-printed chequebook.
- That the cheque was signed in your presence.
- The transaction occurred before expiry of the cheque guarantee card.
- The details of the card, card number, expiry date etc., must be written on the back of the cheque.
- The amount of the cheque must not exceed the total of the cheque guarantee card.
Where you have, for example, a £100 cheque guarantee card limit and you have a transaction worth £200, multiple cheques cannot be guaranteed by the bank in the same transaction and, therefore, you are only protected up to the value of the first cheque as the bank is not obliged to pay beyond this value. A point to note, you should be careful to ensure that you carefully check the level of the cheque guarantee card.
The use of cheques and direct debits offers the seller greater protection if they are used in the appropriate way.
So, what should you do if a cheque has been dishonoured?
Upon receiving the notification from your bank of a dishonoured cheque, you should immediately contact the provider of the bounced cheque with notice of dishonour, pursuant to Section 48 of the Bills of Exchange Act 1882. Once notice of dishonour has been provided, and a reasonable time has elapsed, you then have the option of whether to issue Court proceedings, followed by an application for summary judgment, or as outlined above you can issue a petition if you believe the debtor is insolvent. Legal costs are only recoverable, save for fixed legal costs as specified by the court, where the sum outstanding is £10,000 or more.
We recommend you contact us for specialist legal advice as this article is written for information only and should not be used as a substitute for substantial advice on the facts of your case.
The information is correct as of August 2020.
Beware of the Rogues
We have recently become aware that there is a scam going around where an individual who has recently had a County Court Judgment (CCJ) receives a phone call from an alleged Bailiff who is pretending to work on behalf of The Northampton County Court.
All judgments entered are a matter of public record and therefore the information about whom has had a judgment against them is freely available.
The purported Bailiff calls and says that he will be attending the premises in a number of hours and that he is phoning to take a card payment to clear the judgment. Of course, the payment is taken but this does not clear the judgment as this is merely an opportunist third party who is pocketing the proceeds.
We first became aware of this in what we believed to be a ‘one off’ last year, but in fact owing to our membership of the Civil Court Users Association, we have become aware that this is a much bigger fraud. The purported Bailiff goes by the name of John Foster and it is very important to know there is a certified Bailiff who is called John Foster who is not involved at all in this matter.
Should you receive any call in relation to a judgment then we advise you to pick up the phone and speak to us to obtain immediate legal advice as to what options you have.
We also offer credit monitoring services as part of our monthly retainers so please contact us for further information if this is of interest.
Emergency Changes to the Insolvency Rules – due to COVID-19.
The court service has hurridly issued the attached temporary Practice Direction which governs what will be done at and how in the London Insolvency courts.