The High Court has decided that Administrators can be prosecuted personally for failing to notify the Insolvency Service about collective redundancies
Following the recent decision in the High Court in R (on the application of Palmer) v Northern Derbyshire Magistrates Court, it was declared that an administrator can be held personally liable for failing to notify the Insolvency Service on collective redundancies as a result of a company being put into administration.
Under section 193 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), an employer proposing to dismiss 20 or more employees at one establishment within a 90-day period is under obligation to notify the Secretary of State in writing of his proposal. This must be done before providing notice to terminate an employee’s contract of employment under these dismissals, as well as giving at least 30 days before the first of those dismissals take place. Failure to comply is a criminal offence.
In the above case Mr Palmer’s was a joint administrator of West Coast Capital (USC) Limited, with his responsibilities being ‘preferential claims’ and ‘employees’. In January 2015, USC filed a notice of intention to appoint Administrators, causing the USC warehouse to cease operations, which consequently would lead to the dismissal of 84 employees. USC went into Administration on 13 January 2015 and the following day the administrators made all warehouse employees redundant. The Insolvency Service questioned whether a HR1 had been sent, where it was found that it had overlooked sending the form which was subsequently emailed on 4 February 2015, despite being signed and dated by Mr Palmer on 14 January 2015. Criminal charges were issued against Mr Palmer due to his failure to comply with section 193 TULSCA.
It was the High Court’s decision which found the original ruling to be correct. An Administrator can be prosecuted under section 194 TULRCA. This was because when the Administrator assumes office, no one else could give statutory notice on behalf of the company without the Administrator’s direction. An Administrator is both an officer of the court and an officer of the company.
Due to the confirmation of the decision, it is important that Administrators/Liquidators and Companies consider whether plans made for the company may result in redundancies of more than 20 people. If this is the case, the office-holder should submit the HR1 without delay.
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 December 2021 and you should contact us for specific up to date advice on your circumstances.
Thousands more people who are struggling in problem debt will be able to apply for their payments to be written off after an extension on current rules came into force at the end of June 2021. Debt Relief Orders (DROs) can now be used if you owe a maximum of £30,000, up from the previous limit of £20,000.
It means people will be given greater options if they are in arrears, including on bills such as council tax. People in debt with £75.00 or less leftover each month after covering bills and everyday expenses will be able to get a DRO – previously the amount was set at £50.00. Those with savings or assets worth £2,000 or less are now eligible for a DRO, this was previously £1,000.
A DRO means you do not have to repay debts for an agreed period, usually a year, and creditors cannot act against you. Previously the limit to apply for a debt relief order was £20,000 and anyone with debts over this amount had to go for a more complicated individual voluntary arrangement (IVA) or bankruptcy.
It is estimated that around 13,000 people a year will now be eligible for a DRO, although the support costs a one-off payment of £90.00 to access. The change to DRO rules follows a consultation by the insolvency service earlier this year. It also includes a doubling of the limit on the value of assets owned to be eligible.
DROs are aimed at people with relatively low levels of unmanageable debt who have nothing to offer their creditors, such as assets or disposable income, and for whom bankruptcy would be a disproportionate response. The order freezes your debt repayments and interest for a year. If your financial situation has not changed at the end of this period, then all the debts included will be written off.
Commenting on the news, Martin Kingman, CEO with Professional Legal Collections Ltd, said: “A Debt Relief Order is simpler and cheaper than other debt options. It you qualify then it is always a better option for you than an Individual Voluntary Arrangement as you do not have to make any monthly payments in a DRO, compared to paying for five or six years in an IVA”.
To get a DRO you will need to apply through a trained adviser who can make the application on your behalf to the Insolvency Service. The application costs £90.00 and can either be accepted, deferred until there is more information, or declined.
If you are turned down, you will be told why, and you can appeal the decision. If you are accepted, you will not have to make payments on the debts and the creditors will not be able to take any action against you, with two exceptions: landlords if you are in rent arrears and bailiffs who have taken your belongings. Other bills not included in the DRO will have to be paid as usual. If you are searching for more short-term support, you may qualify for a 60-day “breathing space” instead. This protects you from prosecution and bailiffs for up to two months.
A debt charity such as Citizens Advice or the National Debtline can help you. We are also here to offer guidance and support.
If you are a creditor of Spice Nation Limited and wish to assist in the winding up please click here.
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