Tag: Debt Expertise

DRO – Debt Relief Order – Changes – July 2021

Posted on | by Martin Kingman

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.

 

Dishonoured Cheques and Direct Debits

Posted on | by Martin Kingman

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:

  1. Duress:

    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.

  2. Fraud:

    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.

  3. 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.

  4. 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 [1997].

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:

  1. That the cheque was from a pre-printed chequebook.
  2. That the cheque was signed in your presence.
  3. The transaction occurred before expiry of the cheque guarantee card.
  4. The details of the card, card number, expiry date etc., must be written on the back of the cheque.
  5. 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.

 

 

How do I stay of the top of money owed to my business as the economy takes a downturn?

Posted on | by Martin Kingman

The main purpose of any business is to make a profit. In any downturn as work becomes scarcer, there is a temptation to lower the price you charge in order to maximise your share of the dwindling demand. This can become a race to the bottom; you need to consider whether you are competing on the right basis, especially for a long-term sustainable business.

As Aldo Gucci, the fashion designer said: “Quality is remembered long after the price is forgotten.”

You need to reframe your business so that you are concentrating on providing a quality service with value-added and not just a cheap, lowest price wins offering. Otherwise, longer-term, you are more and more susceptible to minuscule changes in the market.

As we look into the future, the next 3-6 months seems very uncertain for many of us, and many businesses have gone into survival mode as they try to prepare themselves for the storm which has for the first time affected the global economy worldwide almost instantaneously.

Longer-term advice includes ensuring you have a proper electronic accounting system – these are so easy to use from anywhere there is no excuse for you now not to have clear records of money you owe and invoices you have outstanding. You should ensure you have terms of business and have agreed when you will be paid for the work done. Finally, know who you are contracting with and understand legal entities such as limited companies and sole traders. We urge you to seek advice if you are unsure as it can be a costly mistake.

Here are my top 10 tips for you in these challenging times to stay on top of your money in the short term:-

  1. Issue the invoice as soon as you have done the work, follow up in the next 24/48 hours with confirmation it has been received and there are no issues being raised with the work.
  2. Produce a weekly aged creditors/receivables report to highlight who owes you money.
  3. From that report, call and follow up by email anyone who is overdue and get a confirmed payment date. If they are having an issue making the payment, try to agree to repayment by instalments.
  4. Contact anyone who is due to pay in the next few days to confirm the date and amount you will be paid.
  5. If an account is in arrears and beyond terms, when calling, always get debtors to take some action – and set a deadline of what has to be done by when.
  6. Where you know you are going to be encountering a cash-flow problem, talk to your suppliers and agree time to pay if necessary.
  7. Keep a close eye on your costs and outgoings to ensure you can maximise the amount of cash you have within the business, try to retain this money where you can for as long as possible.
  8. Remember to thank those who pay you on time, sounds simple and is, but stands you in good stead with the client.
  9. Be persistent but always remain polite, he who shouts loudest often gets paid first!
  10. Take expert advice either when the deadline set by you has passed or where the debtor goes quiet and be prepared to take action.

 

As debt recovery and insolvency experts, I and my team at Professional Legal Collections are happy to help. We offer a range of specialist services from Credit Control and debtor management, issuing letters before action and the legal process where necessary to get the rightful money paid to you. Contact us for a no-obligation conversation.

 

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I’m a director of a limited company – can I be pursued personally if it all goes wrong?

Posted on | by Martin Kingman

I’m a director of a limited company – can I be pursued personally if it all goes wrong?

 

On Saturday 28 March 2020, the Government announced that they would be modifying the Insolvency Act 1986 to allow businesses breathing space and allow them to continue to trade whilst options for recovery are explored. This is by looking to suspend a director’s personal liability for wrongful trading under that Act, amongst other steps. The detail is not yet known as the legislation has not yet been drafted and passed through Parliament, we understand it will be drafted and passed at the earliest opportunity.

 

Let’s explore the law as it stands at the moment, we can provide further Covid-19 specific advice as and when the details are released by HM Government.

 

Firstly, if you are a director of an incorporated company Ltd, PLC or LLP (that is a Private or Public Limited Company or Limited Liability Partnership) then you may think you are personally protected – that’s why you were advised to form the company in the first place, right?

 

Yes, well your personal liability usually is limited to the paid-up share capital that you may have put in as a shareholder. Directors are not usually personally liable for the acts and omission of the company which is a legal entity in its’ own right.

 

But, (yes there is a but), in certain circumstances you can be held PERSONALLY liable for the debts of a limited company or partnership. There are a range of circumstances where you will be held liable:

 

  1. You’ve signed a personal guarantee;
  2. You’ve pledged a person asset as security for a company debt;
  3. You’ve overpaid yourself from the company money and created an overdrawn Director’s Loan Account (DLA);
  4. You’ve paid yourself an illegal dividend from the company as a shareholder, when the company has not made a profit;
  5. You’ve permitted the company to dispose on an asset below its true market value;
  6. You’ve permitted the company to pay a creditor of the business in preference to another and the business is insolvent;
  7. You’ve permitted the company to continue to trade beyond the point that it ought to have known that it was insolvent and past the point of no return;
  8. You’ve misrepresented the facts or fraudulently applied for credit or taken deposits on behalf of the business knowing you would not be able to deliver;
  9. You’ve not acted in the best interests of the business and someone has suffered a loss as a result.

 

These are dealt with under either the Companies Act 2006 or the Insolvency Act 1986. If you have signed a personal guarantee or pledged a personal asset as security for a company debt or liability then generally you are bound by this and you will be obliged to honour the debt. We urge you to take professional advice before entering into such an agreement and also if you believe you have and you need to explore whether it is valid. There are some legal hurdles which have to be completed so we suggest you contact us to take professional advice on your particular issues today.

 

Where you have overpaid yourself as the company cannot afford to pay you or where you have paid yourself as shareholder and the company has not made a profit is an area we frequently see company directors falling foul of the law. This is dealt with under Part 23 (sections 829-830) Companies Act 2006.

 

Where you’ve permitted the company to dispose on an asset below its true market value, this is technically known as a transaction at an undervalue, covered under s238 Insolvency Act. Where the company undertakes a transfer of an asset as a gift or at significantly less than the true value of the item in the time up to 2 years before the company entered into insolvency. The transaction can be reversed by the court and you can be liable for the costs of the court proceedings.

Where you’ve paid one creditor of the company and not paid another this is called a preference payment as where there is an insolvent situation (or you ought to have known there was one) then you can attract personal liability if the transaction occurred within 6 months of the company becoming insolvent, there the party to whom the payment is made is a connected party then the time limit extends to 2 years. When money is tight, and an insolvent situation may occur you should seek professional advice and only pay all creditors on a pari-passu basis. That is in equal amounts as a percentage of the total debt.

 

Fraudulent or Wrongful trading are covered under sections 213 and 214 Insolvency Act respectively.  The wrongful trading section is likely to be suspended following the Government announcement. Fraudulent trading will more than likely not be as this involves the element of intent. Any person found guilty are liable to make contributions to the companies’ assets as the court thinks proper. This could have a serious and far reaching impact on you as a director, s993 of the Companies Act 2006 was extended by the Fraud Act 2006 to increase the penalty to up to 10 year’s imprisonment.

 

Where you knew or ought to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation and you as a director continued to allow the business to trade beyond that point then you can be personally liable for the losses from that point in time. You need to take expert legal advice from us on your position immediately if this is the case.

 

The final time is known as misfeasance, under s212 Insolvency Act 1986. This is a wide provision and can snare many unsuspecting directors who do not take advice when the business performance downturns and cashflow become tight. The section covers where a director (or former director) has misapplied or retained or become accountable for any money or property of the company.

 

In summary, the points above can be daunting and scary to the average director who is just trying to earn a living. We strongly recommend that you take expert advice to understand your liability and any downsides to any action you chose to take, it can save you a lot of money, heartache and stress in the future. As we move in very uncertain times, we urge you to make contact with us to ensure you are protected, and your personal position is not put in jeopardy.

 

The above is intended as a guide to our interpretation of the law and the Government announcements, it is not intended and should not be used in lieu of specific legal advice which we recommend you take before taking any further action.

 

Sharp rise in County Court Judgments (CCJ) against businesses in Q1/2019

Posted on | by Martin Kingman

The Registry Trust has released statistics for January to March 2019 which show a 12% increase in County Court Judgments (CCJ) against businesses. 35,779 judgments totalling £107.2m against businesses were registered in that 3-month period. This is a 6% rise from the level in Q1 2018.

The average value of the CCJ’s was £2,997 which is a 5% reduction from the value in Q1 2018.

Mick McAteer, deputy chairman of the Registry Trust commented:

“Business judgment data is an important indicator of the state of the economy. The numbers and value of judgments have risen for the third year in a row. But it is worth noting that these levels are still well below the peaks seen just after the financial crisis in 2009”

Martin Kingman CEO of Professional Legal Collections Limited notes:

“The increase is a worrying trend for UK plc as a whole. Businesses need to ensure that they are protecting themselves and carrying out due diligence before offering lines of credit.”

Our top 5 tips to help you protect your business are:-

1. Ensure you know who it is you are entering into an agreement with;

2. Carry out a credit check to give you a recommended contract limit and overall trading credit limit.

3. Do not offer credit beyond the recommended limit without getting additional security (such a a retention of title clause or personal guarantee in place).

4. Ensure you have up to date and signed terms of business or a bespoke contract in place to offer your business maximum protection.

5. Act quickly if the account goes beyond terms and speak to us as specialists if you are in any doubt about the best steps to take.

Small Business Cashflow warning

Posted on | by Martin Kingman

With the forthcoming suspected interest rate rise, 40% of SME’s admit to having no financial buffer despite having outgoings of over £4k per month.

SME loan approvals has falled from 58% to 43% in the past year. Where SME’s do have something in reserve, the most popular are:-

  • 59% Cash Savings;
  • 34% Property;
  • 23% Overdraft;
  • 20% Plant and Machinery; and
  • 17% Business Credit Card.

More worrying was the fact that 55% of SME’s admit to paying bills late to ease cash flow issues. 21% admit to doing this monthly.

If you have suppliers who are not paying you then you need to get in touch; we can help you recover what you are due.