Tag: Insolvency Expertise

The return of Crown Preference

Posted on | by Martin Kingman

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.

 

 

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.

 

FlyBMI enters Administration

Posted on | by Martin Kingman

Over the past weekend British Midland Regional Limited trading as flybmi entered into administration leaving passengers stranded. It also leaves their 376 employees in jeopardy.

The Brexit uncertainty combined with the rise in fuel and carbon costs have been blamed by the airline who carried 522,000 passengers in 2018 on 29,000 flights.

This is another sad demise which follows the 2017 administration of Monarch.