Compulsory or Voluntary Liquidation – which is best for me?

liquidation

Liquidation is the appropriate procedure when your company is insolvent (e.g. it cannot pay its debts) and there is no real prospect of saving a viable business.

When it comes to the winding up of an insolvent company it is important to understand the difference between compulsory and voluntary liquidation. Whilst both are governed by the same legislation, they have different implications for you as a director and for your company.

Compulsory Liquidation

Compulsory liquidation is a process usually forced upon a company by a creditor owed over £750; should you fail to settle the debt, within 21 days of being formally requested for payment, they can petition the Courts for your company to be forcibly wound up.

Once a winding up order is made by the Court the Official Receiver, who is a civil servant and officer of the Court, will take over control of your company.  Their role is to recover assets for the benefits of creditors and begin an investigation into the directors conduct and evidence of wrongdoing.  This may result in disqualification proceedings, fines etc.

Voluntary Liquidation

As the title suggests, a voluntary liquidation is where the directors decide to close their insolvent business voluntarily before they are forced to do so by a creditor.

Neither the Court or Official Receiver are involved in the voluntary liquidation process and an Insolvency Practitioner, such as a member of our firm, are appointed to deal with the company’s affairs.

Voluntary liquidation is a more proactive course of action since you are seeking professional advice in dealing with your business, that is unable to pay its debts and which will in all likelihood be rendered insolvent at some point in the future.

Which type of liquidation is best for me?

One of the main benefits of voluntary liquidation is that the process is initiated by the directors rather than forced upon them. In this way it ensures that you remain in control of the process, and the company closes down in an orderly manner.

 

Voluntary liquidation has several other benefits, as follows:

  • If the directors wish to create a new company, they can negotiate the purchase of the business and assets, prior to the company entering liquidation, allowing them to trade the newco debt free.
  • The process is quicker and does not involve the Court or the Official Receiver, which some directors find intimidating
  • There can be serious ramifications for anyone found guilty of operating a business they knew to be insolvent so acting voluntarily, in a timely manner will assist in showing the liquidator that you are a responsible director.
  • Employees can receive compensation from the redundancy payments office quicker than via a compulsory liquidation.

 

If your company is experiencing financial problems, please get in touch to discuss your current situation and the options available. Our skilled and experienced team of Insolvency Practitioners will help you find a solution.

Please call us now on 0330 159 8080 for a FREE initial consultation.

 

Negative Interest – Positive for business?

Financial Support

Forced into lockdown by the Coronavirus pandemic, the world economy will, according to Gita Gopinath the International Monetary Fund’s chief economist, face it’s worst recession since the 1930’s with an estimated 3% contraction globally.

In the UK, GDP slumped by 5.8% in March, a record fall and Bank of England deputy governor Andy Haldane predicted an unemployment crisis on the scale of the 1980’s.  Chancellor Rishi Sunak has warned that the UK is facing a significant recession and with the battle against Coronavirus set to go on for the foreseeable future it is unclear how quickly the economy will recover.

Financial support to business with CBILS and BBLS

The Chancellor reacted to the initial lockdown by announcing a range of measures to offer financial support to business with CBILS and BBLS being prominent amongst the support offered.  However problems have been reported with CBILS in particular with many applications failing to progress beyond the enquiry stage.  Nils Pratley, writing in The Guardian reported that by mid April only £1.1bn had been lent to just 6,020 firms with Royal Bank of Scotland having lent approximately half of that.  With relatively low success rates, just 28,461 of the c300,000 enquiries progressing to actual applications by mid April, there is a suggestion that Government reluctance to offer 100% CBILS guarantee rather than restricting this to just the BBLS scheme which has a £50,000 maximum loan value has seen a reluctance to lend from the Banks.

Clearly steps will need to be taken to inject cash into the economy and comments emanating from the Bank of England recently have resurrected the prospect of negative interest rates pushing the cost of borrowing down to nil.

The More reserves you hold the more you are charged

Traditionally interest is seen as the charge for borrowing with rates of interest charged varying in accordance with the associated risk.  Simply put borrowing £100 at 10% interest rate means a charge of £10, making £110 repayment.  A negative interest rate of 10% would mean a repayment of £10 making £90 repayable.  This is counterintuitive with lenders paying borrowers money to borrow from them.  To recoup this charges are placed upon credit balances held by the lender meaning the more reserves you hold the more you are charged.

In simple terms this means that excess reserves held by financial institutions at the Central Bank will incur charges and may stimulate the Banks to get rid of this cash by way of loans, making the 80% government CBILS guarantee appear more attractive and keep the Banks lending as Government support measures are inevitably phased out.

Significant shortages of cash

So as the economy slowly emerges into the new normal and the government begins to phase out its support, businesses will edge closer to a cash hole built up whilst surviving lockdown.  Deferred VAT and taxes will become due, as will unpaid rents and stretched creditor payments.

Many business will face significant shortages of cash whilst they get their own houses in order and negative interest rates, encouraging Banks to deplete excess reserves and give affordable loans could end up being positive for business.

If your company is experiencing financial problems, as a result of the Covid-19, please get in touch to discuss your current situation and the options available. Our skilled and experienced team of Insolvency Practitioners will help you find a solution. Please call us now on 0330 159 8080 for a FREE confidential initial consultation.

Covid-19 – The new normal and business recovery options

business recovery

It cannot be argued that, as a result of Covid-19, life today is unrecognisable from the one we were living only a few months ago.  As individuals we have seen unprecedented restrictions on our civil liberties and in business the landscape has changed dramatically, some say forever.  So what will be “the New Normal’ and what options are there for the recovery of businesses affected by lock down?

Speaking yesterday, Prime Minister Boris Johnson announced a return to work for those in construction, manufacturing and any other job that cannot be done from home; a positive move for the economy but not without challenges.  Measures to ensure social distancing must be taken and actively enforced with workstations, social areas and rest rooms all needing to be compliant.  Directors who ignore this may find themselves subject to personal and potentially criminal liability and with a vaccine still many months away, these measures are likely to become second nature and normal.

But where else may the problems lie?

The Coronavirus Act 2020 protects commercial tenants from eviction for non-payment of rent until 30 June at the earliest and whilst this may be updated it does not mean that rent does not continue to accrue and existing arrears remain due.  Landlords will no doubt be supportive where they can but as a commercial entity they will want to be paid and have a range of options in the event of non-payment.  It is important to maintain dialogue with your landlord who will be more likely to work with those tenants who engage.  If a rent deposit has been made, this may help to deal with any arrears and potentially an extension of the existing lease, providing a longer income stream for the landlord may help viable business to deal with the problem.

Similarly, those businesses who have chosen to defer payment of taxes may experience significant problems as lockdown is eased and HMRC begin to require payment.  Time to Pay arrangements can be a good way of formalising a repayment plan with HMRC and as always, the key is to maintain dialogue and often a professional advisor is best placed to deal with any negotiations.

So as we move slowly towards a greater easing of lockdown, with the hospitality trade facing reduced capacity for the foreseeable future, high street retailers facing difficulties with social distancing whilst ensuring their staff are adequately protected, deferred debts becoming payable and Government support being phased out it is inevitable that many good businesses will experience severe cash flow pressures that will threaten their survival.

Range of support for UK businesses

There is a range of support available for businesses with good trading history and strong order books going forward and for whom relief from immediate cash pressure can mean survival.  Company Voluntary Arrangements or CVA’s have been in existence since the Insolvency Act 1986 and whilst traditionally misapplication of this procedure has meant that they have a poor track record for success, as we emerge from the pandemic, this may represent the most appropriate support measure for many good businesses.

A CVA is, in essence, a legally binding deal between a Company and its creditors. If successful it binds all creditors and allows a Company to deal with its debts in a controlled a realistic way.  Creditors are engaged in the process and will be entitled to vote to approve, amend or reject the proposed deal.  Crucially, directors retain control of their business with an independent Supervisor appointed only to ensure that the terms of the deal are complied with.  Typically a CVA will last for 5 years with the Company making regular contributions in settlement of all, or an agreed percentage of its debt.  At the successful conclusion of the CVA, the Company is free of all historic debt even if it has not repaid in full under the agreement.

Alternative Solutions

An alternative to CVA is prepack liquidation which is a process where the sale of the business and assets is negotiated prior to the company entering liquidation and works in a similar way to prepack administration.

Often the existing owners of a company are best placed to purchase the business from a liquidator to ensure realisations for the benefit of creditors.  The liquidator will rely upon an independent valuation of the business and will complete a sale once appointed.  The owners of the new business are then able to continue to trade the new company debt free.

Prepack liquidation is best suited to small to medium sized enterprises (SME’s) as it is a less expensive, and if done correctly still allows the usual protections, whilst also avoiding the cost of a TUPE transfer.

If your company is experiencing financial problems, as a result of the Covid-19, please get in touch to discuss your current situation and the options available. Our skilled and experienced team of Insolvency Practitioners will help you find a solution.

Please call us now on 0330 159 8080 for a FREE initial consultation.

Benefits of Engaging with Suppliers/Stakeholders

Stakeholders

During these unprecedented times of uncertainty surrounding businesses, it is now more important than ever that you continue dialogue with your existing suppliers and stakeholders. The Covid-19 pandemic is not a valid excuse to simply ignore creditors and suspend payments.

If your suppliers are not being paid, they are likely to run into cashflow difficulties which may ultimately threaten the viability of their own business.  In these circumstances a more aggressive debt collection policy may be pursued and may ultimately, if your debt is more than £750, result in a winding up petition being issued.

Outset of the pandemic

At the outset of the pandemic the High Court were adjourning all winding up petitions. However, they are now being dealt with remotely where possible, although hearing dates are often many months down the line.

Notwithstanding the actual hearing being some time in the future, the petition itself will be advertised leading to significant disruption for your business, such as your bank account being frozen and possibly your customers not paying their outstanding invoices.

Payments to a creditor

Another problem area is post-petition dispositions i.e. where you make payments to a creditor between the date of petition and the date of the winding up, if in fact the order is made. Such payments are usually void unless a validation order is made by the Court. However, Covid-19 will undoubtedly be a factor for the Court when considering such orders and there may well be good grounds for the debtor company claiming that payments were made in order to ensure continuity of trading during the pandemic.

In order to avoid these complications, you should maintain an open dialogue with your suppliers; it is worth discussing extending credit terms or entering into a payment plan, if required.  This will enable your suppliers to manage and plan for their business too.

Existing finance or loans

If you have existing asset finance or loans, consider extending the terms, to reduce monthly payments, or ask for a repayment holiday. Most lenders will consider a repayment holiday in the current climate.

Not adhering to payment terms or agreeing an alternative arrangement can result in the issue of a statutory demand for payment which, if missed or not dealt with in a timely manner, as a result of Covid-19 can leave your business exposed to the risk of being issued with a winding up petition.

Keep in constant dialogue with your creditors

To summarise, our advice is to keep in constant dialogue with your creditors which should ensure your business avoids being issued with a statutory demand and ultimately a winding petition.

If you wish to discuss this matter further or your company is experiencing financial problems, as a result of the Covid-19, please get in touch to discuss your current situation and the options available. Our skilled and experienced team of Insolvency Practitioners will help you find a solution.

Please call us now on 0330 159 8080 for a FREE initial consultation.

Suspension of Wrongful Trading Claims – Be Aware of the Pitfalls

Wrongful Trading

In view of the current coronavirus pandemic the Government is looking to amend current insolvency legislation providing additional protection enabling businesses to continue trading, in an attempt to prevent mass failures – leading to a significant rise in unemployment.

As part of their plan – unveiled by the Business Secretary, Alok Sharma, at the weekend – there will a three-month suspension, from 1 March 2020, of the wrongful trading provisions effectively removing the threat of personal liability during the Covid-19 outbreak should your company ultimately fail.

Whilst the removal of the threat of wrongful trading is to be welcomed and will allow businesses to use the Government’s support package previously announced by The Chancellor, existing laws such as fraudulent trading, misfeasance, preferences, transactions at an undervalue and directors disqualification do still apply and should act as a warning against wrongdoing.

Misfeasance

Misfeasance is the misappropriation of monies or property of the company and also covers breaches of fiduciary duty in relation to the company.

If a liquidator believes a director is guilty of misfeasance he can not only apply for restoration or the repayment monies he may also report the director’s conduct to the Secretary of State which may lead to disqualification as a director for up to 15 years.

Fraudulent Trading

Although the immediate threat of wrongful trading has been removed fraudulent trading remains in statute.

Whilst wrongful trading is a civil offence, fraudulent trading is criminal – if it can be shown that the business was carried on with the intention of defrauding creditors or in fact any fraudulent purpose.

If proven fraudulent trading can lead to not only financial penalties but in serious cases a prison sentence too.  Again, such conduct may also lead to your disqualification as a director.

Preferences

Preferences are when a person connected to the company does something to place one of its creditors in better position than it would otherwise have been in the event of insolvent liquidation. Examples of this may include repaying a lender, to whom you have provided a personal guarantee, or a settling a loan from a family member.

Penalties for a breach of the legislation include the transaction being set aside and personal liability, together with the potential of director disqualification.

Transaction at an undervalue (“TAU”)

A TAU is when an asset of the business is sold or transferred to a third part for a value significantly lower that its actual worth or for no consideration at all.

If proven this could lead to personal liability, a fine or in the most serious cases criminal prosecution. As in all the above director disqualification may also ensue.

 

If your company is experiencing financial problems, as a result of Covid-19, or you wish to discuss director’s duties please get in touch to discuss your current situation and the options available. Our skilled and experienced team of Insolvency Practitioners will help you find a solution.

Please call us now on 0330 159 8080 for a FREE confidential initial consultation.

Toys R Us: What happened & could it have been prevented?

Toys R Us

From the top of the food chain to rock bottom was the fate of Toys R Us in March this year. What was once a favourite place for any child to visit with their parent quickly descended into a downward spiral. We all have some great memories of visiting the retail store as an infant with it being bustling with new toys and the staff were ever so friendly. In its later years, it failed to keep up with the rising increase in online retail sales with parents simply buying toys online and getting them delivered, which could have been the main reason for their failure.

It was only in September 2017 Toys R Us declared bankruptcy and a few months later they announced store closures and then by March 2018 they had liquidated into thin air. Obviously, this is very sad for those that grew up loving the Toys R Us brand and everything they believed in, but the question is, could it have been prevented?

The $6 billion usd debt will not have helped Toys R Us in their long-term strategies, but if they financed their assets better they could have cut this down. For example, delegating more tasks to colleagues and cutting down on the number of people that they employ. Also if they closed down a few stores when they first acquired this debt in 2005 they may have in the long term benefited by saving a lot of money!

Toys R Us could have potentially averted any danger of liquidation if they kept up with the rise of online retailers like Amazon and eBay however that would have taken the companies to value away. A visit to a Toys R Us store was the highlight of every child’s week and the same effect cannot be projected from ordering something off the internet, so you have to commend them to stick to their guns, however, it didn’t pay off in the end.

Toys R Us will forever remain a great memory in everyone’s life and although many are sad its reign has come to end, it really isn’t a surprise with today’s ever-evolving retail market. If only they kept up with the rising competition, then perhaps they would still be a genuine contender!

If you feel as if you’re under the pressure of running a business and things aren’t going too well, Don’t stress, we can help you! Simply give us a call on 0330 159 8080, email us on info@debtsolutionshub.co.uk or find out contact details on our contact page.

 

How can Debt Solutions Hub help you?

Debt Solutions Hub offers qualified advice from multiple practitioners. You want to ensure that you receive the right advice when it comes to your debt and Debt Solutions Hub assures this. All practitioners are committed to providing the appropriate advice for all clients. It is a given that all practitioners will work with your best interests at heart. You will be provided with the most thorough, honest, and simple debt advice and will get the chance to work closely with whoever is handling your case.

Common Debt Advice Issues

Directors of companies may experience difficulties with creditors. Debt solutions have years of experience in negotiations and agreements with creditors. Options available to you may include delaying bailiffs, postponing, or bringing a stop to the winding-up process. If further assistance is required, then Debt Solutions Hub can refer you to a solicitor or an accountant for further debt advice. Acting early is the main advice when dealing with debt, this will provide more options for you. Failure to pay Crown debts will lead to serious consequences. Alternative options for dealing with debt include refinancing, invoice factoring or, alternatively, insolvency rescue options such as a company voluntary arrangement. Debt Solutions Hub can assist you with all of these options.

Liquidation Advice

When it comes to compulsory liquidations the process may be initiated by the shareholders of a company or creditors. A winding-up petition is a serious matter and Debt Solutions Hub will ensure that you are given advice as quickly as possible to keep up with the short timeline. If your company has received a statutory demand and you are unable to pay the debt you must contact a practitioner as soon as possible to receive liquidation advice. It may only be a matter of weeks before your company will be forced to cease to trade or bank accounts frozen. Debt Solutions Hub may also offer advice for voluntary liquidation, this is used in circumstances where the company cannot be rescued. Once it has been placed in liquidation the trade will cease and directors will no longer have the power of the company.

If you would like to find out further information on the services that we offer, why not visit us at our Liquidation page or maybe just learn more about us as a company!

Wrongful Trading Advice

Section 214 of the Insolvency Act 1986 (“the Act”) defines wrongful trading as when the directors of a company continue to trade past the point where they knew, or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation.

This action is available to the liquidator of the company against not only directors who are registered at Companies House, but also de facto and shadow directors.

The key step for a liquidator is establishing the date at which it can be shown that the directors continued trading the company despite knowing, or ought to have known that the company was insolvent.

To prove that the directors ought to have known that the company was insolvent there is a two-part test as follows:

Assessing the general knowledge, skill and experience that may be reasonably expected of a person carrying out the same functions as are carried out by that director in relation to the Company; and
The general knowledge, skill and experience that the director has.

Should it be found that the individual has contravened this section of the Act, the court has discretion over the contribution that it can require, typically it would be for the amount that creditors have lost since it was found that the company was insolvent.

Do you think that you may be guilty and feel you need wrongful trading advice or at risk of it? Contact us at Debt Solutions Hub today to discuss your options.

Brexit – a third of UK Businesses risk insolvency

Many businesses in the UK face considerable financial difficulty as the uncertainty of ongoing trade with Europe continues. The value of the sterling, rising inflation and prolonged Brexit negotiations are all having a negative effect in many different sectors.

Some organisations that trade with Europe have reached crisis point due to the inevitability of reduced trade under these circumstances and increased associated costs. According to the insolvency and restructuring body R3, a third of all companies are susceptible to insolvency up from around a quarter at the start of 2017.

Businesses at above average risk of insolvency include the technology sector, transport and haulage, professional services and outsourcing.

So what are the options available if your business is at risk of insolvency and how can you prevent a further worsening in your financial situation?

Professional advice is critical to establish the true position of your business and to identify the options available; the earlier advice is sought the more avenues are likely to be open to you.

At Debt Solutions Hub our main aim is to help save stressed businesses which can be attained in several ways. Once we have reviewed your financial position and the associated consequences of the problem we can discuss the options available to you.

Employee Benefit Trusts – The net tightens!

Employee Benefit Trusts (“EBT’S”) had become more prevalent over the last 10 – 15 years or so and were most heavily marketed to companies between around 2007 and 2014 as a means to reward employees in a tax efficient manner.

Typically companies would pay monies into a trust which could then be loaned to the employee on favourable terms without PAYE and NIC charges.

The schemes, which had to be notified to HMRC under their own disclosure rules were compliant with legislation and advice at the time and enabled companies to provide a significant benefit to its employees.

The net effect of these increasingly prevalent schemes was hundreds of millions of pounds of lost or unpaid tax revenue and unsurprisingly HMRC sought to close these loopholes resulting in hundreds of tribunals and significant delays before HMRC ‘s case could be heard.

The now famous Glasgow Rangers FC case marked a decisive victory for HMRC and the EBT net began to tighten. HMRC has always maintained that EBT schemes were not legal and viewed them as aggressive tax avoidance. Accordingly they are looking to challenge schemes retrospectively and armed with greatly increased powers.

The Accelerated Payment Notice (“APN”) that was introduced in 2014 and allows HMRC to require, pending a Tribunal, payment of tax assessed by HMRC to be due under the EBT scheme.

Clearly, receipt of an APN could have a serious effect on a Company’s cash flow as it is required to pay potentially tens or hundreds of thousands of pounds to HMRC on short notice and in many instances this will result in significant financial distress.

Whilst the funds would be returned by HMRC, with interest, if the Company were to be successful at the Tribunal it is the Company who has to overcome the problems caused by its payment being held by HMRC pending a decision.

The legality of APN’s has been subject to challenge but in December 2017 the Court of Appeal handed down a ruling which supported the earlier decisions in favour of HMRC.

In conclusion, HMRC is winning its battle against EBT’s and the increasing use of APN’s represent a significant and serious threat to those companies that have used these schemes.

If your company has an EBT you should talk to your professional advisors or to a licensed Insolvency Practitioner. Alternatively, you can contact us for immediate advice.