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A guide to Business Recovery and Insolvency
A guide to Business Recovery and Insolvency
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Introduction
Troubles at the Top
Business distress ............................................................2Spotting the signs of stress ...........................................3Taking action ..................................................................5Rescue & Turnaround .....................................................6Company Voluntary Arrangement (CVA) .......................7Administration Order .......................................................8Pre-Pack Administration .................................................9
Closing Up
Business failure or time to close .....................................10Winding Up Petition ........................................................11Creditors Voluntary Liquidation (CVL) ............................13Members Voluntary Liquidation (MVL) ...........................14Personal Insolvency Issues ............................................15Individual Voluntary Arrangement (IVA) .........................16Bankruptcy ......................................................................17Partnerships & Insolvency ..............................................19Directors’ Responsibilities & Protection .........................20Debt Management Procedures ......................................22
Seeking Help
Expert Witnesses ............................................................23Examples of Success ......................................................24Glossary of insolvency terms in England & Wales .........26How Gibson Hewitt can help ..........................................30
Contents
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Unfortunately, there comes a time in every business’ life where it may force some form of crisis that leaves it concerned about its future, whether that be related to the loss of a key member of staff, a decline in customers or cash flow issues within the business.
For many directors and shareholders, the prospect of insolvency creates an immense amount of stress and can take up considerable time, which could be spent on growing and nurturing a business.
Thankfully, there are a variety of solutions and actions that can be taken to turn a business around or liquidate it in a manner that minimises harm to the company’s stakeholders, such as directors, staff, customers, creditors and suppliers.
This guide has been created to try and give some guidance on how to spot, react and act against business failure, or for those unable to save their business, some solutions to minimise the impact of a company’s closure.
While it contains comprehensive advice on a wide range of insolvency procedures and business recovery techniques, it is strongly advised that you seek independent professional advice should you or your business find itself in distress.
Introduction
In 2017 alone, 17,243 companies entered insolvency – that’s one in every 213 businesses operating in the UK.
Trouble at the top
Business Distress When focusing on the day-to-day operation of your business it can be very easy to miss the early warning signs that the overall health of your company is suffering.
Just looking at the balance in the bank and having some vague appreciation of your future cash needs is often not enough to ensure your company’s future security.
So what should businesses be looking out for when trying to identify whether their business is experiencing stress?
At Gibson Hewitt, we have put together a useful booklet to see whether your business requires help.
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Is your business stressed or distressed?
The terms financial stress and distress are often mentioned when a company is in trouble or experiencing issues, but what do they mean in reality?
Financial stress
Financial stress is defined as a condition where a company cannot meet, or has difficulty meeting, its financial obligations to its creditors in a timely manner. The challenges the company faces may or may not be terminal.
Financial distress
Financial distress describes an extreme situation which limits both a company’s potential to recover and the options it can pursue to turn itself around.
If declining performance is not managed in either case, turnaround options reduce with time and formal insolvency proceedings eventually become inevitable. However, while the failure of a company’s finances may be the final symptom there are many signs and causes that lead businesses to these positions.
Spotting the signs of stress
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Symptoms of business stress
Early identification of business stress is very important when seeking to turn a company around which is why it is important to identify signs of stress, which include:
Spotting the signs of stress (continued)
Deteriorating Results
• Declining profitability, in particular at an operating level• Significant ‘exceptional’ costs• Breached, waived or manipulated covenants• Deteriorating Key Performance Indicators (KPIs)• Inability to explain trends in KPI
Reduced Liquidity
• Inability to meet interest payments or scheduled costs• Poor or negative operational cashflow• High non-operational cashflow• Tight or reduced cash reserves (headroom)• Trapped or restricted cash balances
Balance Sheet
• Creditor numbers and liabilities outpacing business growth• Low asset to liability ratio• Significantly under-funded pension schemes• Investment in working capital ahead of growth• Deteriorating credit ratings
Operational Challenges
• Removal of credit insurance• Difficulties fulfilling orders on time and within quality parameters• Increased use of ‘short-term’ cost reduction programmes• Additional management time taken up managing stakeholders
When you realise your business is showing signs of stress it is critical to act quickly to remedy the issues your business faces – it is never too soon to ask for help.
Your first step should always be to contact a business recovery firm. The sooner a business recovery specialist can get working, the better the chance of turning the company around.
If problems within your business are left to fester the task of bringing your company and its operations back into profit becomes far harder and much more serious actions will be required further down the line.
In the worst case scenario you may end up facing the prospect of insolvency, which can have a long-term impact on you, your employees and other businesses.
At Gibson Hewitt we regularly hear from business owners who say they wish they had spoken to us the year before. Do not be one of these businesses, the sooner the action the more potential remedies we can offer.
So don’t wait, speak to our team at Gibson Hewitt today to start the re-energisation of your company.
Taking Action
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If a business is in trouble, our main objective is to rescue it as a going concern. We look at all the available Corporate Recovery options and with our range of services and skills can assist in the implementation of most solutions offered.
The work will start with gaining an understanding of the business, its marketplace and cash and trading forecasts and thereby an assessment of viability in its present state. Some of the issues and solutions to be considered will include:
• Closure of loss-making divisions/product lines• Streamlining and reducing costs, perhaps by outsourcing certain activities• The introduction of new management and/or new capital• The sale of all or part of the business
If the problems cannot be solved by these options, we will look at the range of corporate insolvency or formal restructuring routes available. These might be a Company Voluntary Arrangement or Administration to protect the business whilst it is re-organised.
A key element of this work is to ensure that the key stake-holders in the business are valued and that the risk of the directors is protected as far as possible. An early consultation is more likely to be successful as there are more options available – by leaving it too late before seeking professional advice, the choices available will probably be limited to an insolvency option which is not likely to retain any value for the shareholders.
We are conscious that funds are scarce when you most need help, so the initial consultation to discuss the various corporate recovery options is free and without obligation. We cannot stress enough that we do not see our role as merely administrative. With our many years experience in corporate recovery and turning businesses round, we will examine ways of restructuring the business and raising injections of capital where they are sorely needed.
Rescue & Turnaround
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When a company is experiencing financial difficulties, a Company Voluntary Arrangement or CVA can be a very helpful mechanism towards ensuring its survival while, at the same time, guaranteeing fair treatment for its creditors.
A Company Voluntary Arrangement or CVA can be an attractive alternative to administrative receivership, administration or liquidation.
The key benefits are:
A Company Voluntary Arrangement or CVA is the only option which ensures that the directors of the company remain in control of their business and the shareholders retain ownership of its assets. In each of the alternative procedures the effective control of the business and assets reside with the Licensed Insolvency Practitioner. The detailed commercial terms can be very flexible. The scheme can simply provide for payments out of future cash flows, or perhaps the sale of assets or less usually to exchange debt for new shares in some cases it is important to get a legal freeze on creditors claims which can be obtained through the Moratorium option.
It works like this. With the help of the Licensed Insolvency Practitioner, the directors come to an arrangement with the creditors about the scale and the timing of the repayment of debts. There are no set rules for this. The agreement is entirely between the company and its creditors. Not all creditors have to agree: a majority of 75% by value of voting creditors is sufficient. The creditors can suggest changes to the proposal which the directors have to agree if the scheme is to be taken forward.
When the proposal has been agreed, it is filed with the Court and with Companies House. It is legally binding on all parties to it. A Supervisor
is appointed to ensure that the company adheres to the arrangement. The key factor is that it enables the business to continue to trade, so increasing the chance of a turnaround. The proprietors of the company can retain their positions and roles and may safeguard their home if personal guarantees had been given to creditors.
The terms of the proposals to creditors may vary however creditors will expect their prospects of recovering money will be at least as good as in any other form of insolvency procedure. The proposal will need to make certain formal disclosures including provisions to cater with failure of the scheme.
Only the creditors are advised of the Company Voluntary Arrangement, so the kind of publicity that can damage the company’s prospects can be minimised.
Moratorium:
Often it is not necessary to obtain a formal moratorium against actions by creditors. However, where assets need to be protected or if creditors have started recovery or legal action, application can be made for a Moratorium which freezes all claims until the creditors meeting is held. The Nominee to the scheme has additional controlling and reporting obligations relating to this period. Use of this tool will increase the costs of setting up a scheme.
Moratoria are only available to “small companies”. To be a small company you need to satisfy two or three test set out, i.e:
• Turnover of less than £10.2 million• Less than 50 employee• Balance sheet totals of less than £5.1 million
Company Voluntary Arrangement (CVA)
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There are cases where it is simply not possible to reach a compromise with creditors, or where the directors’ objectives cannot be met with a creditors’ agreement. An Administration Order can be obtained which allows the Administrator to trade the company’s business whilst being protected from creditor action whilst the sale of the business, or part of it, can be arranged.
Directors are able, to take appropriate advice and procedures, to buy part or all of the business and assets of a company. If certain criteria are met this can be completed very quickly – this is called a Pre-Pack.
It is possible for a creditor or the company’s directors to apply to the court for an order to place the company in Administration. A Licensed Insolvency Practitioner takes control of the business and assets of the company, and the creditors’ claims are frozen whilst a solution is worked out and proposals are made to the creditors. Generally these proposals will result in one of the following outcomes:
• Sale of the business and assets, followed by a liquidation of the company to enable funds to be passed to the unsecured creditors
• The agreement of a Company Voluntary Arrangement• In the absence of alternatives, a sale of the assets to repay the
secured creditors after which the company may be struck off if there are no funds for other creditors and if there are no issues of further investigation by a Liquidator.
The process involves the court and the filing of appropriate documents. On filing, a legal stay against actions by the creditors is granted and breathing space is obtained in which to develop further proposals. Ideally jobs are saved and the returns to creditors enhanced.
An Administration Order must be concluded within a year of the granting of the order.
There can be clear advantages in using this procedure over Liquidation as Liquidation does not involve any trading activity.
Although the Administrator can be proposed to the Court by the Directors, the secured lenders will often have a say in the process. Before a Court will grant an Order, the Court must be satisfied that the secured creditor has been provided with proper notice and has not registered any objection; sometimes the secured creditor perfers their own choice of Insolvency Practitioner to be appointed.
Administration Order
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A Pre-Pack Administration is where the Administrator sells all or part of the business and assets quickly, prior to consultation with the creditors.
An example of the reduction of liabilities is the transfer of employees under TUPE regulations as after a Pre-Pack sale the employees work for an alternative organisation.
It is used where the assets of the company will erode quickly, for example fruit and vegetables or frozen foods, or it is imperative to continue trading to preserve the goodwill of the business, but trading by an Administrator is not viable.
An Administrator needs to be able to demonstrate that the overall net return to creditors has been maximised so this often can include minimising the liabilities as well as maximising the sale of the assets.
In practice an Administrator satisfies himself that the optimum value has been obtained by instructing a professional Valuer to value the business and assets. When the Administrator is confident he has maximised the sale of the business, bearing in mind the limited time available for the sale of the assets and preservation of the business, a sale can complete quickly (immediately). In these circumstances there is often a trade off between a very quick sale and prolonged marketing.
Pre-Pack Administration
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ClosingUp
Business Failure or time to closeWhether you are looking to close a business at the end of a long career or are forced to wind down a company due to financial pressures or the loss of a key person, there are a number of insolvency procedures on offer to you.
The failure of a business can be an immensely stressful time, so it is worth taking your time to plan effectively in order to reduce the damage to directors, shareholders, employees and customers.
This section will look at how businesses can work with insolvency practitioners to resolve their issues and the potential outcomes that businesses can expect to achieve by using these procedures.
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What is a Company Winding Up Petition?
A creditor (someone the company owes money to) who has not been paid a debt of £750 or more can ask the court to wind up the company. This is called a winding up petition.
When can it be used?
A winding up petition can be used when a company is owed money (more than £750) which remains unpaid. The amount must be quantified with no dispute. The quantum is usually verified by the creditor obtaining a County Court Judgement (“CCJ” or “judgement”). The company has to appear in Court to defend the petition or the company will be compulsorily wound up. Alternatively a petition can be overcome by paying the debt due or reaching an agreement as to how the debt will be paid or putting the company in an alternative insolvency procedure.
What is the effect of a Winding Up Petition?
A Winding Up Petition has an immediate and huge impact.
The company will almost certainly cease trading immediately.
Directors are at risk of wrongful trading which may be considered fraudulent trading, in some circumstances,
Directors are at risk of preference. Directors must not pay any creditor if they are unable to pay all creditors as they fall due unless they can demonstrate the payment was for the benefit of all creditors. Continued payment to creditors contrary to this condition might constitute a fraudulent preference.
No receipts should be placed into an overdrawn bank account as this would prefer the bank.
The bank will freeze the company’s bank accounts. Banks monitor the London Gazette where all winding up petitions are listed and if the Bank sees a Winding Up Petition then an automatic stop is placed on the account. In real terms this means the company cannot continue to trade if a Winding Up Petition is advertised.
Winding Up Petition
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Directors cannot sell assets of the company or enter into any contracts between the issuing of the winding up petition and the date of the Court hearing. Any sale of assets or contracts entered into in this period are deemed post petition dispositions. Any transaction deemed a post petition disposition is automatically void if the company enters liquidation UNLESS the Court sanctions the sale.
Directors are at risk of Misfeasance if the pay themselves other than through PAYE/NI payroll.
Are there any dangers if I pay off the creditor who issued the winding up petition?
No not if the winding up petition has not been advertised in the London Gazette BUT if it has been advertised then ANYONE owed by the company can continue with the petition and wind up the company. In essence if the petition has been advertised it is not worth paying creditors but do take advice to protect yourself as a director.
So as a director if you are in receipt of a winding up petition what do you do?
Take immediate advice from Gibson Hewitt. There may be a number of options available to the company if you take action early. These options may include Company Voluntary Arrangement (CVA), Administration, Company Voluntary Liquidation (CVL). Contact Lynn Gibson and her award- winning team on 01932 336149 or [email protected].
Winding Up Petition (continued)
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Creditors Voluntary Liquidation (CVL) may be the solution if your company is suffering from creditor pressure, cash flow difficulties, or liabilities that are greater than assets.
A CVL is a procedure in which the company’s directors choose to voluntarily bring the business to an end by appointing a licensed insolvency practitioner like Gibson Hewitt to liquidate all assets.
The liquidation or ‘winding up’ process allows you to use company’s assets to pay off its debts – with any money left over being paid to its shareholders. If your business is unable to pay its debts, it is important to act fast to prevent putting directors at risk of facing action for wrongful trading or preference. In some cases, particularly if you take no action, you may be forced into compulsory liquidation.
Creditors Voluntary Liquidation (CVL) may be the solution if your company is suffering from creditor pressure, cash flow difficulties, or liabilities that are greater than assets.
A CVL is a procedure in which the company’s directors choose to voluntarily bring the business to an end by appointing a licensed insolvency practitioner like Gibson Hewitt to liquidate all assets.
The liquidation or ‘winding up’ process allows you to use company’s assets to pay off its debts – with any money left over being paid to its shareholders. If your business is unable to pay its debts, it is important to act fast to prevent putting directors at risk of facing action for wrongful trading or fraudulent preference. In some cases, particularly if you take no action, you may be forced into compulsory liquidation.
Creditors Voluntary Liquidation (CVL)
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A Members Voluntary Liquidation or an MVL is a voluntary procedure to wind up the affairs of a SOLVENT company. It is used to close or wind up a company maybe because the director(s) wish to retire, re-organise or restructure the business or the company is simply not required any more.
To enter into an MVL, the directors are required to swear a Declaration of Solvency stating the company is able to, and will pay all its debts in full. A shareholder meeting must be held to appoint a licensed insolvency practitioner, like Gibson Hewitt, to complete the MVL. Once appointed, the licensed insolvency practitioner acts as liquidator, pays any liabilities, and distributes assets including reserves to shareholders or members. If the shareholders pass a resolution, assets can be distributed in specie, meaning the assets themselves do not have to all be sold and turned into cash for distribution. For example book debts or a motor vehicle can be distributed “in specie” without a necessary sale, so any reduction in value of the assets and costs of selling the assets are removed.
The key advantages of a Members Voluntary Liquidation:
• The liquidator has the ability to return funds to Shareholders as capital – which can have considerable tax advantages as all distributions will be capital repayments and subject to Capital Gains Tax (“CGT”) rules rather than PAYE/NI procedures or dividends. Shareholders who have been a director, company secretary or employee of a company which traded in the last three years can claim Entrepreneurs’ Relief which, when coupled with the personal allowance for CGT of £11,700 with taxation currently at 10%, can be extremely favourable when compared to higher rates of PAYE.
• The liquidator has the ability to restructure a business, perhaps using a hive down and to distribute assets (or shares in subsidiaries) in specie.
• An MVL can be used as a means of resolving a shareholder dispute as the company will no longer trade and when the liquidation is complete the company simply ceases to exist.
• An MVL is quick and fairly cheap compared to other restructuring procedures.
Striking off under Section 1003 Companies Act 2006
In certain circumstances it is appropriate to have the company simply struck off – but care needs to be taken to avoid some pitfalls. There are circumstances where the company can be restored to the register and incidents where the Treasury Solicitor can demand payment of the share capital. It is vital to take advice from a licensed insolvency practitioner to determine whether a Members’ Voluntary Liquidation MVL or winding up is the best option.
Members Voluntary Liquidation (MVL)
Personal Insolvency Issues
Recognising the need for insolvency services
Debt, a sudden change to employment, the loss of a business or the breakdown of a relationship can have a significant effect on an individual and it is not uncommon for people to find themselves stuck in a position whether they feel unable to escape.
Thankfully there a number of insolvency solutions available to individuals that are designed specifically to help people restructure their debts and sort their financial position.
It is, however, important that people spot the signs of financial distress sooner rather than later, as early identification and action
is essential.
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One easy step to a new future is to talk to Gibson Hewitt about Individual Voluntary Arrangements. Also known as an IVA.
An Individual Voluntary Arrangement offers individuals the opportunity to take control of their lives again and be debt-free. If you were thinking about going bankrupt STOP and get our FREE advice now as bankruptcy is not the only answer.
The pros and cons of bankruptcy or an Individual Voluntary Arrangement, will depend on personal circumstances. There are lots of variables we can help you fully explore to enable you to make the right choices and be free of debt.
We have been helping individuals turn their lives around for more than 30 years. We understand that your finances may be difficult so we do not make any charge for an initial consultation.
Below you will find some useful links about Individual Voluntary Arrangements & Bankruptcy. But if you just want or need a quick chat about your circumstances do not hesitate to call us we will be happy to help. Call 01932 336149 and ask to speak to Lynn Gibson.
Is an Individual Voluntary Arrangement right for me?
Dealing with your creditors
IVA or Bankruptcy? Compare your Options.
IVA or Bankruptcy – which is better?
FAQ’s
Individual Voluntary Arrangement (IVA)
BankruptcyIf your debts are spiralling out of control and you see no other way forward you might think going bankrupt is your only option. As well as applying for bankruptcy yourself, a creditor (someone you owe money to) that is owed at least £5,000.00 can also apply for a Bankruptcy Order to make you bankrupt.
Going Bankrupt
Bankruptcy usually lasts for one year, however, the Official Receiver will tell you when yours is over. Most of your debts will be written off, but some debts like court fines and student loans can never be written off.
Before you apply to go bankrupt, you need to be aware that your bank accounts will usually be frozen so you will need to ensure you have enough cash for your day to day expenses.
If your application to go bankrupt is accepted and your bankruptcy order made, your money and financial affairs will come under the control of the Official Receiver. The Official Receiver will interview you and write a report about your financial situation and send it on to your creditors making them aware of your bankruptcy.
If you do not co-operate with the Official Receiver or you have knowingly taken on debts that you knew you could never pay back, a bankruptcy restriction order could be made against you. This will seriously affect your financial affairs and can last up-to 15 years.
Before you take the bankruptcy route call us
for FREE advice.
What have you got to lose?
01932 336149
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Bankruptcy (continued)
Advantages of going bankrupt Disadvantages of going bankrupt
In many cases a bankruptcy order can be finalised in one year leaving you to make a fresh start and get on with your life.
If you lie or make a false statement when applying to go bankrupt it is a criminal offence and you could be fined or sent to prison. Other disadvantages include:
Our professional advice to you
Whilst going bankrupt may seem like your only option, it’s not! Our advice would be to talk to a professional Insolvency Practitioner immediately to discuss your financial affairs. We have helped many people over the past 30 years and strongly believe that there are other ways to become debt free.
• There is a £680 fee to apply for Bankruptcy.• If your income is high enough, you will need to make
payments towards your debts for three years.• Your credit rating is affected for six years and you may find it
difficult to apply for any further credit.• Some possessions may have to be sold including your
home, car and any luxury items.• Your pension could be affected.• In some professions, if you have been made bankrupt, you
can’t carry on working.• If you are a business owner, assets may be sold and the
business closed down.• Going bankrupt can affect your immigration status.• Bankruptcy orders are published publicly on the Bankruptcy
Register and in the London Gazette.
• You are allowed to keep certain things, like household goods and a reasonable amount to live on.
• You no longer have to deal with creditors chasing you for money.
• Creditors Court action is stopped. (except for certain court fines or student loans).
• Most debts are written off.
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Each business partner is liable not only for his/her business and personal debts they are also liable for their partner’s business on a joint and several basis – unless an LLP is in use.
If a partnership or a partner is experiencing financial difficulties each or all partners should take advice. The general principles underlying partnerships are the same as for individuals or other unincorporated bodies and so many of the points on our corporate FAQs and personal FAQs page will apply.
Insolvency procedures
Insolvency problems for partnerships are dealt with by a hybrid set of regulations. A partnership can thus be subject to the following procedures:-
• Partnership Voluntary Arrangement• Interlocking IVAs• Partnership Administration Orders• Compulsory Winding up• Partnership Voluntary Arrangements
When a partnership has financial difficulties it can enter into Partnership Voluntary Arrangement (PVA) which will take account of the partnership’s assets and liabilities and debts. A PVA is very similar in concept to the Company Voluntary Arrangement (CVA). However due to the personal liability of each partner usually each partner will almost certainly need to have an Individual Voluntary Arrangement (IVA) to protect their personal assets as each partner is liable for the total partnership debts in full.
As with other forms of Voluntary Arrangements, a Licensed Insolvency Practitioner must supervise the voluntary arrangements and a Nominee is required to prepare the proposal, make comments on the proposal to creditors and to the Court.
Interlocking IVAs
Sometimes partners can have interlocking IVA’s in place of the PVA particularly if the partnership is small with indistinct assets. Here each IVA would include the full debts due by the partnership and how and by how much they will be repaid.
Partnership Administration Orders
Partnership Administration Orders are granted by Court on the application of creditors or partners when the partnership can be shown to be insolvent. The business of the partnership is run by an Insolvency Practitioner who hopefully would be able to maximise the realisations by selling as a going concern. The Administration route is beneficial in that it protects the partnership assets by way of moratorium
Partnership Winding up Order
This is where a creditor has petitioned. Each partner will receive a bankruptcy petition at the same time. The business is likely to have to cease.
Partnerships & Insolvency
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This section considers briefly:
• Directors Guarantees / Personal Guarantees• Risks and duties arising from Insolvent situations• Companies Act duties
These are complex issues which can affect the personal estate of directors if you get it wrong. Accordingly, you are strongly advised to seek professional advice if you are in any doubt on these duties and responsibilities.
Directors Guarantees:
Directors are often asked to guarantee their company’s debts so if the company is unable (or unwilling) to pay the debt for any particular reason the director can be asked to personally pay the sum due.
Guarantees can be either limited to a specific amount, as previously agreed, or for the whole sum outstanding, they can be unsecured or it can be secured upon the director’s property for example a charge or mortgage on his house. The director‘s guarantee can be any combination of all or just one of the above.
Guarantees should be written and signed by the director who should take professional advice before entering into a guarantee.
In the case of co-guarantors each guarantor will be fully liable for the outstanding amount subject to their guarantee. However, co-guarantors need to resolve their respective business obligations between themselves and need a properly formulated and legal ‘exit’
strategy should they resign their partnership or directorship or ‘pass’ their business on to others in any way.
Risks and duties arising from Insolvent situations:
Directors owe a fiduciary duty to the Company and its members. When times are tough and cash flow difficult this duty is extended to protecting the position of the creditors. As may be expected by such wide ranging statements, these duties have been interpreted in many different ways. Partly to overcome these difficulties, the new Companies Act 2006 set out to codify these duties which we have summarised below.
When a company falls on hard times, the role and duties of a director change and several potential causes of action need to be considered. On the whole these actions are set out in the Insolvency Act 1986 and are taken by Liquidators or in some cases creditors directly. In each case, however, there needs to be an insolvency to bring these risks into focus. In simple terms, these additional risks can be summarised as follows:
• Not to transfer, or sell property or assets at an undervalue. This section can be construed very widely
• Not to prefer any one creditor above other creditors of a similar class. Often the creditor preferred is associated with the Directors or shareholders
• To act in good faith, considering what is in the creditors best interests
• Not to trade though another limited company with a very similar name
Directors’ Responsibilities & Protection
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• Not to trade wrongfully or recklessly. This can be as simple as continuing to take credit from suppliers• Each of these points can be highly technical in application and you would be urged to seek professional advice from a lawyer or an Insolvency Practitioner in each case.
Liquidators have a duty to investigate the company’s activities to ensure that none of these events has happened; to remedy a situation Liquidators can apply through court either for restoration of the asset or financial compensation.
The investigation report is also considered by the Government’s Directors Disqualification Unit with a view to considering the fitness of the Director to hold office. If they consider action is required, application can be made through the Court (if not agreed informally with the Director) for his disqualification for up to 15 years. If intent to defraud can be proved, the director may face imprisonment. See our summary on the Company Directors Disqualification Act 1986 for warnings, impact and potential liabilities.
The proposal of a Company Voluntary Arrangement can sometime overcome difficulties encountered in these areas.
Seeking advice in good time and acting on it can often head off difficulties on these potential types of claim.
As Licensed Insolvency Practitioners, we are experienced in considering and advising on these issues.
Companies Act 2006 Duties
The Companies Act now codifies Director’s general and specific duties to work for the success of the Company. These obligations will be taken into account by a Licensed Insolvency Practitioner when considering his report on conduct and other potential causes of action.
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There are a range of other debt procedures – some of which do not need an Insolvency Practitioner to administer. Care needs to be taken to ensure that you the debtor are properly protected – it is all too easy to agree under creditor pressure to an unworkable or illogical deal.
Accordingly, take Professional Advice before signing up to these deals which include:
• Personal Administration Order• Debt Management Plan
If you have debts of less than £5,000 owed to at least two creditors and have a County Court judgement against you, you can apply to the Court for an Administration Order. Each month you make an agreed payment to the Court, which will distribute a pro-rata payment to each of your creditors. It will take a 10% fee for its costs.
Whilst the order is in place, no creditor can bring an action against you. Debt collection procedures will also be stayed. If you do not comply with the Order, it can be revoked, although it is possible to apply for a reduction in the size of monthly payments.
Gibson Hewitt will be happy to advise you on these procedures and to work out the scale of your monthly payments.
Debt Management Plan
There are companies who specialise in Debt Management Plans. We do not deal with these. These deals are very much a one size fits all approach to debt problems and do not provide any relief from the quantum of the debt; the deal merely reduces but extends the repayments which may last many years.
Debt Management Procedures
SeekingHelp
At Gibson Hewitt we use our general Investigation and problem solving skills to offer an additional service:
Expert Witness
We prepare the factual reports to aid solicitors and barristers conclude complex and detailed legal actions.Investigations into a wide range of areas whether for purchasers when considering whether to acquire or for other special purposes especially feasibility studies.
At Gibson Hewitt we have a first class reputation for producing supporting statements which stand up to robust cross-examination. We are able to provide persuasive, clear and concise jargon-free expert witness reports.
Ideally, the earlier we are approached the better. By becoming involved in litigation at an early stage, we can work together with your
legal team to build a strong case that is capable of withstanding attack from possible hostile experts engaged by the opposing side.
Our team of experts, as chartered accountants, have extensive practical knowledge of accountancy, together with a detailed understanding of the
legal process.
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We were recommended by our lawyers to seek the advice of Gibson Hewitt following a matter of suspected insolvency with our company.
Our initial meeting clearly demonstrated the depth of experience of Gibson Hewitt and in particular its senior partner Lynn Gibson.
Our case was a difficult one and resulted in unreasonable challenges from our other shareholders/directors.
Gibson Hewitt were able to offer sound advice and ensure that the end result was not only a fair outcome to us but a definitive end to what could have been a long and costly process.
I would not hesitate in recommending Gibson Hewitt to any other company for advice on insolvency issues.
Thank you for undertaking the task of liquidating my company. The process was remarkably painless and efficient and Jana was very good at keeping me informed along the way.
I met yesterday with my regular coaching supervision group and three of them are considering winding up their companies and I was happy to recommend you to them.
Examples of Success
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Phil and Lynn have been excellent in handling the liquidation of my wife’s business and her insolvency issues.
Phil is very knowledgeable, efficient and is always available to help when you need him – making an incredibly difficult time that bit easier. My wife had a baby just as we needed to sign some important papers, so Gibson Hewitt sent one of their team to the hospital with the papers!
Gibson Hewitt offer a professional, friendly and reliable service and I would happily recommend them.
I would like to thank both of you for the support you have given me during this very difficult time. Phil has been amazing and Lynn has been highly professional and very imaginative in finding solutions to what looked like intractable problems; however It is not over yet and there are many battles that lie ahead.
For once I can start to think about life after CVA and IVA / the technical work and writing proposals and delivering reports; something that makes money but I could not do with all the pressures surrounding the cash flows.
Mercifully, our brand is working its magic; we continue to get enquires from clients (we got one today from India which is just up our street); also past colleagues are gathering around and offering support that we will need when we approach the £1 million+ mark.
Glossary of insolvency terms in England & Wales
Debtor The person (or company) who owes money to someone else.
Creditor The person (or company) to whom a debt is owed.
Debt A sum of money owed to someone else.
Asset An item of value e.g., a house, car, debt, cash etc.
Mortgage A debt secured on an asset (typically a house).
Mortgagee The company to whom the mortgage is payable (e.g. the bank).
Insolvent
A company or individual is insolvent if either - i) they cannot repay their creditors as their liabilities fall due or ii) their liabilities exceed their assets
Solvent
A company or individual is solvent if:i) the can repay their liabilities to creditors as they fall dueandii) their assets exceed their liabilities
Bankruptcy A court based insolvency procedure for insolvent individuals. A debtor’s assets are realised by their Trustee in bankruptcy and used to pay their liabilities (so far as realisations allow).
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Individual Voluntary Arrangement (IVA)
A voluntary procedure for insolvent individuals typically used as an alternative to bankruptcy. This process normally leaves a debtor in control of their assets. A voluntary arrangement proposal is agreed between the debtor and their creditors.
Liquidation (aka winding-up)
A formal process which closes a company. Upon liquidation, control of the company passes from the directors to the liquidator.
Creditors Voluntary Liquidation (CVL)
The liquidation process used for an insolvent company when the process is commenced by the directors of the company. Generally seen as preferable to and more efficient than a compulsory liquidation.
Members Voluntary Liquidation (MVL)
The liquidation process used for a solvent company when the process is commenced by a director of the company. Often used as a tax efficient means of passing the residual assets in a company to its shareholders when the business has ceased. Any remaining creditors are required to be repaid in full with statutory interest from the date of liquidation.
Compulsory Liquidation (aka Compulsory Winding-Up)
The court based liquidation process. Typically (but not always) this process is commenced by a creditor when the directors of the company fail to repay a debt when it falls due.
Company Voluntary Arrangement (CVA)
A voluntary procedure for insolvent companies typically used as an alternative to liquidation or administration. This process normally keeps the company directors in control of the company’s business. The corporate equivalent to an IVA.
AdministrationA protective insolvency procedure for companies. Normally used to enable a sale of a business as a going concern which might not be possible via a CVL.
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Debt Management Plan (DMP)
An agreement between an insolvent debtor and their creditors. An informal alternative to an IVA, however, a DMP does not typically compromise debts or stop interest accruing on those debts.
Interim Order A protective court order for a debtor in the short period prior to an IVA which prevents any creditor from taking legal action or proceeding with a bankruptcy petition.
Statutory Demand
Used by a creditor owed at least £750 by a company £5,000 by an individual. If the debt has not been repaid within 21 days, the creditor may present a petition to the court.
Bankruptcy Petition
Document filed at court by either the Debtor themselves or a creditor seeking a bankruptcy order against an individual when owed £5,000 or more.
Winding up petition
Document filed at court by a creditor seeking a Compulsory winding-up order against a company when owed £750 or more.
Bankruptcy hearing
The event at which a judge considers the merits of a bankruptcy petition and decides whether a bankruptcy order should be made
Winding up hearing
The event at which a judge considers the merits of a winding-up petition and decides whether a winding-up order should be made
Bankruptcy order
The court order made by a judge (or High Court Registrar, or Adjudicator), which formally makes an individual bankrupt.
Bankruptcy hearing
The event at which a judge considers the merits of a bankruptcy petition and decides whether a bankruptcy order should be made.
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Voluntary Arrangement Proposal
A document agreed between creditors and the debtor in relation to either an IVA or a CVA. This document is typically drafted by an insolvency practitioner acting on behalf of the debtor.
This proposal is very flexible and will detail the terms upon which the Voluntary Arrangement is based and what the debtor is required to do to satisfy their debts.
Creditors are asked to vote whether or not with proposal should be accepted. If 75% of more (by value) of the creditors who vote, vote in favour then the voluntary arrangement is approved and binding on ALL creditors.
Nominee’s Report
An independent report written by an insolvency practitioner principally considering the merits and viability of the IVA or CVA proposal.
Dividend Sums paid from an insolvency procedure to creditors and members. Dividends to creditors are typically expressed in pence/£ and do not necessarily result in payment in full.
Statutory interest
The rate of interest payable to creditors in respect of court judgements and in the period after a formal insolvency period has commenced. This rate of interest varies but is currently 8%.
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How Gibson Hewitt can help
Gibson Hewitt are Chartered Accountants and Licensed Insolvency Practitioners that offer insolvency and business recovery services to businesses and individuals England and the UK.
We are insolvency professionals and pride ourselves on providing clear expert insolvency advice for when things are not going as planned.
We offer bespoke solutions to our clients’ problems in a professional, confidential and sensitive manner. As insolvency advisors we always look to the positives trying to save businesses through turnaround & restructuring, Company Voluntary Arrangements (CVA), Partnership Voluntary Arrangements (PVA) and Individual Voluntary Arrangements (IVA).
If these are not possible our services include Administration, Liquidation and acting as LPA Receivers.
We can also help the entrepreneur retire from his business by way of a Members Voluntary Liquidation (MVL).
To find out how our experienced team can help you, please contact us.
01932 336149
gibsonhewitt.co.uk
5 Park CourtPyrford RoadWest ByfleetSurrey KT14 6SD
