Insolvency - Keep It Simple

HMRC tightens TTP Criteria

2011-06-28T11:15:00.003+01:00

An article from Accountancy Age (here) sets out a new criteria being applied by HM Revenue & Customs for accepting Time To Pay ("TTP") agreements.

Basically, HMRC are saying that if owner/director/shareholders are extracting their remuneration from their company in the form of dividends (which is arguably the most tax-efficient way for an individual) then they will not agree a TTP for the company. I'm not pro- (or anti-) HMRC but this seems perfectly sensible to me.

There is a legal requirement under the Companies Act 2006 that dividends can only be paid from distributable profits. Whilst "profits" doesn't always equal "solvent", it is common sense that profits should only be taken if provision has been made to pay a company's future liabilities, which, like it or not, includes amounts due to HMRC. If a company is insolvent (i.e. can't pay its debts as and when they fall due, which is the case if a TTP is on the table) then any "dividends" paid to shareholders are likey to be clawed back by a Liquidator as a preference to the receiving director/shareholder.

If a trade supplier was told they couldn't be paid because the profits had been taken out of the company via dividends for the director/shareholders, then kneecaps would be at risk. Why then should HMRC not enjoy being paid from the profits when everyone else is?

In my view, if remuneration is extracted via a PAYE salary, even though this "costs" more than simply taking out dividends due to the additional tax liability each month, then HMRC is more likely to view a TTP proposal in a better light as it will receive ongoing PAYE/NIC liabilities at the same time as TTP payments. A PAYE/NIC salary would also not be at risk of being clawed back in a liquidation as well!

Come on everybody - be sensible about how a company's liabilities are settled if it hits a rough spot. Better yet, get some advice from an Insolvency Practitioner on how to deal with financial difficulties!

Good advice on running a business

2011-05-26T11:57:00.004+01:00

As an Insolvency Practitioner I am regularly referred potential clients by accountants to advise the client on financial difficulties. Very often it is at a point where they are already in financial distress, and usually have been in distress for some time! Why do people/businesses/companies get into financial difficulties to start with?

An article (here) by Robert Craven (The Director's Centre) very clearly spells out why businesses get into difficulties: bad management... There are occasions when an unexpected outside factor (such as the failure of a critical customer or supplier) can knock a business for six, but even those situations can largely be anticipated by forward planning and keeping an eye on matters. I spend approximately 40% of my time managing my own practice, quite apart from doing the work and marketing/development etc. A lot of directors spend much less than that and very often with small businesses it can be less than 10% of "the management's" time...complete folly!

I like Mr Craven: he's very direct in his opinions and advice, very much like me! I tell it as it is, rather than how a client might want it to be. Some of his ideas I don't subscribe to, but by and large what he says makes sense and can be applied generally across the board for any size of company.

As an Insolvency Practitioner, I'm not just here to advise when things go bad. Very often a regular (even once a year) review of a business by me, looking at it from a potentially insolvent point of view, can give an independent view on how the business actually is, rather than how directors perceive it to be. Playing Devil's Advocate can often turn up surprising results and allow directors to plan ahead and deal with problems before they become critical.

Go on, you know you sometimes need help - don't be afraid to ask for it...!

Accountants don't "do" Twitter!

2011-05-24T18:02:00.005+01:00

Here's a surprise: accountants don't market through Social Media...here. (Does that mean most of them won't get to see this blog through my Twitter link!!?)

Let's face it, many accountants are superb at their job and are experts in many financial fields. However, marketing generally is something that they are NOT renowned for - which accountant can honestly say that when he (or she) grew up they wanted to be an accountant and a marketing expert!!

Social media is great for promoting certain types of business, particularly if you're looking at a business model that is based on quantity ratehr than quality (i.e. a large number of clients paying small fees, ratehr than a small number of clients paying large fees - it would be great to always have large numbers of clients paying large fees, but that particular Utopia is not generally achievable by mere mortals!) However, where you are concentrating on quality over quantity, social media (in my opinion) just does not work. The "traditional" marketing techniques of word-of-mouth and referral are still very powerful.

Take my business for example: name me anyone who has experienced financial difficulties who contacted an insolvency practitioner through social media for advice! Just doesn't happen! What does happen is that the speak to their own advisor (e.g. accountant, solicitor, IFA or even perhaps the bank manager) who will probably know and trust an IP and will refer them to that IP for sensible advice. I can confidently say that 95%+ of my own clients come from referrals.

This way (by referral) at least the client will know they're meeting with someone who will give them proper, sensible advice rather than hoping they'll get it from someone they first "met" on Twitter!!

Reduction in personal insolvencies hits IVA firm

2011-05-24T17:47:00.003+01:00

I blogged earlier this month (here) about the 2011 Q1 insolvency statistics which included a comment on personal insolvencies and that fact that these had decreased.

Unfortunately this has had a knock-on effect on a volume IVA provider, as detailed in Accountancy Age (here). Whilst I am sure the IVA provider will factor in the reduction now and in the future, it is a sure sign that such volume IVA providers will struggle in the future.

I have to say I am not a fan of volume IVA providers as they tend to "commoditise" a complex formal insolvency procedure and apply almost a "one size fits all" approach to a procedure that is meant to be bespoke for a debtor's circumstances. Don't get me wrong there are some extremely competent and reputable volume IVA providers out there. However, I have seen many instances over the last few years where debtors have been persuaded to enter an IVA when such a procedure was completely the wrong thing for them.

IVA's do work, particularly if they are well written. I do suspect, however, that we will see a further fall in the number of IVA's in favour of Debt Relief Orders in the near to medium future. This may mean more volume IVA providers struggling due to lack of income (i.e. lack of new cases) and hopefully this will not lead to an increasing desparation on the part of the volume IVA provider to persuade even more people into an inappropriate IVA.

Always make sure you get sensible advice, consider all the alternative options (not just an IVA) and above all make sure you undertsand what you are committed to with an IVA. If necessary, get a second opinion from an independent Insolvency Practitioner who will be more than happy to help.

2011 Q1 - Insolvency Statistics

2011-05-09T11:35:00.006+01:00

The Insolvency Statistics for the first quarter of 2011 (to 31 March 2011) were released by the Insolvency Service on 6 May 2011. The press release can be found on our website here or alternatively, the full details can be found here.

The most common form of corporate insolvency is liquidation - either compulsory through the Court or voluntary through the directors/shareholders. Overall, liquidations are up by 3.7% on 2010 Q4 and by 2.1% on 2010 Q1. Not surprising given that this is what you would expect to happen when an economy starts to come out of a recession. Total liquidations for 2011 Q1 are 4,121 (2010 Q1: 4,036).

What you don't see is that there was a reduction of 17% for complusory liqudations compared to 2010 Q1 and an increase of 11% for voluntary liquidations compared to 2010 Q1. The numbers are greater for voluntary liquidations hence the overall increase. In my view, there's a simple explanation for this - most compulsory liquidations are as a result of winding-up petitions presented by HMRC. With the continuing Time To Pay ("TTP") scheme, even though it's getting harder to agree a TTP, there has been a general decline in such petitions.

On a practical basis this means that more directors are putting their companies into voluntary liquidation, rather than waiting for a creditor (such as HMRC) to do it through the Court. It's not clear from the detailed statistics, but it would suggest to me that with HMRC tightening up on TTP schemes, the increase in voluntary liquidations may well be as a result of this.

Based on the first quarter's figures, liquidations overall in 2011 may well reach 16,500 companies. This compares with the total for 2010 of 16,045, a potential increase for 2011 of nearly 3%. (The highest recorded in the last 10 years was 2009: 19,077 and the lowest was 2003: 12,184.)

On administrations (the formal insolvency process that may sometimes give rise to the infamous "pre-pack"!), these remain almost exactly the same comparing 2010 Q1 (783 admins) and 2011 Q1 (782 admins). However 2010 Q4 to 2011 Q1 shows an increase of 22% (140 additional companies). Not really surprising given the dreadful weather over Winter 2010 and the lack of retail spending over Christmas 2010. Hopefully that's a seasonal blip...

On individual insolvencies, this looks better: there has been an overall reduction of 15% comparing 2011 Q1 with 2010 Q1. This still equates to 30,162 individual insolvencies in the first 3 months of 2011. This includes bankruptcies (-31%), Individual Voluntary Arrangements (-8%) and Debt Relief Orders (+20%). The increase of 20% in DRO's is nothing to worry about as these are just "non-asset, low debt" bankruptcies in another form. We're still looking at reduction to potentially 120,600 individual insolvencies in 2011 compared to 135,045 in 2010.

However, I suspect that the fallout from the spending cuts hasn't worked its way through yet. Job cuts inevitably lead to finacial difficulties for individuals but those difficulties may not result in a formal insolvency until 12 months or more after the fact. I further suspect that 2011 will be less than 2010 for individual insolvencies, but 2012 will see an increase, possibly with a higher total than 2010.

You can obviously interpret statistics in all sorts of ways! My overall impression however is that corporate insolvencies are up slightly and individual insolvencies are down slightly compared to last year. However, the upward corporate trend from 2010 Q4 is quite high (3.7% liuqidations and 22% administrations) so it will bear watching for the next statitics, due out in early August 2011.

HMRC v FA - Round 1

2011-05-06T14:22:00.005+01:00

One of my favourite subjects - the Football Creditors' Rule! The FCR allegedly allows the FA and any other football creditor to have a "super-priority" to be paid in front of every other creditor when a football club becomes insolvent. There is no provision for this in the Insolvency Act 1986.

A date has finally been set (see here) for 28 November 2011 the High Court to consider whether or not the FCR should be allowed to stand or if the FA should be relegated (sorry!) to unsecured status as a creditor like everyone else. If you've read my previous blogs (hint) you know that I happen to agree with HMRC on this one.

November will be very interesting...

Cashflow problems - can't pay, Sir!

2011-05-05T12:55:00.003+01:00

Hmmm...a recent ruling in a Tax Tribunal may open the floodgates to more companies seeking to get away with delayed payments to HMRC without having to go through a Time To Pay ("TTP") scheme.

I have to stress that each case is considered on it merits by a Tribunal, but with HMRC getting tougher on granting TTP's, I can see this trend getting bigger. However, the Tribunal needs to decide if the delayed payments were due to a "reasonable" excuse - a very subjective test indeed. You will need to be sure your reason is reasonable before even thinking about this one!

Otherwise you'll definitely need the advice of an Insolvency Practitioner!

HMRC - waking the sleeping bear...

2011-05-04T15:27:00.004+01:00

I blogged back in November 2010 (here) that HMRC was getting tougher on Time To Pay ("TTP") schemes. An article in Accountancy Age (here) has now backed this up. The article also states that some 75% of companies are now blaming HMRC for their insolvency.

I'm, sorry, but COME ON!! Tax liabilities are exactly the same as trade liabilities - they are a debt that needs to be paid. HMRC is not a bank and doesn't make loans that can be repaid over time: the tax legislation specifically sets out what has to be paid and when. Whilst I have little sympathy for HMRC in that it has abysmally failed in recent years to chase its own (tax due) debts, I also have little sympathy for companies who do not provide suffucient cash to pay their tax liabilities as they are legally obliged to and "blame" HMRC for their insolvency troubles.

When times are tough, HMRC has traditionally been given the lowest priority for paying a debt ("it's the Govrnment, they can afford for me not to pay them"). However, following the banking crises and the current recession etc, the Government can't afford for you not to pay them. They are simply now acting as any other trade creditor has and are exercising decent credit control by trying to collect in their debts! I'm not pro-HMRC, but only a little common sense needs to be apllied to understand what they are doing...

HMRC is generally not unreasonable if you are having difficulty paying a tax debt, just like any other trade creditor, and will still listen to proposals for reasonable TTP schemes. However, you can only expect to get one chance to agree and stick to a TTP scheme. If you go back for another bite of the cherry, don't be surprised if you get refused. If you don't pay the tax due, HMRC cannot withold supplies from you as a trade creditor might be able to unless you pay them, as its debt arises from the activities of a business (e.g. PAYE, NIC, Corporation Tax etc) and can only be collected after the fact. Their only real remedy for absolute non-payment is formal insolvency proceedings and issuing a petition for a winding-up order against the debtor company.

HMRC is like the sleeping bear - it takes a lot to wake it up but once it's awake there's not a lot you can do to stop it from chasing you! Before the bear is awake, take advice from your accountant, or better still an Insolvency Practitioner, and wake the bear gently with a pot of honey (i.e. how you're going to pay the tax) to soften its temper! Better still, make provision for paying the tax and don't wake it up at all!!

Company Insolvency Risk Increases

2011-04-27T11:11:00.007+01:00

I haven't blogged for a while - the simple reason for this is I've been REALLY busy! Every silver lining has a cloud so whilst it's good for me as an Insolvency Practitioner, it's not so good for others.

A recent article in Accountancy Age (here) backs up the increase in work I've been seeing. The statistics for insolvencies for Q1 2011 will be published around 6 May 2011 - they will make interesting reading. I have no doubt they will follow the typical pattern of the UK economy coming out of a recession in terms of an increase in failures.

I've been doing a lot of advice and more informal (non-Insolvency Act 1986) work for companies that are buckling but not yet on their knees. One of the useful services we offer is carrying out a snapshot review of a company to see what insolvency risks there are. At ipd this is called a "Financial and Options Review" and more details on this can be found here. A typical review will take 2-3 days and the results are available in a very short time so that problems can be sorted quickly.

Essentially the review gives an independent view of the financial state and health of a company, which can often differ from the view held by the directors - it's a very useful tool to give them a better perspective on what is actually happening and allows them to see what the problems are that need addressing. Very often a director will not recognise that there is a problem already or one that may be looming in the very near future and therefore hasn't taken steps to deal with it. It will also provide them with advice on the risks of potential personal liability if the company is insolvent.

The review is also very useful for any company that is experiencing difficulties with its funding requirements, e.g. in terms of maintaining an overdraft facility or wanting an increase. On the basis that the review shows that the company is actually in reasonable or good financial health, the fact that an Insolvency Practitioner (cynical creatures that we can be!) has looked at it and given it a clean bill of health can be reassuring for a Bank or other lender in terms of continued or additional support for the company.

Whilst 90% of the time an Insolvency Practitioner will only be called in at two minutes to midnight, asking him to visit at 11.30pm will often yield surprising results! We don't bite really!!

Football Creditors Rule - Red Card Part 2

2011-02-16T14:19:00.001Z

Talk about "match postponed" - see here!!!

Football Creditor Rule - Red Card?

2011-02-14T11:24:00.002Z

I'm certainly not anti-football (in fact I'm an avid Stoke City fan - no comments please!)

However, HMRC is challenging the controversial "football creditors rule" where the Football Association insists that all football creditors must be paid in full (managers, players, clubs etc) before any other creditor if a football club goes into administration/CVA etc. This effectively means that the FA becomes a super-preferential creditor. See article here. I don't always agree with HMRC but in my view it is right to tackle (sorry!) a situation that is clearly against the provisions of the Insolvency Act 1986.

I'm all for any measure that helps rescue a business, including a football club, but everyone has to be on a level playing field (sorry again!) for it to be fair play (ouch!) for all!!

(I'll try and moderate the football puns in any subsequent blogs!)

50 year Personal Insolvency High

2011-02-07T12:22:00.004Z

It's official...

Statistics released by the Insolvency Service on 4 February 2011 (here) show personal insolvencies (a combination of Bankruptcies, Individual Voluntary Arrangements and Debt Relief Orders) to be the highest in any one year since records began in 1960 - 2010 saw personal insolvencies top 135,000.

This does not of course include individuals who are simply struggling to cope with credit burdens whilst trying to do so on their own, or indeed people who are in Debt Management Plans. As a conservative estimate, you can probably multiply the insolvency figure by a factor of 10 to get a rough idea of the number of these classes of debtors.

I can only (with a certain amount of trepidation) predict that these numbers will increase during 2011. It is somewhat inevitable given the Government Spending cuts resulting in job losses, potentially raging inflation and the VAT increase making everything that little bit more expensive for Joe Public. A large proportion of Joe Public is already struggling just to pay the mortgage and put food on the table.

As an Insolvency Practitioner dealing with corporate insolvencies (as well as individuals) I have seen an increase in directors seeking advice from me as to how to deal with financial difficulties relating to their businesses. An increasingly larger proportion of that advice (compared to 2010) is sadly now resulting in those companies entering a formal insolvency procedure (such as liquidation or administration) where it is unlikely that jobs can be saved. As well as job losses directly attributable to the spending cuts, private companies are also shedding jobs in one form or another.

I think the Coalition's hope that private industry will at least replace the jobs lost through the Government's spending cuts is looking increasingly unrealistic, at least for 2011. This can only lead to more fiancial difficulties at a personal level.

Once again, I would urge both directors and individuals to seek professional advice on dealing with their financial difficulties as early as possible. And by this I don't mean calling the freephone number of a debt advisor you may see in the newspaper. Whilst some of these are reputable, the old adage of "you get what you pay for" still holds true!!

Insolvency Service Madness!

2011-01-14T13:38:00.006Z

An article in today's Accountancy Age has revealed that the Insolvency Service (which is the Government department that deals with individual bankruptcies and the liquidation of companies through the Courts) is shedding some 440 jobs from its Offical Receivers Offices around the UK.

This equates to a reduction of something like 14% of the OR's offices' staff. The reason being given is that the number of personal and corporate insolvencies being dealt with by the OR's offices is falling. However, the Insolvency Service's own statistics for Q3 2010 (the latest available) show total personal insolvencies have only reduced by 3.7% compared to Q3 2009.

Admittedly, the number of bankruptcies have actually fallen by 24% but the number of Debt Relief Orders have risen by 57%. DRO's still need to be dealt with by the OR's offices. With the Government's own spending cuts yet to take affect and the prospect of 500,000 public sector job cuts happening, this really seems short-sighted to me to be reducing the OR's staff levels at this stage. I suspect that the number of bankruptcies will increase during 2011/12 as many public sector workers will not be eligible for the simpler DRO process and will need to enter bankruptcy instead.

(If you need more information on Debt Relief Orders see our website under Useful Stuff/Insolvency Technical Briefs)

Professions Bad with Money!

2011-01-14T08:01:00.004Z

A recent article in Accountancy Age shows that even the most qualified of professionals can get into financial trouble.

I have to say that my experience over the years has shown that whilst most "professionals" (e.g. accountants, solicitors, architects etc) manage their personal and business finances exceptionally well, when it goes wrong, it goes wrong in spectactular style!!

I think this is mainly down to the fact that these types of individuals are usually high earners and therefore also have a high level of financial outgoings. When the income drops (sometimes even if it is only slightly) then the high level of outgoings creates fiancial problems in a very short space of time.

"Accountant, heal thyself" is a very rare phrase to hear as you would think that this type of individual would be able to deal with 'the numbers' very well. However, many accountants (but by no means all of them) are so number-focussed that practical and commercial acumen doesn't always come into play. Same with solicitors and architects: they get so caught up in doing the job for their client (no bad thing) that they lose sight of the commercial reality. Whilst the client will get a gold standard service, it may only be able to pay coppers.

Having advised an accountantcy practice, a law practice and an architects practice on insolvency matters in the last 12 months, all of these things have rung true.

However, don't be afraid of seeking advice from your accountant, lawyer etc - they will undoubtedly be able to help you. All I will say to the professional is that they need to ensure they run their practice as a business just as much as anyone else who runs a business. If you do start to experience financial difficulties, seek help from an insolvency practitioner sooner rather than later

Community Radio - Insolvency Matters!

2011-01-11T17:08:00.003Z

I had a great broadcast slot today with 6Towns Radio - a local community internet radio station for Stoke on Trent and North Staffordshire, courtesy of my good friend Nigel Howle from Howle Communications. Nigel can also be contacted on www.Twitter.com/howlecom.

Nigel asked me to do a slot on insolvency matters generally and in particular on HMRC's Business Payment Support Service (otherwise known as the Time to Pay "TTP" scheme). I won't go into it in any detail as my previous blogs have already covered these two areas, but I did follow Shaun Cloyne from HMRC Stoke on Trent who was talking about tax matters and he gave me a perfect follow-on to start talking about insolvency and being unable to pay taxes!!

Community radio performs a great function as it concentrates on local issues - something I'm very keen on. The station itself was started with a small grant but the majority of funding comes from a local businessman - all contributions are therefore wlecome! Contact the station directly.

Mixed Messages for 2011

2011-01-05T12:15:00.006Z

I haven't blogged for a while, simply because I've been pretty busy the last few months on the run up to Christmas 2010. But, New Year, new determination to inflict my views on the world again!

As an Insolvency Practitioner, I'm not always regarded as the life and soul of the party. However, once a business starts running into financial difficulties, an IP can be a godsend. Just as a reminder of what I'm all about, have a look at my website at www.ipd-uk.com.

2011 will be a difficult year for anyone facing financial difficulties. An article in Accountancy Age on 23 December 2010 sums it up nicely. Bank lending to smaller businesses is likely to increase, but not to any great extent and certainly not to levels previously seen prior to the credit crunch in 2008. UK GDP is expected to grow but only in the region of 1-2% over the year. Estimates of 3-4% I feel are wildly optimistic. That the economy is showing (and is expected to continue to show) at least some growth is very encouraging, but with the increase in fuel duties, increase in VAT to 20% and implementation of the Government spending cuts, 2011 is going to be a very tough year on Joe Public's pockets.

The obvious knock-on of this is that retail is likely to suffer. I'm not going to speculate on which it might be, but I have a gut feeling that 2011 will see at least one, maybe two, more big high street retail names dropping off the perch. I hope it won't happen, but...

Regarding us mere mortals, and by this I mean SME's, insolvencies of smaller businesses are VERY likely to increase. This will be down to several factors:

HMRC is getting tougher on Time To Pay ("TTP") agreements and are agreeing far less of them. The TTP system has, in my view, been abused by those who either actually could pay their tax normally, or hadn't got a hope of ever paying it and a TTP was an easy touch (in the period running up to the election) to use to simply delay the inevitable. This has resulted in those who could have genuinely benefitted from a TTP being denied the chance;
VAT increase - need I say more;
As the economy improves, it may become more attractive to close a struggling insolvent business. Over the last 3-4 years, much of the bank lending to small businesses has been done on the usual security bases, but largely also included a personal guarantee from a director, backed up by a charge on his house. Twelve months ago, closing a company with a £50,000 overdraft would have meant the director losing his house to the bank to pay it. Now, with an improving economy, that overdraft may have reduced down to £20,000 which is more affordable to settle without losing the house.

Judging by the number of enquiries I received pre-Christmas 2010 for insolvency advice, this looks increasingly to be the case...

Whilst I am always happy with an increase in my work, my silver lining is always someone else's cloud. Those clouds can either be light fluffy ones that are easily dealt with if they're tackled early or black thunderheads if matters are left to drift too long. IP's don't bite - use their skills!!

Time To Pay Schemes - being withdrawn?

2010-11-01T12:23:00.003Z

HM Revenue and Customs have provided a Time To Pay scheme ("TTP") to businesses who have struggled to pay their tax on time since December 2008. A TTP scheme (once approved) allows a business to defer payment of its outstanding tax by paying it over a period of time. That period can vary from a few months to 12 months or even possibly more.

However, statistics published in October 2010 (see here) show a dramatic reduction in the number of TTP schemes being approved. In the 12 months of 2009, 256,500 schemes worth £4.5bn of unpaid tax were approved. However, in the 9 months to September 2010, only 114,600 were approved, worth £1.9bn of unpaid tax. Scaling this up to a potential 12 months for 2010, this is a reduction of 40.5% on the number of schemes and 44.5% in value compared to 2009.

Essentially therefore, the number of businessess taking advantage of a TTP scheme has almost halved in less than 12 months.

It is difficult to draw any conclusions from this set of statistics in isolation. The decline in approved TTP schemes could be down to businessess improving in their financial health to the extent that they feel they don't need a TTP to survive. However, it could be that those businessess just haven't applied for a TTP because they feel they simply won't get one due to an acknowledged "tougher" stance by HMRC. Once the third quarter (to the end of September 2010) insolvency statistics are released (in November 2010) a comparison can be made to see if there has been a corresponding increase in business failures.

My own experience as an Insolvency Practitioner over the last 12 months or so is that businesses that probably (on 2009's perceived acceptance criteria) should have had a TTP approved, had it rejected in 2010. This would fit in with the rate of refusals which were 2.6% in 2009 and are currently 5.2% so far in 2010. This indicates to me that even though less businessess are applying for a TTP, more are being rejected. The Coalition Government has indicated that TTP will remain an option open to all businessess for the forseeable future. However, in my humble opinion, how long TTP will actually be available will depend on your interpretation of "forseeable" - this may be shorter than you think!!

Liverpool FC going down?

2010-10-11T17:49:00.004+01:00

Anyone who follows my blog, in particular where it relates to football insolvency, will know that football clubs have been having atorrid time lately. The latest high-profile on is Liverpool FC which is facing a very uncertain future. More details here!

More comment on this when the news breaks!

OFT bares its teeth on Debt Management

2010-09-30T18:35:00.003+01:00

The Office of Fair Trading ("OFT") issued a report in September 2010 on its finding into the debt management industry. The full report can be found here (all 107 pages of it!). It concentrates on Debt Management Firms rather than Insolvency Practitioners, who were subject to previous report in June 2010.

I was lucky enough to be asked to comment live on this on BBC Radio Stoke (94.6FM) on Drivetime with Tim Wedgwood on 28 September 2010 at around 5.35pm - BBC iPlayer territory now!!

In essence the report examines the advice provided by "Debt Management Advisors" who are supposed to help individuals deal with financial problems by negotiating settlements or payment plans on their behalf. Some 276 firms out of 829 responded to a questionnaire sent out by the OFT and the responses can be considered as statistically significant. It should be noted here that the OFT has issued (in my view) pretty clear guidelines on how debt management/advice etc should be undertaken called the Debt Management Guidelines ("Guidelines")

Various questions were posed, and of those who returned the questionnaire the % of responses where the answer was "No" or no response was given at all on a selection of questions were:

Have your employees used the OFT's Guidelines? 30%
Have your employees had training on the Guidelines? 43%
Do you provide staff training on the Guidelines? 45%
Do your employees have access to copies of the Guidelines? 38%

This is SCARY!!! A third of these so-called "advisors" don't use the Guidelines and nearly half of them have never received training on them!! You will often find that the "advisor" is simply working off a script...

All of the firms examined had a Consumer Credit Licence and were subject to review and regulation by the OFT. It found that over 130 of the firms examined were non-compliant with at least one aspect of the Guidelines and over 50 firms were non-compliant on three or more aspects. This is dreadful and I can only express my horror that individuals are relying on these firms to assist them, often with them having to pay a fee for what is frankly useless and misleading advice in many instances.

Action has now been taken by the OFT on 129 debt management companies which could result in prosecution - YES!! The OFT will also be reviewing it Guidelines and enforcement procedures as a result of the findings.

I could rant on and on with this...

My general experience as a Licensed Insolvency Practitioner is that a lot of Debt Management Providers are useless and an individual who seeks their help often ends up being worse off than they were before they contacted the Provider. (I hasten to add that there are some good ones out there, but they can be hard to find!) Individuals would be much better off taking initial advice from a Licensed Insolvency Practitioner who will have had the training and gained the experience to be able to advise themon ALL aspects of debt management (including IVAs, Bankruptcy and Debt Relief Orders) and not just a debt management plan; 9/10 times, a first meeting with an IP will be free anyway!

If you must use a debt management provider then PLEASE ensure they have a Consumer Credit Licence and will therefore be regulated by the OFT. If they don't have this - don't touch them!!

Legislation Finder

2010-09-30T15:27:00.003+01:00

I have an obvious need to keep up to date with any insolvency-related legislation. Luckily, my trade body, R3, provides me with regular updates that have already had the legislation summarised for me. However, sometimes I need to access the actual text of the legislation and before now, finding an electronic copy to search has been a real pain.

Now, however, a new website has been launched by by the National Archives which lists all UK legislation from 1988 (and some but not all prior to this) and is a great resource if you need this sort of thing! Go to:

http://www.legislation.gov.uk/

The original Statutory Instrument [piece of legislation] (as enacted) and revised versions of legislation on Legislation.gov.uk are published by and under the authority of the Controller of HMSO (in her capacity as The Queen's Printer of Acts of Parliament, and Government Printer of Northern Ireland) and the Queen's Printer for Scotland.

Each Statutory Instrument is subject to Crown copyright, but reproduction of any piece in an unaltered form is free of charge, providing you also state "(C) Crown Copyright" somewhere in the document.

Banks are STILL bottling it!

2010-09-21T07:54:00.004+01:00

I'm not a great fan of The Mail (more a Times person) but there's an interesting article here.

As an Insolvency Practitioner, part of my role is to help people (individuals as well as businesses/companies) deal with financial problems. Sometimes that "help" is as simple as restructuring their cash flow with the aid of a small loan. However, this isn't always as simple as it sounds. Small businesses are vital to UK plc's economic health and a small loan can often be the tonic that's needed to get them through a bad patch.

The banks however seem to have ignored this point. I regularly advise small businesses and whilst I can assure them that funds are available out there from the banks (they are, honestly!!), the hurdles that need to be cleared have simply got higher and higher over the last two years. Most notably is the almost universal requirement for a personal guarantee from the directors supported by a charge over their personal property. I would never recommend this, but often there is little choice for the directors if they are desperate for the funds...

The banks also insist on a ridiculous level of security where this is available. One instance I came across a few months ago was that the bank would lend £100,000 to a small business (turnover around £3.5 million) but insisted on a 400% security coverage against the company's freehold trading premises which was owned by the directors. I have absolutely no objection to a bank securing its lending (perfect business practice in a difficult economic climate) but 400% is way too excessive.

Without help through the difficult economic conditions, small businesses WILL fail. Yes it's more business for me as an Insolvency Practitioner, but I would much rather be in a position to help a business to recover than be the last resort to give it a decent burial.

Come on banks, get off your backside and make some sensible (and vital) lending decisions.

Rogue Directors Banned

2010-09-06T16:15:00.005+01:00

The Insolvency Service has disqualified two “reckless” financial directors who claimed to sell financial products to people with poor credit ratings. The "financial products" were initially franchises which were being sold to supposedly help people out of their financial troubles by providing them with 6-figure incomes. Average franchise purchase costs were about £6,000 plus VAT and over 27 people got caught out for £120,000! The recorded commissions they earned amounted to just £450!

After being caught out the business transferred to another company and began offering advice on debt management and IVAs, as well as again selling franchises.

This vividly illustrates the need for anyone suffering from financial troubles, to seek proper and professional advice, rather than trying to get out of their problems using a "get rich quick" scheme. I'm very sorry to say that if it waddles and quacks it's usually a duck and you should stay clear of it! This is where a Licensed Insolvency Practitioner is worth his weight in gold (although sadly I don't get paid that way...!) in providing good, sound advice on dealing with financial problems.

It also shows that, eventually, rogue directors will get caught and punished appropriately.

The disqualification follows the Service liquidating the directors' companies last year, which included Charter Financial Solutions and Finance Select on the grounds of public interest.

Investigators found that, amongst other matters, the directors had deliberately given false information to a high street bank when applying for a company bank account. The directors wrongly stated they had never been associated with a business that had had a court order of a debt registered against it. In all five companies were closed down and Christopher Lake and Stephen Knight have been banned for a total of 16 years.

Further information can be obtained from The Official Receiver, Public Interest Unit North 2nd Floor, 3 Piccadilly Place, London Road, Manchester, M1 3BN. Telephone No: 0161 234 8531. Email: piu.north@insolvency.gsi.gov.uk.

Insolvency Reform plans dropped

2010-09-06T15:14:00.002+01:00

A huge re-vamp of Insolvency Legislation came into effect on 6 April 2010 (the last major re-vamp was in 2003). Whilst it didn't change the underlying structure and principles of the Insolvency Act 1986 in dealing with personal and corporate insolvency, it did modernise the legislation to take account of such things as electronic submission of forms, documents etc, use of email and particularly allowing remote meetings of creditors where appropriate. It also simplified the procedures by harmonising these across both the personal and corporate processes.

This was intended to be the first of a major series of reforms aimed at bringing the insolvency legislation into the 21st Century and simplifying it as much as possible. For those of you who are interested, this area of legislation has grown to almost unwieldy proportions since the abolition of debtors' prisons (a mistake some may say...!) in the late 1800's.

It was further proposed that more reform was needed, specifically by introducing a Chapter 11-style process as operated in the USA. This is where a CVA style process is entered into (even for companies that are hopelessly insolvent and should be closed) by the directors of a company in order that they can carry on trading and an orderly winding-up of the company is conducted under a process where the Court (rather than an Insolvency Practitioner as is the case currently in the UK) presides. However, an article in Insolvency News (here) confirms that further reform is unlikely in the short to medium term future.

THIS IS NOT A BAD THING!! In my opinion anyway! I'm slightly nervous of Chapter 11 (or similar) becoming the norm in the UK, as we already have an analogous process called "Administration" that as far as I am concerned works particularly well. This has been around since 1986 and has been tweaked several times since, particularly from April 2010 to provide a much higher level of transparency to the process.

Any major reform needs a lot of back office support to make sure it works in practice as well as theory and that support is generally provided by the Government's Insolvency Service in its monitoring capacity. Given the upcoming Government spending review in October 2010 and the already known requirement to reduce the Insolvency Service's costs by over 10%, such support would not be available to ensure the reforms worked properly.

All legislation is imperfect - you can't have a "one size fits all" statute. What we have got to date is a set of reasonably workable statutes and further tinkering with some areas and not others (i.e. a piecemeal approach rather than an overall one) simply makes it more confusing for everyone (even the IP's occasionally!)

Premier League Footy uses TTP!

2010-08-24T16:42:00.002+01:00

Having just blogged (here) about how HMRC is making it more difficult for me to assess if a Time To Pay ("TTP") proposal could be accepted by HMRC, we now find that Premier League and Championship clubs have already deferred over £6m in tax since 6 April 2010 (about 5 months!). The full article in Accountancy Age is here.

No wonder HMRC is getting continuing to get tough on football clubs, although I happen to agree that they should! It would be useful if HMRC would provide some better guidelines on what a basic TTP scheme should cover, but the usual answer is always "..each case on its merits..." Doesn't help though!

HMRC holds back on Time to Pay information

2010-08-24T16:14:00.005+01:00

In an article in Accountancy Age on 19 Aug 2010, it was revealed that HM Revenue & Customs are witholding statistical information on the Time To Pay ("TTP") scheme utilised by struggling taxpayers in recent years. The article can be found here.

The information is used by insolvency practitioners (such as me!) to determine if a business is likely to be successful in achieving a TTP, or whether time and effort could be better utilised pursuing another strategy to protect the business. This effectively leaves me (and other advisors) with no benchmarks to work to.

It is clear in the past that in some cases, the TTP scheme has obviously been abused either by companies that could actually pay thier tax on time, but chose to defer it using the scheme, or by those companies who would never have been able to pay, even under TTP, and used it as a mechanism to delay the inevitable closure of their business.

In HMRC’s latest annual report, released in March 2010, TTP agreements were estimated to be more than £5bn which had led to recoveries of at least £2bn that would not have otherwise been achieved. However, the recent lack of information could be a sign that HMRC is tightening up on its previously relaxed admittance policy to TTP schemes.

Although TTP will be available to companies until 2015, HMRC may also be reducing the length of time TTPs run. It could bring many schemes down to 12 months from the previously set standard of 18 months. I believe this is already happening anyway as the majority of TTP schemes I have come across, or negotiated on behalf of clients, during 2010 have been limited to 12 months anyway.

In my view, by failing to reveal the data, HMRCis definately making it harder for companies to manage their tax debt properly. A HMRC spokesman said: "Publication of the statistics has no direct bearing on the level of service (hmmm...) that HMRC provides for the Business Payment Support Service...there has been no change in HMRC's policy or criteria for TTP, which has long been a feature of HMRC's approach to tax debt collection. Each case is considered entirely on its own merits." Draw your own conclusions from this...!

With the strong possibility of a "double-dip" recession, most probably during the first 6 months of 2011, properly managed TTP schemes could mean the difference between survival or failure for many companies. HMRC needs to recognise this and keep providing the statistics.

HMRC's defence needs a new back four

2010-08-06T12:26:00.003+01:00

I'm pleased that HMRC have failed to overturn the Portsmouth CVA as I feel the grounds for objecting to it were wrong, given the effect of the Football Creditors Rule. HMRC should (and indeed is) challenging the FCR separately.

However, the failure to defeat the CVA has cost HMRC (and indirectly us, as taxpayers) £200,000. See the article in Accountancy Age here. Methinks HMRC's defence needs bolstering for the next round!

Portsmouth FC survives...just

2010-08-06T12:22:00.002+01:00

Portsmouth FC have managed to hang on to their CVA, by the skin of their teeth. Well done Portsmouth!! See the article in Accountancy Age here.

It still doesn't sort out the unfair Football Creditors Rule, but at least sense has prevailed! CVA's can work in the right circumstances. It's now down to Portmouth to ensure that the terms of the CVA are met. We shall see if their performance will bring them back to the Premiership next year!

Premier League defends preferential insolvency rule

2010-07-28T11:18:00.003+01:00

The debate rages on!! The Football Association ("FA") has started its defence of the (in my view) totally unfair Football Creditors Rule ("FCR") which it claims gives it super-preferential status over any other creditor in a formal insolvency of a FA football club. See the article in Accountancy Age here.

In no other industry does a creditor command anything like the "ransom" status in terms of priority of payments over any other creditor in a business that becomes insolvent. What the FCR means is that football-related creditors in a failed football club get paid before ANYONE else does. When a football club fails due to rampant profligacy (sorry - bit incensed over this!) why should its governing body and (usually) highly paid footballers and their agents have the advantage over everyone else? Surely the FA should be taking steps to govern its clubs properly so insolvency doesn't happen? In a badly run football club, all creditors should be treated like any other creditor, just like any other business...

The bank of HMRC is right to challenge the FCR.

Young at more risk of insolvency than old

2010-07-14T10:01:00.005+01:00

An interesting article from R3 about the difference in attitude between young and old regarding debt and insolvency. This just highlights that younger people are more inclined to see debt as a “way of life” rather than something to try and avoid!

Research from R3, the insolvency trade body, which explores the experiences of people struggling with their debts, reveals that a far higher proportion of younger respondents are more likely to leave their bills unopened and avoid their creditors than older respondents.

• Among those struggling with debt, over a third (36%) of the 18-24 year olds surveyed have not contacted anyone for help as it is ‘easier not to think about it’ compared to just 9% of 55-64 year olds.
• In addition 26% of the 18-24 year olds surveyed say they do not open their bills because they cannot face them, whereas this figure drops down to 10% for 65s and over.
• Similarly 28% of 18-24 years olds surveyed are trying to avoid contact with people they owe money to, whereas this applies to only 11% of 65 year olds and over.

R3’s President Steven Law commented:

“Despite a global recession and near financial meltdown, younger generations are still operating on the basis that high levels of debt are normal and the consequences of this have created a clear generational split. It is extremely troubling that irresponsible attitudes towards debt are entrenched by the age of eighteen as this is likely to lead to a lifetime of financial problems.”
The report also finds:

• Just under a third (30%) of 18-24 year olds cite they ‘don’t know where to go’ as the reason for not contacting anyone for help, compared to 8% of 65 year olds and over.
• Moreover, across all age groups, 44% of those struggling with debts mistakenly believe that debt advice must be paid for.

“If nearly half of those struggling with debts believe incorrectly you need to pay for debt advice, we have little chance of resolving this problem,” added Steven Law. “Most insolvency practitioners, for instance, are prepared to provide their time free for a first meeting with a debtor. Similarly, the Citizens Advice Bureau will provide free advice.”

“In addition, financial advice needs to get away from promoting ‘debt as a way of life’ that some irresponsible lenders use and instead focus on making debt more proportionate to an individual's financial makeup and so avoid long term financial problems,” concluded Steven Law.

This article is attributed to R3 and the press release can be found here.

Debt and Insolvency: The Full Picture

2010-07-09T08:06:00.004+01:00

The Association of Business Recovery Professionals (also known as "R3" - Rescue, Recovery and Renewal) represents Insolvency Practitioners ("IP's") to the general public and more specifically to politicians and journalists. R3's mandate (amongst other things) is to try and educate people not connected with the insolvency profession about what we do.

As part of this, R3 will periodically issue briefing papers on insolvency related subjects and has just issued three very interesting ones!

The first is "Debt and Insolvency: The Full Picture". The full paper can be found on our website here (Useful Stuff/Personal/R3 - Debt Insolvency Paper - March 2010) and in brief, it looks at the various methods of dealing with personal insolvency.

One of the main points that has come from the paper is that the vast majority of people who go through an "informal" solution, such as a debt management plan ("DMP"), feel that they were not talked through all the alternative options, including the formal (bankruptcy and IVA) procedures. In my experience, most individuals in a debt management plan have simply responded to a generic advert in the local paper or on TV along the lines of "get rid of your debts" and are sold a 'product' that doesn't necessarily meet their needs.

IP's are heavily regulated - DMP firms are not regulated, other than having to have a Consumer Credit Licence, and some of the DMP firms I have come across don't even have that! Most DMP advisors also do not have to have any qualifications and usually have little or no experience in giving insolvency advice - they simply concentrate on the DMP product they are selling. Most DMP firms (not all, I hasten to add) are also simply there to get a fee and move on to the next customer, rather than looking after a client - there is a definite difference between "customer" and "client". Can you tell I'm not a great fan of DMP's?

Interestingly, the paper also concludes that the vast majority of people who go through a formal insolvency (e.g. bankruptcy or IVA) believe they will not need help with their finances in the future. This is, in my opinion, because an IP is involved in the formal procedures and the IP will give full, rounded advice on all procedures, as they have the experience and in particular they are REQUIRED to do so by their Regulators.

Over the next few weeks I will issue a blog post on the other two papers:

"Struggling with debt without help"
"Rises in the base interest rate - what effects will it have?"

Please feel free to comment!

The OFT misses an opportunity - part 2

2010-07-07T12:21:00.006+01:00

See my previous post in June for the first instalment!

Once again, the OFT is demonstrating that it has missed the point on their own review of the Insolvency Profession - see the article in Accountancy Age here. The OFT is proposing an independent complaints body be set up to deal with complaints against Insolvency Practitioners ("IP's"), funded by a levy against the IP's themselves. This levy is simply likely to put up the cost of what is already perceived to be an expensive profession.

Every professional (be they lawyer, accountant, financial adviser etc) will inevitably have complaints made against them when clients aren't happy. Genuine complaints, based on the professional making a mistake, I feel are few and far between. Most "complaints" against IP's usually arise because a complainant doesn't understand why the IP has done something in particular and they feel they have been disadvantaged. This stems from a simple lack of knowledge by the complainant in relation to what is a highly legislated (and particularly these days) highly regulated area of expertise. The secret to avoiding complaints to start with is effective communication and ensuring those affected when a company becomes insolvent (e.g. employees, directors, creditors etc) fully understand what an IP has to do and how he needs to do it.

There are already mechanisms in place for making and dealing with complaints against IP's - setting up yet ANOTHER body is totally unnecessary and just further muddies the waters. I suppose that it will inevitably happen, but my opinion is that it isn't needed.

HMRC gets tough on football...

2010-07-05T11:51:00.005+01:00

Looks like HMRC are beginning to take more and more action against insolvent football clubs - Cardiff FC's turn now - see here.

It has to be said that the "Football Creditor's Rule" is an abuse of Insolvency Legislation. This "rule" is laid down by the Football Association which says that all the "football creditors" must get paid first before any other creditor if the football club in question is to retain its share in the Football Association. If those creditors aren't paid then the club loses its share and can't be an FA Club.

On a practical basis, this gives the football creditors a "super priority" over any other creditor if the club is to be preserved as an FA Club. This priority is against the principles of the Insolvency Act 1986 and the legislation doesn't provide for such a priority. HMRC have long expressed their dissatisfaction over this and Portsmouth FC nearly didn't get its CVA because HMRC was going to vote against it (amongst other matters) in relation to the football creditor rule. The CVA eventually got approved only because HMRC were out-voted.

I think it's only a matter of time before the Football Creditors Rule gets overturned...

The OFT misses an opportunity - sadly

2010-06-28T18:17:00.005+01:00

In June 2010, the Office of Fair Trading (“OFT”) issued a report on its review of “The market for corporate insolvency practitioners”. The full report can be found here – all 104 pages of it!

As an independent Insolvency Practitioner (“IP”) I obviously have a keen interest in all matters insolvency and in this one in particular because the report looks at how IP’s fees are authorised and controlled. There are a number of points that are brought out by the OFT in its conclusions which generally say that unsecured creditors appear to suffer more from a lack of control of IP’s fees than secured creditors do and complaints against IPs are ineffective.

The report actually only addresses larger-sized insolvency cases and seems to ignore the cases that are much more common – typical SME’s and family run businesses. It also only specifically addresses Creditors Voluntary Liquidations and Administrations and the control over the fees paid to IPs in carrying out their functions as Liquidators and Administrators. This seems rather narrow consultation to me!

Unfortunately, the OFT also appears to have missed the point, by quite a margin. The OFT appears to have approached the whole issue with a healthily independent viewpoint [commendable!], but with little real understanding of the insolvency profession and its workings [not so commendable!].

An examination of the OFT’s own data reveals that concerns regarding the actual level of fees charged might be inflated. In the market study (in the report) of 500 insolvencies, 80% of cases resulted in IPs not being paid in full, and in 7% of cases (a percentage generally regarded as a statistically significant amount), insolvency practitioners were not paid anything at all! The report also does not actually say that the fees in any of the cases are unfairly high. The OFT appears to have been very careful not to make unsupported subjective comments.

The OFT also suggests that a change of legislation is needed to enable creditors to exercise more control. It seems to have missed the fact that from 6 April 2010 there was a huge revamp of Insolvency Legislation and Regulation – the biggest since 2002 – which does provide a lot more control mechanisms for creditors to exercise. The OFT also suggests that a central body should be set up to review IP’s fees and if necessary, on a case by case basis, reduce those fees if it is felt appropriate. In my opinion, there is no need for this as there are a plethora of mechanisms already available to creditors to regulate IP’s fees. The sad fact is that most unsecured creditors actually don’t want (or should that be “can’t be bothered”?) to exercise their rights in doing this. However, it’s a bit early to see if the recent changes will result in creditors exercising the new controls.

There are a number of professional bodies (e.g. the ICAEW, Law Society and the Insolvency Service itself) that issue insolvency licences and regulate those licence holders. The OFT suggests that the Insolvency Service should regulate the whole of the insolvency profession and not be a licence issuer. At last, a point I can agree on with the OFT! I have long advocated that there should be one Regulator (a “Regulator of Regulators”) with a consistent approach to dealing with issuing licences and handling complaints. It remains to be seen if this will happen.

In conclusion, the OFT report has taken a large slice of the insolvency market but has passed comment on that slice only with limited knowledge. A real pity – this is a missed opportunity for the OFT to work with insolvency professionals themselves to improve the way insolvency regulation works and ensure that the general public (and not just creditors in the large, headline-grabbing cases) are considered and protected.

Insolvency terms explained

2010-06-21T10:51:00.001+01:00

Introduction
People often ask what is the difference between a bankrupt company and a company in liquidation? The answer is that companies cannot be referred to as being “bankrupt” – only individuals can! This is a brief explanation of some of the terms you may come across in insolvency proceedings. Please note that this glossary is for general guidance only. Many of the terms have a specific technical meaning in certain contexts that may not be covered here.

Administration
A process where an administrator is appointed to take control of a company or partnership; or
an order made in a County Court to arrange and administer the payment of debts by an individual;

Administrative Receiver
Insolvency Practitioner appointed by the holder of a debenture, which is secured by a floating charge that covers the whole or substantially the whole of the company's assets. The IP's task is to realise those assets on behalf of the floating charge holder.

Administrative Receivership
The process where an Insolvency Practitioner is appointed by a floating charge holder to realise a company’s assets subject to the charge and pay preferential creditors and the charge holder’s debt.

Administrator
Insolvency Practitioner appointed under the administration process.

Annulment
The cancellation of a bankruptcy when all debts have been paid in full.

Assets
Anything that belongs to the debtor or company that may be sold and the proceeds used to pay creditors.

Bankruptcy
Personal insolvency proceedings.

Bankruptcy Order
Order of the Court, based on a creditor's or debtor's petition, which makes an individual bankrupt.

Bankruptcy Petition
A document presented by the debtor or by a creditor to the Court for the debtor to be made
bankrupt.

Bankruptcy Restriction Order
An order of Court extending bankruptcy restrictions against an individual past their discharge
from bankruptcy. Applicable for anything between 2 and 15 years.

Charge
Security taken over property by a creditor to protect against non-payment of a debt
(such as a mortgage or debenture).

Charging Order
An order made by the Court which gives the Trustee in Bankruptcy a legal charge on the debtor's interest in his/her home. This continues even after the debtor is discharged from bankruptcy.

Company Directors Disqualification Act 1986
Legislation regarding the disqualification of directors.

Company Voluntary Arrangement
A formal agreement between a company and its creditors where debts are repaid in part or in whole over a period of time.

Compulsory Liquidation
Winding up of a company after a petition to the Court, usually by a creditor.

Contributory
Every person liable to contribute to the assets of a company if it is wound up. In most cases this means shareholders who have not paid for their shares in full.

Creditor
Someone owed money.

Debenture
A document, issued as evidence of a debt or the granting of security for a loan of a fixed sum at interest (or both). The term is often used in relation to loans (usually from banks) secured by charges, including floating charges, over companies’ assets.

Debtor
A person who owes money.

Declaration of solvency
A legal document sworn by the directors in a Members’ Voluntary Liquidation as evidence of the solvency of a company.

Deed of Arrangement
An arrangement (governed by the Deeds of Arrangement Act 1914) proposed by the debtor for payments to his or her creditors. It is occasionally used instead of an Individual Voluntary Arrangement, particularly where creditors already agree to the terms of the arrangement and are not likely to take other action to recover their debt.

Director
A person who conducts the affairs of a company. See also shadow director.

Discharge
Process which frees a bankrupt from the restrictions of bankruptcy and releases him or her from the bankruptcy debts.

Disqualification
A procedure whereby a person has a Court order made against them (or agrees to a voluntary undertaking) which makes it an offence for that person to be involved in the management or directorship of a company for the period specified in the order or undertaking.

Dividend
In an insolvency context, this is any sum distributed to creditors.

Enterprise Act 2002
Legislation making substantial changes to the administration procedure and personal insolvency procedures in the Insolvency Act 1986.

Estate
Refers to assets of the debtor, which the trustee can deal with to pay the debtor’s creditors (“bankruptcy estate”).

Fixed charge
Charge held over specific assets. The debtor cannot sell the assets without the consent of the secured creditor or repaying the amount secured by the charge.

Floating charge
A charge held generally over the assets of a company. The assets may change and the company can use the assets without the consent of the secured creditor until the charge “crystallises” (becomes fixed).

Guarantee
An agreement to pay a debt owed by a third party.

Income Payments Order
The Court may order the debtor to pay part of their income to the trustee if their income is more than they or their family need to live on. On a practical basis, this procedure is usually replaced by an Income Payments Agreement (not requiring the involvement of the Court).

Individual Voluntary Arrangement
A formal agreement between an individual and their creditors where their debts are repaid in part or in whole over a period of time.

Insolvency
Defined as either having more liabilities than assets, or being unable to pay debts when they are due.

Insolvency Act 1986
Legislation introduced to consolidate many different previous forms of insolvency law and procedures. Subsequently amended by various statutes.

Insolvency Act 2000
Legislation introducing additional insolvency provisions.

Insolvency Practitioner
A person who specialises in dealing with insolvency related matters. They are authorised and licenced by a number of recognised professional bodies.

Insolvency Services Account (ISA)
The account at the Bank of England into which money realised from the assets in bankruptcies and liquidations is paid.

Insolvency Service
A Agency within the Department for Business Innovation and Skills (“BIS”) responsible for regulating IPs and their recognised professional bodies.

Interest
A right to, or share in, an asset of the insolvent debtor or company, usually relating to a property.

Interim receiver
The court may appoint the Official Receiver to act as interim receiver of an individual’s property (usually to protect and secure it), after the presentation of the bankruptcy petition but before a bankruptcy order is made.

Legal charge
A form of security (e.g. a mortgage) to ensure payment of a debt.

Liquidation
A process relating to limited companies and limited liability partnerships involving the realisation and distribution of the assets and usually the closing down of the business. There are three types of liquidation – compulsory, creditors’ voluntary and members’ voluntary.

Liquidator
The Official Receiver or an Insolvency Practitioner appointed to administer the liquidation of a company or partnership.

London Gazette
Official publication of the Government, which contains legal notices for England & Wales. (The Gazette is also published in Edinburgh for Scottish Law cases.)

Member (of a company)
A person who has agreed to be, and is registered as, a member, such as a shareholder of a limited company or a member of a Limited Liability Partnership.

Nominee
Insolvency Practitioner who carries out the preparatory work for a Voluntary Arrangement, prior to its implementation.

Officer (of a company)
A director or secretary of a company.

Office Holder
A general term referring to an IP appointed as a Liquidator, Receiver, Supervisor, Administrator etc

Official Receiver (“OR”)
An officer of the Court and Civil Servant employed by The Insolvency Service, who deals with bankruptcies and compulsory company liquidations.

Petition
A formal application made to a Court. (See also bankruptcy petition and winding-up petition.)

Preferential Creditor
A creditor in insolvency proceedings who is entitled to receive a dividend in priority to other unsecured creditors. From 15 September 2003, PAYE/NI and VAT are no longer preferential for insolvency cases commencing on or after 15 September 2003.

Prescribed Part
A proportion of the assets of a company that are set aside for payment to unsecured creditors.

“Pre-pack”
Term commonly used in association with an administration where the sale of the business and assets of a company is agreed and ‘pre-packaged’ ready to be put in place immediately a company goes into administration.

Private Examination
A Liquidator in a voluntary winding-up or an Administrator may apply to Court for a private examination to be held in Court under oath of any person believed to be able to supply information on the company’s dealings, who does not wish to co-operate with the office holder.

Proof of Debt
A form completed by a creditor in to state how much is claimed against the debtor/company. The form is supplied by the Office Holder. It is a commonly used expression for requesting details of a creditor’s claim in any insolvency proceeding.

Provisional liquidator
OR/IP appointed to preserve a company’s assets between the presentation of a winding-up petition and the making of a winding-up order.

Proxy
Instead of attending a meeting, a person or company can appoint someone else to go and vote in their place - a 'proxy'.

Proxy Form
A form which must be completed if a creditor wishes someone else to represent them at a creditors’
meeting and vote on their behalf.

Public Examination
When a company is being wound up by the Court or in bankruptcy proceedings, the Official Receiver may at any time apply to the court to question the company’s director(s) or any other person who has taken part in the promotion, formation or management of the company or the bankrupt’s business.

Realise
To sell an insolvent company’s/debtor’s assets and obtain the proceeds.

Receiver
Commonly used name for an Administrative Receiver. The term can also mean a person appointed by the Court or with the power to “receive” the rents and profits of property. Receivers who are not administrative receivers do not need to be insolvency practitioners.

Receiver and Manager
When a Bankruptcy Order is made, the Official Receiver becomes Receiver and Manager to protect the bankrupt’s estate. This happens before the Official Receiver becomes trustee or before an IP is appointed as the trustee in their place.

Receivership
A company in administrative receivership is often said to be “in receivership”. Receivership can also be a Court process.

Rescission
A procedure which cancels a winding-up order.

Release
The process by which the Official Receiver or an IP is discharged from the liabilities and responsibilities of them being an Office Holder.

Secretary of State
The Secretary of State for the Department of Business Innovation and Skills (“BIS”). Responsible for overseeing the Insolvency Service.

Secured creditor
Creditor who holds security, such as a mortgage, over a company’s/person’s assets for money owed.

Shadow director
A person who, without being formally appointed as a director, gives instructions on which the directors of a company are accustomed to act. This does not include someone acting in the capacity as a professional adviser.

Statement of affairs
Document sworn under oath, completed by a bankrupt, company officer or director(s), giving details
of all assets and liabilities.

Statutory demand
A formal document issued as part of the enforcement of a debt, usually done through a solicitor.
Non-payment within 21 days is accepted as evidence of the insolvency of a company or individual.

Supervisor
IP appointed to “supervise” the carrying out of an individual or company voluntary arrangement.

Trustee (in bankruptcy)
The Trustee in bankruptcy is either the Official Receiver or an IP who takes control of a person’s assets. The Trustee’s main duties are to realise those assets and distribute the money among the creditors.

Unsecured creditor
A creditor who does not hold security (such as a mortgage) for money owed. Some unsecured creditors
may also be preferential creditors.

Voluntary liquidation
Process of liquidation not involving the Courts or the Official Receiver. There are two types of voluntary liquidation – members' voluntary liquidation for solvent companies and creditors' voluntary liquidation for insolvent companies.

Winding up order
Order of a Court, usually based on a creditor's petition, for the compulsory winding-up of a company or partnership.

What does an Insolvency Practitioner do?

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Essentially an Insolvency Practitioner (“IP”) helps individuals, businesses and companies deal with their financial problems.

IP’s can find themselves handling the smallest of insolvent companies or individuals up to large corporate restructuring, with all sizes of cases in between. This also includes running businesses, constructing and negotiating deals or investigating and advising on the viability of a business and its restructuring (and, sometimes, the integrity of its directors.) The work of the IP affects the lives, prospects and livelihoods of both creditors and debtors.

Insolvency work is as much about people as it is about figures. IPs need the personality and skills to deal with angry creditors, anxious directors and distraught employees. The insolvency scene is always changing. In particular, the effects of changing legislation together with the attitudes of banks and other creditors mean that, more than ever, IPs are business rescuers.

Whilst much of the work done by IPs involves formal insolvency procedures, they also use their skills to restructure and rescue businesses without resorting to formal insolvency procedures. Where an IP is appointed in a formal insolvency, the most common procedures are the liquidation of companies by a variety of routes and bankruptcies of individuals.

Even these cases, regarded as the ‘end of the line’ for businesses, often require imagination and determination to try to save as much of the business (and its associated jobs) as possible, or as a last resort to get the best possible price for its assets.

Even where a formal insolvency procedure is necessary, in many cases a positive and proactive approach to the rescue of the business and its jobs can be taken through the application of administrations, administrative receiverships and voluntary arrangements. The insolvency profession generally has been able to rescue increasing numbers of jobs and businesses in recent years, both because of legislative changes and the changing attitudes of creditors.

Overall, as at 2009, over 25% of insolvent businesses enter a formal rescue prodecure in one form or another and over 44% of insolvent individuals enter a process other than bankruptcy.

Comfort in Regulation

Since 1986, all IPs have been required to be licensed by a recognised professional body, such as the ICAEW, the Law Society, the Insolvency Practitioners Association, or the Insolvency Service, to name but a few.

Only licensed IPs are authorised to take appointments as administrative receivers, administrators, liquidators, trustees in bankruptcy, supervisors of voluntary arrangements and trustees under deeds of arrangement and trust deeds.

Association of Business Recovery Professionals

The Association of Business Recovery Professionals, also known as “R3” - Rescue, Recovery and Renewal, represents IPs as an effective ‘trade body’ to the Government, media and the public at large. It provides technical support and promotes the highest standards of practice and professional conduct for IPs.

Members benefit from drawing on the expertise of highly experienced IPs who make up the various Committees of R3.

As a Fellow of the Association of Business Recovery Professionals you can be assured that I am an expert in my field and will be able to help with an individual’s or business’s needs.

There is no substitute for expert advice

I have been dealing with and advising individuals, directors and companies suffering financial distress since 1986. In that time I have come across many instances where the skills and determination of an IP have resulted in a business being saved, or creditors receiving a return and directors and individuals minimising their personal liabilities.

For those in financial distress where they may have no idea of what they can do, or who to turn to, advice from an IP can make all the difference between a sensible solution for them and their stakeholders, or a disaster.