In many instances illegal dividends and loans are being made to company directors as a way of reducing tax payments. A dividend becomes illegal if the company does not have enough profit to cover it. In fact HMRC are so concerned that they have contacted insolvency practitioners as they believe it is a way of evading tax.
It should be remembered that a company director has a legal duty to act responsibly. If a company becomes insolvent ( ie meets any one of the insolvency tests )then the legal duty of the director changes and they must act in the best interests of the creditors. (all of them being treated in the same way). If the directors do not act in the creditors' interests and they act "wrongfully", then they can be made personally liable for the company’s debts from the time they knew the company was insolvent!
So saying my accountant told me to do it may not impress a creditor, liquidator or judge in a civil law action.
Talk to KSA Group for advice or have a look at our comprehensive guides on overdrawn directors accounts
So the latest news is that the city of Bradford has the highest business insolvency rate of 0.6% of registered businesses in the city failing – up 45% since Quarter 1. Manchester follows closely behind with a rate of 0.57% - up 17 percent the first three months of the year.
IT looks as if there may be an improving picture for the construction industry across the UK, as there has been a small drop in the total number of actual administrations in the second quarter down from 87 to 86 when compared with the first quarter!
Construction companies seem to be particularly at risk as the smallest mistake on a project can lead to serious cost overruns! Before a mistake turns into a crisis it is important to take advice. The sooner you act the more likely the problem can be dealt with.
KSA Group is advising and assisting a number of SME construction companies with sales ranging from £800k to £20m. All are fundamentally viable but have had either cost overruns or bad debts.
The Guardian published a survey today showing that the number of public sector suppliers entering insolvency has gone up by 50% over the last 6 months!
Here is a thought – If your business is struggling but you still have decent government contracts, are the contracts automatically terminated if you enter administration and continue to trade as a going concern?
Please look at our site for information on the different types of insolvency and what the options are.
There has been a 30% fall in the number of corporate failures recorded this July compared with July 2009. The numbers have fallen the most in respect to smaller businesses with less than 500 employees. However, rates of insolvency are still high in the larger business sector. These figures show an improving economic picture but also reflect the HMRC Time to Pay Scheme and the more widespread use of other insolvency tools such as Company Voluntary Arrangements (CVA). CVAs are the only insolvency mechanism to see a sharp rise - to 242 in quarter 2
Even substantial businesses can benefit from a CVA. KSA Group used a CVA to turnaround a £109m turnover business last year and saved over 3,000 employees jobs.
If businesses had to account for the total of their long term liabilities, such as ongoing rent commitments, in one financial year, would most then be technically insolvent? The idea, published today, by the international accounting standards body (IASB) is designed to make company balance sheets more transparent. However as it is not the case that these liabilities can actually be called in all at once we cannot see what more information this really gives. Imagine if your landlord demanded all the rent for the next 10 years in advance!
The retail industry would be most affected as they usually have expensive leasehold property. Currently the rules allow retailers added flexibility in accounting for leases but this could change.
One of the tests of insolvency is the balance sheet test so this new rule, if brought in in 2011, will need to take into account the insolvency rules.
Watch this space for more updates on this. We will be keeping a close eye on developments.
Posted by Rob Moore 18/08/2010
We are delighted to announce that Robert Moore has joined KSA Group as Group Marketing Manager. Rob has over a decade of experience in web and general marketing, having been a director of Business Data International, he helped build that business to be the pre-eminent online business sales listing company.
Rob will take over most of KSA's marketing functions from Keith Steven and develop group marketing strategies with Keith and the KSA board.
Keith said "Personally I am delighted to welcome Rob to the company, his excellent marketing track record will be a big plus for KSA and will free me up to allow me to focus on driving KSA's growth strategy and helping drive more company rescues. We are thrilled he has chosen to join KSA in this exciting period and we wish him well for the future".
Should you wish to contact Rob his email address is email@example.com and his mobile is 07584 583884.
KSA Group is the parent company for CompanyRescue and focuses on innovative turnaround and insolvency techniques for the SME sector.
After a hearing in Birmingham District Registry on 2nd August the company was wound up and the Official Receiver was appointed as liquidator.
If you are a worried licensee please call Keith Steven on 07974 086779 any time.
FRAZER AND FRAZER LTD (Company Number 06757437)
Address of Registered Office: Unit 3, Olympic Court, Whitehill Business Park, Blackpool, Lancashire, FY1 5QL.
In the Birmingham District Registry No 6436 of 2010
Date of Filing Petition: 27 May 2010. Date of Winding-up Order: 2 August 2010.
Official Receiver: N Bebbington, Seneca House, Links Point, Amy Johnson Way, Blackpool, Lancashire, FY4 2FF. Tel 01253 830700, Email Blackpool.firstname.lastname@example.org.
Capacity in which Appointed: Liquidator
Date of Appointment: 2 August 2010
See news article here for further details
See here for guides to retail CVAs http://www.companyrescue.co.uk/cva-company-voluntary-arrangement/retailer
Short Notice Sale Opportunity: Business for Sale By way of a sale of the assets
Specialist soil and water sample testing laboratory
Located in South East England
The company has a good reputation in the specialist analysis of soil and water samples.
Brief details of this opportunity are as follows;
• UKAS accreditation achieved in July 2009*
• A relatively compact and low cost administration base
• A company customer database
• Stock, laboratory and office assets**
• Current turnover in the region of £55,000 per month
The business is currently experiencing financial difficulties due to historic debt servicing and the requirement for further development capital.
A short notice sale of the business, by way of a sale of the assets following Administration, is now sought. It is likely that the purchase will need to be executed at the easiest opportunity after the appointment of the Administrators. Any expressions of interest are therefore requested by 12.00pm on Friday 6 August.
* The UKAS accreditation is contingent upon the sample analysis being carried out at the current location, occupation of which is not being offered for sale.
**The majority of laboratory assets are subject to hire agreements
Further details of this opportunity can be obtained, following completion of a confidentiality agreement, from the Information Pack which is available by request from Jessica.Bright@Charterfields.com
"Given there have been 300,000 separate arrangements, that means on average half of the businesses concerned have been back to the Revenue for more. It is here the zombies may be lurking. While the banks are accused of failing to lend new money to small companies, it appears that they are also failing to foreclose on some stragglers in their portfolios for fear of having to crystalise unperforming loans in their own books. This is also keeping alive some of the walking dead."
On this blog and internally at KSA we have had this discussion for some 18 months. What would the true level of company insolvencies be if the two issues above, coupled with historically low interest rates, were not in place?
If a company has Zombie like tendencies, it is vital that the directors have a plan B. What if the Time to Pay deal cannot be kept up to terms? What if HMRC rip up that 12 month deal and demand payment in 7 days? This change of mind, from HMRC, is something which we are anecdotally hearing more and more.
Cost cutting, Company Voluntary Arrangements, refinancing, pre-pack administration or voluntary liquidation are the main alternative options.