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Directors of discount retailer banned for 10 years

Javed-Yacub Fozdar and Riyaz Dawood Fozdar of Pound Empire Ltd have been disqualified as directors for 10 years each after failing to provide up to date accounts and financial records.

The Insolvency Service found the business (with stores in Manchester, Liverpool, Warrington and Stockport) to have insufficient records of PAYE, income, expenditure and directors' drawings. 

The investigation also discovered there had been a transaction of the company's assets between the company and Javed Fozdar's wife on the day it stopped trading, which the directors claimed to be a debt repayment. However there is no evidence to show this was the case.

By transferring the assets, insolvency procedures were breached and creditors were unable to have access to these assets. The holders of retention of time could also not claim their goods. 

Robert Clarke from the Insolvency Service said, "Directors have a duty to ensure that their companies maintain proper accounting records, and following insolvency, deliver them to the office-holder in the interests of fairness and transparency."

"Without a full account of transactions it is impossible to determine whether a director has discharged his duties properly, or is using a lack of documentation as a cloak for impropriety."

"The transfer of all the assets of the company to a connected party is a clear breach of the duties directors owe their creditors."

It is always important that directors know their duties when managing a company, especially when the company is struggling financially or is insolvent. Directors' actions leading up to and during the insolvency will be looked at closely by insolvency practitioners to ensure everything is above board. Directors must act to maximise creditors' best interests and be aware of the company's financial position at all times, otherwise there is the risk of disqualification. 

If you think your company is insolvent, call us on 0800 9700539 and we can talk you through your options and explain what you can and can't do going forward.   

A landlord’s and tenant’s guide to commercial rent arrears recovery (CRAR)

For the better part of 250 years, landlords enjoyed the right to claim ‘distress’ for unpaid rent – meaning that they could seize (distrain) and sell their tenants’ goods to recoup the loss of earnings.

The Rent Act 1977 stripped this right from residential landlords1, but commercial landlords continued to be able to exercise distraint until April 2014, when distress laws were replaced with the commercial rent arrears recovery (CRAR) process2, 3.

So what exactly is CRAR?

Like most archaic UK legislation, distress law was unnecessarily complicated and, many felt, rather unfair. The CRAR rules that supersede them are intended to be simpler and more balanced, with a greater focus on tenants’ rights than their predecessors.

CRAR still allows a landlord to collect overdue rent without the need for a court order; however, it applies only to commercial tenancies, and the tenancy must be subject to a written lease. It can only be used to recover rent and any interest and/or VAT payable under the terms of the lease.

Landlords: enacting the CRAR procedure

Before claiming unpaid rent from a commercial tenant, you must remember the following:

  • The arrears must be at least seven days’ worth or more at the time the notice is served and at the time of enforcement
  • You do not have the right to seize your tenant’s goods yourself; they can only be seized by a certified enforcement agent

 Once you have found an authorised enforcement agent, you will need to fill out a Warrant of Control form to enable them to begin enforcement action. The enforcement agent will then take over the process, issuing a seven day notice to your tenant in the first instance.

If the rent remains unpaid at the time of enforcement, the agent will enter the property and take control of certain goods located thereon to be sold at public auction.

Tenants: your rights under CRAR

Firstly, you must remember that a notice of enforcement binds goods to remain on the property, meaning you cannot sell or remove them. You can, however, delay enforcement by applying to court for a delay of execution or a set aside.

It is possible to enter a controlled goods agreement in order to repay what you owe over time. Under such an agreement, the goods will remain on the premises, but your landlord’s enforcement agent will be able to remove them if you default on your agreed repayments.

If goods are taken, the enforcement agent must provide you with an inventory of everything seized as specified by section 33 of the Taking Control of Goods Regulations 2013.

If your lease has expired, your landlord can only use the CRAR process if:

  • the lease ended within the last six months;
  • the lease did not end by forfeiture;
  • the rent was owed by you at the time the lease ended;
  • you still possess some of the goods formerly located on the premises;
  • you occupy the goods under a commercial lease; and
  • your old landlords was, at the time the lease ended, entitled to immediate reversion

Being unable to pay debts, such as commercial rent, when they become due is a warning sign of insolvency. If this described your company’s situation, it is highly recommended that you seek insolvency or turnaround advice from a professional firm.

Written by Ben Gosling for www.commercialtrust.co.uk.

References
1. Rent Act 1977, s 147(1)
2. Tribunals, Courts and Enforcement Act 2007, s 71
3. The Taking Control of Goods Regulations 2013, SI 2013/1894

Did banks make good businesses go bust?

A recent Panorama programme looked again at the accusations that the banks pushed good businesses into insolvency when they should have been supporting them.

Various business owners recounted how they were put into the Business Support unit of Lloyds or Global Restructuring Group at RBS and were treated far from supportive, with the banks simply putting up charges significantly or withdrawing overdrafts. The actions understandably put extra pressure on the businesses so in many cases they closed.  

However, were the banks simply pricing in the extra risk that these businesses would not be able to pay back the loans?  The problem is that some of the practices do look like there were conflicts of interest. Especially where other parts of the bank were trying to buy businesses that were put into administration, that were supposedly being supported by the bank in the first place. Where the valuation of properties was concerned, there were always going to be differing opinions between what the owners and the bank thought were fair.  

So far, none of the cases have been proved in a court of law but a business owner who has lost his/her business is unlikely to have resources to take the banks on.

Further problems have materialised for RBS as they have had to admit they did not give accurate evidence to the Treasury Select Committee following the findings of the Tomlinson Report.  They denied that the Global Restructuring Group was a profit centre, so did not profit from the fact that businesses went bust.  The Bank of England subsequently found that it was indeed a profit centre!  All this does not really look good: http://www.cityam.com/1416804932/mps-blast-rbs-dishonesty-over-help-small-firms

If your business is involved in litigation with your bank then we can help relieve cashflow pressures by using restructuring tools such as time to pay deals or CVAs.  The banks are not bound by these measures, as they are secured, but they should help prevent them exercising their right to appoint administrators if the company is in a better position financially as a result.  

Alison Loveday from Berg solicitors, who appeared in the programme, will be speaking at our Manchester office opening party on the 2nd December 2014 





Risk of pub closures and job losses as beer-tie system ends

Parliament voted on Tuesday to bring the somewhat controversial beer-tie system to an end, much to the annoyance of the so called “pubcos” who argue the system subsidises rents and allows incomers to take on small outlets for little capital outlay. 

The beer-tie system is where the pub landlord buys stock (usually above market price) from the owner of the lease in exchange for low rent and other benefits. 

We would argue that few people benefit from the beer-tie. In an example, we saw recently a publican increased sales in his outlet owned by Enterprise. The pubcos increased the rent at the next rent review AND increased the price or the products to him. A double whammy that put him out of business. How can a pubco argue this “may be best for competition”? It is a crazy example of a system that ignores supply and demand. Who would want to work very hard, market well, offer food and new products and encourage new customers into a pub only to find that your profit margin is eaten into by the pubco increasing the price of the beer!?. In other (simple) words, the more you sell the higher your cost price please, therefore the lower your margin unless you increase prices to the customers?? Madness in our view.

As this 400 year-old system is abolished,  we hope to see that beer and drinks can be bought from any supplier on the open market which will mean more competition and steady or lower prices for customers.  But also reward for the hard working, perhaps more professional publicans. If it leads to closures of inefficient (non hard-working) publican’s outlets, then that is a natural consequence of the market system.

While some campaigners believe this is best for customers (more choice, better quality, cheaper), pub landlords will be faced with independent rent assessments potentially forcing them out of business if rent and rates are too high. 

Others, however, think this will be a 'hugely damaging decision' as described by The British Beer and Pub Association. They say the end of beer-ties could mean over a thousand pubs close and several thousand employees lose their jobs. 

The proposal is to be put to the House of Lords (however the government has indicated it will not vote against it) before it can come into force which means it may be a while away from any changes. 

What do you think? We would be delighted to hear from publicans and customers alike.

How will the holiday pay ruling affect insolvent businesses?

We recently wrote about the holiday pay ruling by the Employment Appeal Tribunal, which now makes it compulsory for employers to include overtime in holiday pay for employees. 

This will obviously affect businesses in terms of cashflow, causing companies to review and manage their strategies. This only means insolvent businesses will have further problems as cashflow is already very tight and the company is in a difficult situation. The employer, together with the Insolvency Practitioner (IP), will also need to deal with underpayment of holiday pay claims from employees. 

This will be paid in priority to other unsecured creditors, meaning this will not only delay the process for the other creditors but they will likely be paid back a smaller amount too.

While employees won’t be able to claim far back for their holiday pay, it will still have an impact on insolvent companies and they will need to deal with recent claims, inevitably putting a strain on cashflow.  

Often when a company is in a CVA or administration, it will continue trading and some employees will be kept on to help run the business. However, this will mean ongoing holiday pay calculations will need to be considered, another challenge for IPs. It will also be difficult to work out how holiday pay should be calculated, using the guide of ‘normal remuneration.’  

The holiday pay ruling will likely be taken to the Courts for appeal, however insolvent businesses should still prepare for  the added pressures of these new claims.  

Holiday Headache for Firms Following Tribunal Ruling

Companies may be at risk of going bust as the Employment Appeal Tribunal has decided that companies should include overtime in holiday pay calculations.  They have yet to release details as to whether this will be backdated but it would be most likely. 

If workers on overtime have been underpaid since as far back as 1998, then larger companies and public sector employers will be owing millions to employees, putting immense pressure on cashflow. In addition, it will increase operation costs for many firms.  As far as the government is concerned the bill for the NHS for instance will be huge.

Chairman of the Federation of Small Businesses, John Allan, has said, “These rulings could have a significant cost implication for those businesses that pay voluntary overtime or commission and firms will need to look at how they structure pay and overtime”.

“However, our biggest concern would be the threat posed by backdating the ruling. This could trigger multiple claims going back many years and create substantial unexpected cost liabilities for employers”.

“It seems extremely unfair that businesses who have tried to do the right thing - getting the best legal advice at the time - could be hit with a bill which no one knew was coming. Government need to make sure that good employers, supplying much-needed jobs, are not forced under by a series of backdated claims.”

While this is great news for employees, certain businesses, especially those in the public sector, will inevitably be affected even if they appeal to the courts. We will definitely see small businesses in severe financial trouble because of this ruling. It is worth noting, however, that if a company owing backdated holiday pay becomes insolvent and is unable to pay, the debt is classed as unsecured. Therefore, under a CVA or administration, the debt can be partially written off and the government will have to make up the shortfall under the legislation up to a maximum of 6 weeks holiday pay. 

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