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Are you putting money into your business to stop it collapsing?

This is the question that owner/directors of companies have to ask themselves.  Of course, many successful businesses have benefited hugely from the owner stumping up the cash as the bank or potential investors haven't bought into the untried business model.  Consequently, the owner doesn't owe anything to anyone and when stellar performance comes along they are sitting pretty.

What if the business has been going a long time, it is in an established market, plodding along, and does not have a unique product or service? Directors are not drawing any funds or are funding the business to pay the wages. Our advice is to be very wary and do a thorough cost benefit analysis of what you are doing. Could it be that the company could restructure some of its debts, ask for more time to pay debts, cut costs etc? There is a huge amount of information on our company rescue site about this.

If you are putting in lots of money into your struggling company it may be worth considering how you can protect your position if the business fails.

It may be that you take out a debenture i.e. some sort of security over the business. For more information on charges see our pages on fixed and floating charges. It would be advisable to seek legal advice before lending money to your own company - we know lawyers who can help with this. Before you do, speak to us for a 'reality check' to see if you are risking too much of your own money, perhaps if you are emotionally attached to your company.

HMRC collects in £1 billion from tax avoiders using Accelerated Payment Notices (APNs)

Accelerated Payment Notices (APNs) are aimed at wealthy individuals who have been involved in tax avoidance schemes. 25,000 notices have been issued since the controversial power was given to HMRC last year resulting in £1 billion collected. Instead of going through costly court cases, HMRC can demand upfront payment of taxes (an appeal can be submitted afterwards if in dispute). 

A recent article in the Telegraph looked into HMRC’s actions against several freelancers and contractors receiving APNs. It was reported they were ordered to pay thousands of pounds of backdated tax at very short notice for jobs they had years ago. 

Unable to stop proceedings and prove themselves innocent, they could go bankrupt before they get the chance to appeal. 

One individual described how he received a letter from HMRC explaining they were looking into his tax situation. He heard nothing from them for five years until an APN arrived demanding £27,900 to be paid in three months. Considered to be ‘aggressive tax avoidance’ by HMRC, the APN related to several of his freelance IT jobs with banks between 2008 and 2010. 

During this time, it was likely he was marketed a tax scheme that was used as an alternative to running a limited company. Perhaps a legitimate scheme at the time, it is now considered as 'aggressive' tax avoidance, resulting in sudden claims of backdated tax. 

HMRC stresses APNs are only sent to those who can afford them and have deliberately avoided tax, however the case above suggests otherwise. 

As with the £1 billion collected in, accountants believe that 80% of the APNs issued will be appealed, therefore the overall figure may turn out to be substantially lower. 

Government introduces tougher measures to disqualify directors of insolvent companies

From the 1st October, the Small Business, Enterprise and Employment Act will give the government more power to ban directors who have run several insolvent companies in the past or have influenced other directors, leading to a disqualification. 

Directors involved in company offences abroad will also be investigated and potentially disqualified. The new rulings will also improve the creditor’s position. Those who have lost money due to the director’s actions could be paid back by the director personally. 

The time between the company insolvency and disqualification will increase from two to three years to give more time for investigators to look into the impact and harm imposed on all creditors.

New regulations also mean insolvency practitioners will need to give upfront costs of the liquidation procedure to creditors which must then be approved for it to go ahead. 

USA vs UK diesel and petrol prices - infographic

TrackCompare has released a new infographic comparing the cost of fuel in the UK and US. It is cheaper in the US because they only pay one quarter of the tax UK drivers pay. 

As you can see, fuel prices have been falling since 2014, hitting transport and haulage businesses the hardest. Yesterday, It was reported the fall has contributed to the UK inflation rate dropping to 0%.

Created by TrackCompare

We have worked with a number of companies in the transport sector and understand the problems haulage firms face - please visit our industry page. We also have several case studies specific to the industry.

Insolvency Service publishes new guidance for creditors

The Insolvency Service has improved its guide and resources online for creditors wishing to claim money back from companies in compulsory liquidation or from bankrupt individuals.

If a company is placed into compulsory liquidation, the Official Receiver (appointed by the Court) takes control of the company and sells the business and its assets to pay back creditors.

The other type of liquidation is called creditors voluntary liquidation (CVL). As the name suggests, creditors appoint a licensed insolvency practitioner to liquidate the company, however directors can initiate proceedings by meeting with shareholders and then creditors to discuss the situation. 

The new Insolvency Service guide includes details on ways to claim money back, how assets are distributed to creditors as well as what to expect at a creditors meeting. View the full guide here.

We’ve also produced a useful infographic for creditors to show who gets paid and in what order when a company goes into administration or liquidation: http://www.companyrescue.co.uk/directors-guides-insolvency/creditors-priority

If you're a director and considering liquidating your company, please view our expert 50 page guide to Creditors Voluntary Liquidation.  

Business confidence improving

The latest UK Business Confidence Monitor (BCM) report by ICAEW and Grant Thornton (for Q3 2015) shows business confidence is starting to grow while overall turnover growth has remained stable. Out of the 1000 businesses surveyed, 49% are expecting better conditions over the next 12 months, up 4% from the last quarter. 

It’s thought the end of the general election (and end of uncertainty) has contributed to the increase. Wage growth is also improving steadily even though consumer price inflation has fallen to zero. 

For further details and findings from the BCM report, visit ICAEW’s website

Business insolvent? A guide to your options

Falling behind with tax payments or dealing with aggressive creditors can be stressful and worrying, especially if you’re unsure what do to next. Becoming insolvent doesn’t mean the business should close down – there are still ways to turn things around.

Understanding the options available to you can help relieve some of the pressure and give you a chance to consider all outcomes for the business. Take a look below:

Trading out

This is a common way of handling financial problems if the business is viable and is suffering in the short term. Even the largest companies that fall in to cash flow difficulty can be helped by securing extra finance or restructuring. 

Take notes of every decision, meeting and correspondence with creditors and if negotiating prices, have a well-thought and realistic plan in place. Work on daily cash flow and reduce any non-essential costs to save money.
As well as cutting costs, it may be worth looking into alternative finance to improve working capital – however, be careful. It’s bad practice for a business to rely on regular loans or funding to keep going. A more formal insolvency approach may be needed to support the business.

Time to pay (TTP)

A time to pay arrangement with creditors (like HMRC) allows the business to pay back debt, for instance VAT, PAYE or Corporation Tax, over a set period of time. This kind of deal can ease pressure while the business continues trading. View our TTP page for more information. Email robertm@ksagroup.co.uk if you would like a free pack of templates and guides to assist your application. 

Company voluntary arrangement (CVA)

This is a formal deal between the company and its creditors whereby a proportion of debt is paid back usually over three to five years. Often the return is seen as ‘x’p in the pound with some debt written off. The director(s) continue to run the business during the CVA. 

We have helped a number of companies across all industries enter a CVA – see our case studies page for some examples. 

Administration and pre-pack administration

If legal action is looming, appointing an administrator to put the company into this procedure will protect the business and its assets. Once administrators take over the company, they will look at all possible options for the business to repay creditors.

If the business is viable, it may be possible to exit into a CVA once legal action or creditor pressure has stopped. Alternatively, administrators may find the best solution is to sell the business and assets to raise money for creditors.   

Pre-pack administration

This is where the business is sold to a third party of new company (newco) upon the appointment of administrators. Jobs can be transferred over and the business can continue trading.

Creditors voluntary liquidation (CVL)

Considered as a last resort, this procedure involves a liquidator selling the business and assets, then equally dividing proceeds (if any) between creditors. Sometimes the business may no longer be viable or the director wants to close it down and move on. It’s called creditors voluntary liquidation because only creditors can appoint a liquidator to wind the company down. Directors can initiate proceedings by calling a meeting with creditors and going from there.

Free consultation

Directors should always act to maximise creditors’ best interests. Failing to do so could result in personal liability or disqualification.  If in doubt on what to do, seek advice and ensure records and accounts are clear and up to date. Call us on 0800 9700539 if you would like to talk through the options for a particular situation. 

Browse our expert guides on CVAs, directors duties and warning signs of an insolvent company. 

Insolvency Statistics on Insolvency Enforcement Actions

The insolvency service has just released some statistics on their enforcement actions for April to June 2015

  • The number of enforcement outcomes obtained by the Insolvency Service continued to decrease year-on-year, in line with falling numbers of insolvencies.
  • Director disqualifications decreased year-on-year for the third consecutive quarter.
  • The number of companies wound up in the public interest decreased but remained broadly on trend.
  • Bankruptcy and debt relief restriction orders and undertakings continue to decrease in line with decreasing trends in bankruptcies and debt relief orders.
  • The number of suspension of discharge orders obtained continued to decrease, in line with the decreasing trend in bankruptcies.

Two directors disqualified after lying about sales of over £1 billion

John and Carmel Billany are banned from acting as directors after an investigation found accounts had been tampered in order to secure extra finance for their supply business. John is disqualified for nine years while Carmel is banned for six years and three months.

Based in County Durham, Linden Group Limited supplied hydraulic components to traders and businesses around the world.

Falsified accounts showed their turnover was £1.2 billion, when in fact the actual turnover for £3 million. The investigation came as a result of Linden Group Limited becoming insolvent in 2013 after (unsurprisingly) falling behind with payments to a finance company.

The liquidator of the company sold the business on to an unconnected company in the same industry.

John and Carmel are two of the 1209 directors disqualified in the last year.

Free tools to help your business

Below we’ve provided a handy list of free downloadable expert guides, toolkits and templates from across the whole of our site to help directors and accountants plan the next best steps for a struggling business. 

Browse the Company Rescue site for more guides on time to pay arrangements, administration, pre-packs, dissolution, winding up petitions, partnership insolvency, members voluntary liquidation and everything in between!

If you’re in need of specific advice, give us a call on 0800 9700539 or fill in our online form. One of our regional managers can visit you for a free face-to-face meeting to discuss the business’s situation and the best way forward.

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