Insolvency Advisors? Know Who You Are Dealing With!
It should be remembered that there is less legal protection for businesses than there is for consumers as business owners are expected to be able to make informed decisions. Unfortunately, when businesses find themselves in distress the directors may make decisions in haste.
ReadInability To Pay Wages – A Guide for Worried Directors
if you worry you cannot pay the staff wages at the end of the month then it is likely that your business is insolvent and you will need to take action. There are options if you act quickly.
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Personal Liability Notice or PLN Explained
A personal liability notice (PLN) is issued by HMRC and governed by Section 121C of the Social Security Administration Act 1992. It gives HMRC the power to issue a notice to an individual officer of the company to be personally liable for National Insurance Contributions or NIC.
ReadAdministration followed by a CVA
Administration followed by a Company Voluntary Arrangement What would be the purpose of using an administrator to propose a CVA? The answer is control over aggressive creditor actions, protection from landlord actions and a moratorium to prevent future legal actions before a CVA can be proposed. Given that it can take several weeks to build a viable CVA proposal sometimes creditors may already have started legal actions such as issuing a winding up petition or enforcement action.So, it may be necessary to put the company into administration to protect it whilst the detailed forecasts and CVA proposals are prepared and to discuss the scheme with the bank and other critical creditors. Once a viable CVA scheme is ready it becomes the administrators CVA proposals not the directors. So, in effect, the CVA can be used as a method of exiting an administration.The main reason your business might want to exit an administration is for reasons of cost and control. An administration is a powerful but expensive insolvency procedure. Powerful in that it can allow the business to trade and be sold if possible in a very short time scale if necessary. Expensive though, because the administrator has to run the company in place of the directors and has complete control of all the monies in and out of the business. They will also look at how to restructure the finances and one possible option is a CVA.If a buyer cannot be found but the business is viable and it will maximize the interest of creditors then a CVA is an acceptable exit strategy. The CVA will hand back the business to the directors and the insolvency practitioner and his / her team will continue to monitor the CVA as supervisors.So how does it work?The IP, once appointed by the board, will put together an administration proposal and get external asset valuations and statement of affairs drawn up. After getting floating charge holders consent, the IP will make an application to the court stating the purpose of the administration. The company enters administration and all legal actions are stayed by the moratorium in place. The IP then calls a creditors meeting to report on his proposals for the administration and then they will prepare the CVA. The CVA will then be published to creditors (a minimum of) 14 days before a meeting is scheduled to vote on the proposal. If the CVA is approved by creditors the CVA starts. 28 days later the IP applies to the court to end the administration and usually becomes the supervisor.The directors then get on with running the company under a CVA. Of course, they can exit a CVA early as well if they want. We have had a number of our clients do exactly that.
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What is a Prescribed Part?
A prescribed part is the part of the proceeds from realising the assets covered by a floating charge, that is set aside and kept available, so it can satisfy any unsecured debts.
ReadWho is the Official Receiver?
The Official Receiver is a civil servant in The Insolvency Service and an officer of the court. They will be notified by the court of the bankruptcy or winding-up order of a company.
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Construction Finance
Having difficulty getting Construction Loans or Finance? Every business is different, however there are particular issues that construction businesses face which are unique to the sector.Often with low margins and tough trading conditions, cash flow can be a problem. Below is a list of problems we’ve seen happen in the industry:Retention sums not released at agreed times Delays in repayments from HMRC, regarding CIS deductions (which are connected to PAYE scheme). HMRC can be slow in making CIS refunds, leading to issues with cash flow. Loss of large contracts Issues with sub-contractors Difficult customers Lengthy contracts with prices agreed at beginning. I.e. quotes do not keep up with rising costs. Less focus on financial accounts due to management being onsite Hard to find new contracts if cash flow is tight, perhaps due to low credit ratingIt might be that an additional loan is not what is required.... As turnaround practitioners, our specialists can help tackle these issues with you to get your construction business back on track. We can go through all the available options, like expert assessment of the issues your company faces, improved financial reporting, Time to Pay deals, CVAs and pre-pack administrations. We can also find finance for construction companies in distress.We also have industry specific turnaround experts who can act as non executive directors, chairman or turnaround managers. We have turned around construction companies from £500k to £25m sales.Call us on 0800 9700539 for free expert advice and a talk through your options. We can visit you onsite to discuss your specific situation.
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Can I Get Out Of A Personal Guarantee on Commercial Leases?
Do I have to personally guarantee the lease for commercial property? When a limited liability company takes on a property the landlord will often ask for a third party to guarantee the obligations under the lease which, in the most part, is to pay the rent and service charge. This is to reduce the risk to the landlord should the company become insolvent. Most landlords will ask for this guarantee if the company is relatively new, with little trading history, or in a high risk industry. Many restaurants and hospitality businesses are asked for these guarantees. It is usually the directors of the company that are asked to personally guarantee the lease. As a director this means that you are personally liable for the rent if the company can't pay and the landlord can pursue through the courts and could even make you bankrupt. If I can't pay the rent can the landlord make me personally liable under the lease? Simply, If you give a guarantee then yes. Whether it is commercially sensible for the landlord to pursue you is a different matter. If you have no assets or the amount is relatively small that you owe then it might not be worth the costs. A landlord would need to issue a bankruptcy petition and in the end it might be better to concentrate on reletting the property with a tenant that can pay the rent. Obviously the landlord is only likely to call on the personal guarantee once the company has vacated the property.One important thing to realise is that if more than one person has been named as a guarantor then these people are what is called jointly and severally liable. What this means is that one person and/or all are liable. So it might be practicable that the landlord goes after the richest guarantor rather than pursuing each one individually especially if the others guarantors have little money! Can I get out of the personal guarantee I have given to the landlord? If your business has had a strong trading history and paid rent on time over a number of years then at lease renewal it would be a good idea to try and negotiate that the new lease does not need a guarantor. However, this will all be part of the negotiation and any landlord will be reluctant to give this additional security up. It might be that you can negotiate limits to the guarantee, such as it can only be claimed on in the first 2 years of the lease (incidently most business failures happen in the first 2 years) or that the guarantee does not include the family home. How can I avoid the guarantee being called upon? If the company is in a strong financial position then the guarantee isn't a problem. If the company starts showing warning signs of insolvency it is crucial that the directors act. It is all too common that directors are over optimistic or blind to the signs. This can seriously increase personal liability problems.So, the basic advice is GET ADVICE if you are worried your company could be getting into difficulty and you have a personally guaranteed the lease.
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Scheme of Arrangement for Creditors
A Scheme of Arrangement is a statutory legal process that allows a company to restructure its debt. It is not an insolvency procedure under the Insolvency Act, but must be approved by the Court.
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What Happens if a CVA Fails?
What happens if I enter into a CVA and then can't keep up the payments? Will I be personally liable for any debts? The above question was asked by a potential client and we feel that it would appropriate to respond to this.Firstly, a CVA is a Company Voluntary Arrangement so their is NO automatic transfer of debts to the individual. It is possible that a director may have personally guaranteed the debts of the company so, in that instance, yes they would be liable. Of course, that would have been the case whether the business went into a CVA or not and subsequently failed.So, if the company is not able to keep up the payments that does not mean that the company voluntary arrangement will be stopped and the business goes into liquidation. As supervisor, we would look to see if we can make a modification to the arrangement. This would mean that we would have to call another creditors meeting and put out an amended proposal. One quite common change is to extend the period that the CVA runs for. So, instead of 3-5 years we may look at extending to 5-7 years. Normally, but not always, the creditors do not wish to see a reduction in their total overall dividend. Of course, any modification will need to be voted for by the creditors.If the company is simply not viable anymore, and cannot continue to meet its obligations then, as supervisor, we will petition to wind the company up. It is still possible to go into a creditors voluntary liquidation but that would have to be handled by different insolvency practitioners as otherwise we would have a conflict of interest. I am a creditor/supplier of a business in a CVA: what if it fails? As a condition of the CVA the company must not increase its liabilities to any of its creditors. Therefore you must contact the supervisor of the CVA to point out that you are not being paid. In fact, if a new debt is building up then you are still able to take any legal action necessary to recover the debt. It has to be a NEW debt and not contain the debt that is bound by the CVA. I am already in a company voluntary arrangement that was organised by another insolvency practice but I can't keep up with the payments. The supervisor is unhelpful what can I do? Some CVAs do fail and it is often as a result of badly drawn up proposals. The company tries to pay back too much too quickly or the costs are not cut quick enough at the outset.Well, there maybe a solution to the problem in that someone may want to buy the business, restructure and recapitalise it. We do have contacts and access to some funds that can help with this.
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Accelerated Payment Notices or APN Explained
Have you or your clients been using tax avoidance schemes and are likely to be issued with an accelerated payment notice (APN)?
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Options for an Insolvent Pub
See below some advice given on our online chat regarding an insolvent pub I hope I was able to give you some options today.We discussed the fact that the company has two pubs in [town], one we will call “large pub” the other “small pub”. Both are tenanted pubs with Company 2.The large pub tenancy ends in May, you need to provide 6 months notice and have yet to do so. The small pub is reasonably profitable and you wish to retain this if possible. The company is insolvent and has tax liabilities it cannot meet. You are not taking salary and are struggling to survive financially as a result.We discussed Option A; close the large pub, make employees redundant and hand the keys back to Company 2, this will cause Company 2 to look at the issues and it may decided to end the lease/tenancy of the small pub as a result. Or it may not. This action would straight away cut costs.Option B is to place the company into creditors voluntary liquidation. This would end both leases/tenancy agreements when the liquidator is appointed by creditors. But it also writes off the debts.Then you would seek to retain the small pub under a new agreement as a sole trader. Do NOT trade as a partnership in case this fails in future, this could lead to BOTH of you being made bankrupt as partners. So liquidation would bring all the debts and the business to an end.The employees would get paid redundancy by the RPO – redundancy payments office which is a government safety net.
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