Guides


What is an Insolvency Practitioner?

in Company Liquidation

An Insolvency Practitioner (IP) is a professional who is authorised, and licensed, to act in the interests of an insolvent company, partnership or individual.  In respect of a company, they aim to either rescue it or wind it down in a fair manner to maximise the interest of all the creditors according to the law.  They carry out their work in accordance with the Insolvency Act 1986 and the rules of their regulatory authority such as the Insolvency Practitioners Association (IPA),  the ACCA, ICAEW, or the ICAS. Should I appoint an Insolvency Practitioner? Directors are most likely to get in touch with an insolvency practitioner if they are worried about the financial situation of their company.  They may face serious legal threats from suppliers, banks, HMRC, and may even face petitions to wind their company up. It might be that bailiffs have visited the registered office.An insolvency practitioner may also be appointed by the court, where a petition to wind the company up has come from a creditor.  In addition, a secured creditor, such as the bank or factoring company, can appoint an insolvency practitioner as an administrator i.e. put the company into administration resulting in you losing all control.So, it is generally advisable to seek the services of an insolvency practitioner as soon as you are aware that your company is insolvent.  If you are not quite sure if this is the case, then read our Insolvency tests page.  What are the roles of an insolvency practitioner? Liquidator Once a liquidator is officially appointed, they oversee the closing down the business and investigating the circumstances that led to the company’s insolvency.Their main purpose is to convert any remaining assets into cash and pay as many creditors as possible with those funds, hoping to pay dividends too. However, some creditors may not see a return due to liabilities that outweigh the financial worth of the remaining assets. Liquidators ensure creditors are all treated in accordance with their legal rights.A liquidators role involves a variety of tasks: arranging meetings, completing paperwork and investigating the directors’ conduct. Administrator When a company goes into administration, the insolvency practitioner effectively runs the company for the benefit of the creditors.  They will try and sell the business assets. If there are no takers, then they will wind down the company.  Administration’s primary aim is rescue and it needs to have a better result than liquidation for the creditors as it is a complex and more costly process. Nominee and Supervisor of a company voluntary arrangement. A company voluntary arrangement (CVA) is an insolvency process that allows a company to pay off a proportion of its debts over an extended period of 3-5 years.  The arrangement must be agreed by the creditors.  The role of the IP as a nominee is to ensure that the proposed CVA is “fit, fair and feasible.  As such they need to be satisfied that the company has a reasonable prospect of rescue and can afford the payments to the creditors.  As supervisor, the insolvency practitioner is responsible for collecting the payments from the company to pay back the creditors, known as a dividend.  If the company cannot pay, then the supervisor will wind up the company as liquidator. What are the qualifications needed to be an insolvency practitioner? An insolvency practitioner will have passed the Joint Insolvency Examination Board (JIEB) exams which are known to be very tough.  Due to the financial nature of insolvency most practitioners will have extensive experience as an accountant and may well be qualified either by the ACCA, ACA and CIMA.  One particular reason why insolvency practitioners need to be well qualified is that it should be remembered that an IP acts in their personal capacity when dealing with insolvent companies.  They are not protected by the company they work for.  When taking appointments they have to take out an insurance policy to protect creditors from losing out if they are negligent or criminal. How can I find an insolvency practitioner? Most insolvency practitioners work at a firm such as us KSA Group.  Be wary that many people offering advice to insolvent companies are not actually licensed to take on appointments but will just take some fees and then you will end up having to appoint one anyway or you firm will be wound up by the court.  To check if someone is actually licensed then you can search thehttps://insolvency-practitioners.org.uk/ipa-search-members/https://www.icas.com/find-a-cahttps://www.gov.uk/find-an-insolvency-practitioner

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What is an Insolvency Practitioner?

A Guide To Debt Finance and Refinancing

in Finance and Funding Insolvency process

Are you running out of cash waiting for the business to make a profit or can't collect money in fast enough? Almost all businesses need to go through periodic refinancing exercises, whether replacing bank facilities, renewing overdrafts, obtaining bank term loans, EFG loan guarantees scheme loans, factoring/ invoice discounting or capital expenditure requirements. This is normal business practice.Raising working capital is an important plank in any growth plan. Since the 2008 banking crisis and new rules being imposed raising finance has become more difficult and more hassle.Where a company has encountered a significant downturn event or is under pressure, then the directors must consider whether raising further finance against assets is the solution to their problems. As the current market for business changes and evolves almost daily, we cannot provide an exhaustive list of the financial products available but we give a simple guide to the options available to you below.We assume that the business is not a prime candidate for lending and that it needs working capital. Refinancing Remember, this section is not designed for ordinary business financing solutions, rather it is for companies under pressure, who need to find adequate working capital.Consider the products, weigh them up against the circumstances you find yourself in and decide. If you want help to decide and find the most appropriate suppliers of finance, please contact us. We know and have access to dozens of providers of these products and can point out the pros and cons of each.Bank Overdraft Enterprise Finance Guarantee Loans Factoring and Invoice Discounting Asset Refinance Credit Card Merchant Advance Stock Finance Venture Capital Business Angel Investment Directors Loans (Simply what it says!) Crowdfunding Peer-To-Peer Finance (P2P) Company Voluntary ArrangementAfter all that are you confused? Want help to decide what is appropriate? Contact us - call us FREE on 08009700539 or fill out the contact us form. Bank Overdraft It may be possible to obtain temporary increases in facilities from the bank although due to regulations (BASEL III) banks are keener to convert overdrafts into loans. If the problem can be demonstrated to be short lived the bank will often want to try and help. If the problem looks more deep-seated the bank may want more investment from third parties (you). Prepare good information, your team's arguments and talk to the bank - early enough. Don't wait until you cannot pay PAYE and VAT as this is a sign that the company is probably insolvent. Rarely will banks allow extension of facilities for this purpose.If, however, your business looks like turning the corner you could offer to provide additional personal security such as personal guarantees (PG) secured against your home. If you are not prepared to back your hunch with a PG, then ask yourself why should the bank provide money at increased risk to the bank?Advantages Decision making process is usually short - if you have good information to give the bank. The existing relationship is very valuable - banks don't like losing customers. It may ask for more detailed work to be done on the figures, (despite the cost) this can a be valuable exercise. It may help pave the way to other financial products from the bank in future.Disadvantages If the bank cannot see how its money can be repaid (serviceability) or cannot see how it can get the money back in the event of liquidation (security) they will not lend. Ill-prepared requests for funds will be looked upon less favourably. The bank may want a third view and ask for investigating accountants to examine the business. It may be more costly than existing finance.The bank will probably want more security from the company and the directors - personal guarantees may be demanded or increased if already in place.  Factoring & Invoice Discounting You essentially sell the debtor book (customers that owe your company money) to a factoring company who then provide the company with working capital advances (effectively a loan) against that asset. They will provide from 50-95% advance against the debtor book and charge around 0.33% to 2% depending on the number of invoices, the quality of the debtor book and how much work is required.Usually all your future invoices pass through the system and this sharply improves cashflow. Not any more seen as "lending of last resort" factoring is a very powerful tool and there are some excellent factoring companies providing multiple working capital products to tens of thousands of UK businesses nowadays.Some companies can now even offer finance based on one invoice! Call Keith Steven if that product would be helpful to you. This can be used, for example, if you are selling some products to one new customer. The provider just looks at the history of the debtor. Talk to KSA if you need a new factor, specific spot factoring or just some guidance.Factoring means that the customers know you are borrowing money against their invoices from you. Confidential invoice discounting (CID) usually means this lending is discrete and the customer doesn't know.Advantages If your debtor control is poor this can help. It is an extremely flexible form of finance - the facility can rise and fall as your needs dictate. If the company is under pressure and your sales are growing it is a vital tool. Finding the right factor can lead to much more efficient use of your assets and the ability to plan production or activity - thereby creating improved efficiency.If your business is growing this can grow with you, if sales are shrinking it can be a flexible facility but see below.Disadvantages Concentration in one or two customers can cause difficulties. It is perceived as expensive - but it is providing the commodity you need - money. Most banks have a factoring division - they may not be suitable for your business - shop around. BUT in the current climate big bank factoring facilities are less flexible than the small more nimble factoring companies. Any bank overdraft is normally repaid from the advance from the factor (the bank's main security is sold to the factor). If you have very low margins or your debtors pay very slowly (more than 80 days) it is not generally suitable.Talk to Keith Steven on 07833 240747 if you need to find new flexible factoring or CID facilities Asset Refinance or Asset Based Lending (ABL) Most companies depreciate their assets faster than the value of those assets fall. Therefore, there are often "unencumbered" assets to lend against. The assets of the business form collateral for the lender to secure themselves against.Assets can include, property, machinery, stock (see stock finance). Used in conjunction with, say, factoring, this method can provide a package of new finance to overcome distress.Advantages It is usually a very quick method, access can be through commercial finance brokers or other contacts. Contact us by email for help if required. Where a short term crisis (say a large bad debt) has occurred this method can help the company round the problem very quickly by efficiently using its assets to raise cash. Better quality assets such as land and buildings can attract good rates of interest. In 2020-21 there are many new players offering refinance and asset based lending at good rates.Disadvantages Raising finance this way is not cheap. Where the company has unencumbered assets it is tempting to raise cash against them but remember NB: If the crisis is longer term can your company service the debt repayments?Call us for a CVA now! Costs vary but rates of interest on refinancing assets (i.e. where previous debts are repaid and fresh advances made) can be as high as 30%. The value of assets is established by the lender - it is never as much as you expect. Stock Finance (very limited availability) A form of asset finance. Where the business carries stocks that are easily value-able and resold (such as retail or wholesale or where manufacturers hold stock for clients) then stock finance can be raised. The value of stock is usually much less than that on the balance sheet and lenders lend according to their own valuations.Advantages As part of a package of measures stock finance can be useful. It can often be flexible and longer term advances can help cope with trade cycle ups and downs. It can be relatively quick to organise.Disadvantages It can be costly and the stock will never be worth as much as you think. The security may be difficult to assign. If the bank has a debenture in place any finance raised may be taken by them to mitigate the exposure anyway. Business Angel Investment The classic UK equity gap problem is getting worse. Too small for venture capital and too big a risk for the bank - where to turn? Angels can provide a mixture of loans and equity to distressed or struggling businesses. Most come from a business background and have lots of experience. They usually take a longer term view and can greatly assist the directors grow the company.Advantages With bags of experience an angel can be just what the growing or struggling company needs. Chose carefully and the relationship can be very fruitful. The funds can be flexible and inexpensive. Further rounds of funding can be available. The fact that an investor is putting money in can also help persuade the bank to increase funds available.Disadvantages Chemistry can be difficult - they are going to be involved long term therefore will take time choosing their investments. Equity: they will want to hold shares in the company and the depth of the distress or pressure will determine how big a slice they require. Paucity: there are thousands of angels but finding an appropriate angel, convincing them to get involved and getting finance can take many months. Control: many angels will want control at board level. BUT isn't it better to own say 75% of a company with value than 100% of nothing?Speak to Keith Steven on 07833 240747 if you think this is a product that you need.Angel investors often want to see debts restructured either through a CVA or a pre pack. Be warned they never want to risk their money to plug a gap for tax payments for your company, if the company fails they may pick the assets up is a common view.So ask yourself should the company be restructured with a  CVA and hive out BEFORE any new funding comes in? (click links to read more on these powerful tools). Venture Capital Most small businesses in trouble are NOT suitable for Venture Capital. VCs invest in around 1 in 1,000 applications for finance and unless there is a huge growth potential and an almost unique nature to the business it will not get venture capital. If however the company is unusual in the above regard, then contact us by email keiths@ksagroup.co.uk with a synopsis and we will look at the options with you.Advantages Most directors are aware that equity is "cheaper" than debt. Having a quality non executive director to help guide the board (a pre-requisite of most VCs) is also a big plus. The company's reputation and PR are enhanced. Where growth is achieved and prospects remain good, the ability to raise further finance is enhanced.Disadvantages Classically, shareholder directors see the dilution of their equity as a no-go area. Would you rather have 40% of a company worth £10m or 100% of a company worth £1m? VCs only part with money after thorough due diligence, it is hard work and costly. In the end you may not get the money. Only the best management teams with the best ideas win through. It is very time consuming - in a distress situation do you have 3-9 months to wait?No! Use a CVA or pre-pack to restructure the costs, overheads and debts. Then a business angel or VC investor may be interested. Call Keith Steven 07974 086779 for more details. Directors' Loans It may be possible for the directors or senior people to raise funds privately. This can then be loaned to the firm. Tax efficient repayment may mitigate the PAYE due on directors pay. But if the company is insolvent, repaying your loans in advance of the creditors may contravene the law.In the event of a liquidation, the monies may have to be repaid to the company! This is a possible minefield.Security may be taken for the directors loans - but this is a complex area and needs proper advice.Beware you could create a potential preference (s239 Insolvency Act 1986) if you put money into an insolvent company and then pay yourself back!! Call Keith Steven for smart, expert advice 08009700539 or 07974 086779.Advantages It is cheap, you remain in control of the financial process. It is usually a quick method to raise finance. But be warned, taking out second mortgages will require showing the lender the company's accounts. You can repay the loan as convenient to cashflow. It can carry zero interest (you can however charge interest). Personal loans are now more freely available.In 2019 mortgage providers lent less than 30% of the amounts in 2007. A distressed set of accounts will make borrowing harder. You can of course use credit cards and personal loans (unsecured) but the lending criteria for these product have also hardened. Remember if you lend the money to the company and then take it back out BEFORE liquidation, this is a breach of s.239 Insolvency Act 1986.Disadvantages If you had lots of money it would probably already be invested in the business? Can you afford the repayments personally? If the company fails you still have to repay the loans. The bank may take some of their existing advance back after the funds are introduced. Finally, is the money you can raise really ENOUGH money to solve the company's problems? New Finance products Crowdfunding There are several web based crowd funding sites. Essentially you pitch to the investors and if they like your model they will provide equity or debt to the business. You will need a GREAT pitch, good accounting information, forecasts and a business plan.  This particular type of funding has seen explosive growth in the last year with hundreds of companies now offering shares. Peer to peer finance Investors or companies can lend finance directly to businesses in exchange for interest. Those in need of finance can create a pitch which is then passed from the peer-to-peer platform (e.g. Funding Circle) to investors.Call Keith Steven now for a guide to this innovative route to financing your business. Recovery Loan Scheme See this page Short term loan providers Advantages. Quick and easyDisadvantages - only up to £50,000, set criteria and a personal guarantee will be needed. Credit card finance merchant loans This is like factoring above. Effectively you obtain a loan against the future credit card receipts in the business. So if you had sales of £100,000 on credit or debit cards last year; you can borrow £10,000-£12,000 against this. Great for a short term tax problem say, and relatively easy to obtain with no security; but a Personal Guarantee (PG) will be required.If you have a funding requirement have you thought about postponing ALL unsecured debts, collecting in debtors and work in progress and cutting costs? This huge increase in working capital is the impact a company voluntary arrangement can make.If you're concerned about your business, request our free 40-page expert guide for directors, answering everything from personal guarantees to rescue options.

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A Guide To Debt Finance and Refinancing
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Notice of Intention To Appoint Administrators

in Notice of Intention to Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

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Notice of Intention To Appoint Administrators

Can I Claim Directors Redundancy in Liquidation?

in Directors Duties in Insolvency and their Implications Guides

When a company goes into administration or liquidation the directors of the business are in effect made redundant.  Their powers and duties as directors cease.  So, it isn't surprising to know that directors are in fact entitled to redundancy payments if they were employed by the company.  Given the company is insolvent then it cannot afford to make the payments, so instead the bill is picked up by the Redundancy Payments Office (RPO).  This fact can help alleviate some directors concerns about liquidation.  In any liquidation the employees are able to claim for arrears of Wages, accrued Holiday Pay and Pay in Lieu of Notice, and if they have been working for the same employer for two consecutive years are also entitled to receive a statutory Redundancy Payment.  The same applies to directors.  There are a number of companies out there claiming they can get large payments for directors but there are a number of caveats. What are the eligibility criteria? You must have been employed by the company and received a wage commensurate with your work. This is not often the case as directors usually pay themselves with dividends and take a minimum wage for tax reasons.  This was actually one of the reasons why many didn't benefit from furlough payments during the pandemic as they were not actually employees.You must have proof you were employed. Again just being paid via PAYE may not be enough.  You will need to show that you had a contract and that terms were set (these can be implied and not necessarily detailed in an employment contract) example terms might be holidays taken, sick leave, paternity.maternity payments, car allowances, pension provision etc.  ie all the usual things that an employee has.An employee may not work less than minimum wage. This is important as if you are putting in long hours and not being paid much then it actually means you are not an employee!  As such any claim will not be accepted. Small monthly payments will just be seen as extracting money from the company as an office holder not an employee. How do I apply? Once the company has gone into liquidation or administration then there is an application form that the directors can fill in.  It doesn't take long and there really isn't any need to employ a third party to do the claim for you.  Some companies are making some misleading claims about average payouts etc. How much am I likely to get paid? You will receive redundancy and loss of pay if you are entitled to it.  However, in most cases that we have dealt with the directors owe the company money and this negates any payout that is likely to be owed.  In addition, the Redundancy Payments Office (RPO) is getting very strict about claims, so a director that has taken out substantial dividends is unlikely to be regarded as an employee. The amount is capped at £719 per week.

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Can I Claim Directors Redundancy in Liquidation?

We are Company Rescue and Not Clear Company Rescue

We are Company Rescue and Not Clear Company Rescue! Clear Company Rescue are offering a solution to your issues by offering to buy your insolvent company.Does this sound too good to be true?The actual process is legal as there is nothing stopping anyone from buying an insolvent company in the hopes of turning it around.  However, if the correct course of action is that it should be liquidated, as the debts could never be paid back from current trading, then you have to think why would they do it?!Why take on the debt and the hassle?  They will of course most likely allow the company to be wound up eventually by a creditor. Check whether you will be charged for this somehow.  Bear in mind that just resigning as a director of a company does not mean that any responsibility for what happened in the past is just wiped away. You could still be disqualified or made personally liable for any of the debts if you have not acted properly.  In addition, under the Insolvency Act 1986, when a company is insolvent the directors have a duty to act in the best interest of the creditors.  If you pay someone to take it off your hands are you actually acting in the best interest of the creditors or yourself?  It is questionable to be sure, and there may be action against you down the road when the company is eventually wound up by the court. Insolvency Practitioners are licensed and under the regulations they have to act in the best interest of creditors.Be very wary if you somehow manage to keep the assets of the company without paying for them.  This can be what is deemed as a "transaction at an undervalue" and can be reversed up to 2 years later by a liquidator.Also what about a preference?  If you pay back some monies to a family friend instead of HMRC or BBL then again that can be reversed or voided at a later date.It goes without saying that selling the company will not absolve you of any personal guarantees that you gave on behalf of the company.What if you owe the company money?  The new directors will pursue you for the debt.  Directors responsibility under law, if the company is insolvent, is to act in the best interest of creditors.  So they may pursue you personally for the debt.  Many directors are not aware that they owe the company money.  If you have paid yourself drawings and not via PAYE and now the company is insolvent it is highly likely that you owe tax that the company has to pay.  More on overdrawn directors loan accounts here.Ultimately these sort of schemes and legal gymnastics carry risk. Insolvency is highly regulated and there are no shortcuts.Do you want to take the risk and give your money to a firm that is unregulated by any professional body?Remember that company directors are not protected by the law in the same way that general members of the public are.  They are deemed to be "street wise" and knowledgeable.  So there are no cooling off periods, consumer rights, ombudsmen, distant selling rights etc.

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We are Company Rescue and Not Clear Company Rescue

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