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What is an Insolvency Practitioner

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
helpful advice for trading whilst insolvent

Trading Whilst Insolvent – Worried Directors Guide

Trading whilst insolvent is a legal term used to describe a business which continues trading when it cannot pay its debts and its liabilities are greater than its assets.  It can lead to a breach of several provisions of the Insolvency Act 1986 which can result in the directors being held personally liable

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Trading Whilst Insolvent – Worried Directors Guide

What Is A Transaction At An Undervalue?

A transaction at an undervalue is when an asset is transferred for no payment or sold at below their true value.  The transaction becomes a problem if the company is insolvent, as any transfer at an undervalue is in effect depriving the creditors of money owed to them.  This is outlined in s238 of The Insolvency Act 1986. 

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What Is A Transaction At An Undervalue?

If My Limited Company Goes Bust Will I Lose My House?

What does it mean to go bust? Going bust is simply when a business cannot continue to trade as it owes too much money to its creditors. Creditors are likely to have launched legal action against the company to recover debts. In addition, there is not enough cash in the company to survive. Consequently, it enters a terminal insolvency process like administration or liquidation. Is my house at risk? In the majority of circumstances, you will not lose your house or personal belongings if your limited company goes bust. This is because, as the name suggests, the liability is limited. This type of protection means any consequences stay within the business. However, under certain circumstances you can be vulnerable Risk to your home when your limited company goes bust: You personally guarantee a company loan If your company has a poor credit record, is small, or is not well established, finance providers may request a personal guarantee before approving any loan. If you cannot repay the loan, or if your company goes bust, then the creditors will come to you for repayment. You will be held personally liable. If you have not got the capital funds then your home and any other personal belongings may be at risk should you be made bankrupt. Understand more about directors personal guarantees here. You have borrowed from lenders and they insist on a charge over your house in addition to a personal guarantee When taking out a company loan, the lenders who provide the loan may be worried that you may not be able or willing to pay it back if something goes wrong.  As such, they could request a charge over your house. This is similar to having a mortgage in that the lender has security over your property.  If your company goes bust, some lenders may be out of pocket even if they have a personal guarantee.  Under these circumstances the  charge acts as extra security.  This will mean that they will be paid ahead of other creditors once or if the property is sold. You have an overdrawn directors account It is quite common for directors to have an overdrawn loan account. This is when the director takes money out of the company for personal use, but it has to be repaid at some point and accounted for as per any other transaction. The issue comes when the company goes bust and the loan is not repaid. The liquidator or administrator will pursue the money, as you are a debtor of the company.  Personal bankruptcy is a risk that could mean repossession of your house. You are found to be guilty of wrongful or fraudulent trading When the IP investigates the conduct of the director(s) they may find that you, as the director, ignored creditor interests and wilfully piled on debt knowing that it could not be repaid. This is a serious breach of the Insolvency Act and may well result in you becoming personally liable for some, or all of the corporate debt. Such actions against directors are rare but none the less they do happen.So, your house is not at risk and you have nothing to worry about if;You have no any personal guarantees, You haven’t wrongfully traded You can repay your overdrawn directors account,If you are unsure or would like any further advice, speak to one of our professionals today.Additionally, if you would like to liquidate your company, call us on 0800 9700539

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If My Limited Company Goes Bust Will I Lose My House?

Common Mistakes Struggling Businesses Make and How to Avoid Them

When your company is struggling it is important not to make mistakes as that could lead to failure.  In addition, if your company does fail then some mistakes can lead to personal liability, directors disqualifications and even criminal sanctions.  So, if a company director doesn't act properly they can be made liable for the company debts and be disqualified from being a director.  The Company Directors Disqualification Act 1986 has far reaching powers to ban "unfit" directors for being involved in running a company.Below are the most common mistakes that directors make that can lead to insolvency.  Of course, there are many reasons why a business fails but we are talking about becoming insolvent as opposed to not being successful and having to close down. Common MistakesNot managing cashflow regularly.  This is the most common problem. Directors often are brilliant at doing deals, winning business etc but the boring numbers bit not so much!  Too much work can cause insolvency in what is known as overtrading.  You take on work pay lots of workers/suppliers etc and then suddenly run out of cash before the job is finished.  Or simply the directors do not realise that cash is going out of the door.  Companies with poor financial controls are sometimes the target of fraudsters and thieves! "Robbing Peter to Paul"  If you find yourself moving money around the company or between companies/departments then you are depriving parts of your company of cash.  This should set alarm bells ringing. Ignoring legal threats.  This is an obvious one but any legal threat against a company must be taken seriously especially if it is a demand for money or compensation. Taking unnecessary legal action.  We do find a number of our clients have taken legal action ruled by their hearts and not their heads.  In the end they have either lost or not had costs awarded in their favour.  The other problem about legal action is it can take up huge amounts of management time so you need to be pretty sure you are going to win or just cut your losses and move on. Not making redundancies when needed.  It can be really difficult to make people redundant but it is necessary sometimes.  It is in fact possible to get a loan from the government to cover the costs of redundancy if it can be shown that it would save other jobs by doing so and avoid insolvency. Trying to borrow yourself out of trouble.  This is very common. This sometimes happens with overtrading where you can borrow money in the event of a big uptick in business, but be careful and make sure you have some reserves Giving too much credit to a long time customer.  Ask yourself why are they suddenly giving you loads of work but not paying on time? Taking on premises that are too flash/expensive for the business.  This is also very common and is a result of over confidence. Appreciate it isn't always possible but try and negotiate break clauses in leases or just sign up short term. Warring directors often leads to issues and problems.  If the directors cannot agree then strategy and cost controls are hard to control.Serious mistakes that can get you in trouble personally. Any of the below mistakes can land you with personal liability problems, disqualification or criminal sanctions.Taking deposits for new work when you know you do not have the resource to do the work and feel "something will come up" This could be construed as what is termed "wrongful trading"  If it can be proved then it is likely that the directors will be personally liable for the debts and will face disqualification. It is quite rare for directors to be found guilty of wrongful trading but nonetheless directors need to be careful. Moving assets from one company to another without due consideration.  This is in breach of the Insolvency Act 1986 and is called a transaction at an undervalue.  If the company goes into liquidation or administration then the insolvency practitioner can get this reversed.  If the transaction cannot be reversed then the directors will be ordered to make up the difference. Paying off a friend/relative at the expense of other creditors such as HMRC.  As above this can be reversed by a court.  The test here is the desire to make someone better off. Just paying one loud creditor ahead of another is not the same thing. Taking out excessive monies from the company when you know or "should have known" that the company was insolvent.  This is an obvious one really and may well lead to disqualification and personal liability issues, especially if a large amount of tax is owed. Borrow money from the company to fund your lifestyle.  This means that you owe the company money and if it does go into an insolvency process you will be required to pay this back and that can even lead to bankruptcy.  Read more on overdrawn directors loan accounts here Setting up a new company with the same/similar name with a view to carrying on the business of a liquidated company.  Doing this is actually a criminal offence, believe or not, as it is deceptive and can cause confusion with customers and creditors.  It can be done with the leave of the court or with the liquidators permission. Not acting in the best interest of creditors.  This covers a multitude of actions including all of the above but think if your actions are putting your business at risk and making the creditors situation worse.  If a company is insolvent the directors have a duty to act in the best interest of the creditors not the shareholders! Not filing accounts or registering for VAT.  This can lead to disqualification and finesHow do you avoid these mistakes? The best advice is to TAKE ADVICE from professionals!  A great deal of initial advice is free and accountants and insolvency/turnaround practitioners will know much more about cashflow, money, insolvency than most directors and will be able to spot problems. Remember they have heard hundreds of directors say everything is going to be fine, my business is profitable and will survive etc.  What have you got to lose? If I recognise that the company has a big problem what will they advise? Accountants will advise close monitoring and reporting of cashflow to keep a check on the situation.  Remember Cash is King.  You can be making profits but running out of cash.  If there is a lot of pressure from creditors then Turnaround Practitioners or Insolvency Practitioners will be able to help by doing scenario planning and their main skill is being able to negotiate with creditors to give your company a breathing space.If you need to go down a formal insolvency process then there are 3 main options.A Company Voluntary Arrangement which allows all or part of the debts to be packaged up and spread over a long period of say 3-5 years. Directors remain in controlAn Administration that can lead to the sale of the business is a more radical solution. It can save jobs and allow the business to continue even if the company doesn't.A Liquidation means the immediate end of the company and debts are written off.  But it is possible to restart the business by buying the assets at a fair price.

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Common Mistakes Struggling Businesses Make and How to Avoid Them

What Are The Grounds For Director Disqualification?

If disqualified, a director may not act as a director or manager in the disqualification period, if he/she does so, that is a CRIMINAL offence! The penalties are: conviction; imprisonment for up to 2 years, a fine or all. Plus the possibility of personal liability for ALL relevant debts of the company.

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What Are The Grounds For Director Disqualification?

What is a Statutory Demand?

Have you been threatened by a statutory demand? First things first, let us understand the term:In simple terms, a statutory demand is a written warning a creditor serves on an individual or company, requesting debt payment or an alternative and acceptable arrangement to be made. It is a legal means of collecting debt. Solicitors will issue the warning on behalf of the creditor. It is often the first step prior to the issuing of a winding up petition (for a company) or bankruptcy petition (for an individual), meaning the tool has great power. It is a court free method, bringing ease in using the tool and providing justification as to why HMRC use it.Note that it is not necessary to issue a stat' demand, as they’re often called, to initiate a winding up petition against a company, as the debt just has to be undisputed and over £750. Often creditors are advised to miss out the stat demand step. Other criteria to consider when issuing a statutory demand is that the creditor can prove the demand has been served under the correct means, the money due must not already be a part of a payment arrangement and your creditor must not have security over assets to the value of or exceeding the debt. We have received a statutory demand, now what? It should be taken extremely seriously and you must act quickly. It will cost a creditor between £200-£600 to issue a statutory demand via a solicitor so creditors are usually intent on recovering their money. A statutory demand is more usually issued, in the case of companies, after the creditor has issued a county court summons and a county court judgment has been made. For more information on other actions, please look at our creditors legal actions page.BUT if you do not respond to the statutory demand or have no defence then a winding up petition can be issued just 21 days after the service of a statutory demand. Or if this was a personal debt a bankruptcy petition may be issued if all conditions below are met and the debt is not paid.Before issuing a statutory demand, the creditor needs to satisfy some requirements:The debt must not be in dispute. If the person owing the debt is a sole trader, then the debt owed must be more than £5,000. Previously this threshold was £750. If the person owing the debt is a limited company or LLP, then the minimum debt owed is still £750. The debt must not be subject to a voluntary arrangement or is being paid off instalments under a debt relief order (for individuals). The notice must be served on the company's registered address. The creditor must not have security over the assets of the debtor, that is valued at more than the debt. The creditor must not owe money to the debtor as otherwise there will may well be a case for a counterclaim or what is known as set offUpon ignoring or not responding to the demand, it is likely that the following events will occur:Creditor serves a winding up petition against the company based on non-payment of the statutory demand Winding up petition is published in the London Gazette Banks freeze all related business accounts Creditors are alerted of this news and may take their own legal action Winding up order issued after a seven day period. This issuing leads to the liquidation of company assets to meet creditor demands Business will cease to exist following liquidationCan I have the statutory demand set aside? In certain cases, yes. If you dispute the statutory demand you can write to the court where they can cancel it, so long there are legitimate, justified reasons. For example, is the debt amount correct? Were the required legal procedures followed? Are you owed money by the creditor? Defending a statutory demand: what can we do to defend our company against the statutory demand? As a statutory demand is often served after a county court judgment (CCJ), the debt is usually “proven” and it is essential that some arrangement is negotiated with the creditor if you CAN pay.  If you as business sole trader know you can pay, or if acting as a company director who knows the business can pay, it is best to pay or seek time to pay.If the debt cannot be paid and the company is insolvent under the 3 insolvency tests then it is possible to restructure the debt with an informal time to pay arrangement  If things are looking really difficult and the company has many more creditors, then we suggest considering using a company voluntary arrangement (CVA). Once successfully approved, a CVA can avoid a winding up petition being issued.A CVA is an effective restructuring method which gives the business some breathing space. If 75% of the creditors agree, the unsecured creditors are bound by a CVA to accept a payment of a proportion of the debt over a 3-5 year period.Remember, a winding up petition can be issued just 21 days after the service of a statutory demand. It is therefore essential to ACT without delay. A winding up petition once advertised can have a devastating effect on the company as the bank account could be frozen.Likewise, if you are a sole trader then a statutory demand can have a devastating effect on your livelihood IF it is not dealt with. Bear this in mind, the sooner you get help the more time we have to help you. Do not wait until a petition is issued, as then it may be too late.Call and talk to us as we can help! Call us on 0800 9700 539.

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What is a Statutory Demand?