Advice from Family and Friends

Published on : 3rd August, 2017

Table of Contents

  • Health Warning for Directors – Well-Meaning Advice from Friends and Family
  • So what sort of poor advice are we talking about?

Health Warning for Directors – Well-Meaning Advice from Friends and Family

This page has been difficult to write because all too often we see that directors of companies turn to members of their family for advice when they realise that their business is in a tricky financial situation. Unfortunately this advice is quite often completely wrong and potentially damaging.

Family members offer advice about what to do but they are too close to the situation and, to be honest, are unlikely to have any actual expertise or experience of how best to act when a business is facing severe financial difficulty.  All too often, family members and loved ones will tell directors what they want to hear!

The danger is that directors in a stressed frame of mind will not necessarily act rationally and such advice from family reinforces the illogical thinking. What’s more, friends and family may not have the same exposure personally and therefore actions taken probably won’t affect them as much.

So what sort of poor advice are we talking about?

Borrow more money!

Often money is seen as the cure. Of course, normally the people who advise this are not the ones having to guarantee the loans!  Most loans direct to businesses often need to be personally guaranteed.  Is more money the answer? Really?  You have to look at the reasons why the business is running out of money? It might be the fact that the director(s) are incompetent on the financial side and need help. Fancy saying that to your nearest and dearest?

Just put more personal money in

This advice is better than borrowing money but only if you can afford to! Remember that any money that is put in to a struggling business is at serious risk. Take out security if you’re prepared to put more money in. It costs a little bit more as you will have to register a debenture at companies house but if the company fails then you will rank above trade creditors and HMRC when it comes to getting paid.

You will be disqualified if the business fails

This is completely wrong. Only if you have been fraudulent or deliberately misled creditors knowing the business is going to fail will you face disqualification or be personally liable for the debts (note that if you have personally guaranteed loans then yes you will be liable ). This worry tends to make directors “freeze up” and take no action out of sheer panic.

You can’t be a director again if the company fails – Completely wrong again (see above).

Your credit rating will be shot if the company goes into liquidation – Only if you have personally guaranteed loans to creditors and are unable to pay (see above about taking on more debt). Know the difference between creditors voluntary liquidation and compulsory liquidation. A compulsory liquidation will look worse on your record than a voluntary one if an extended credit check is done (sometimes these are requested if you are working in defence, financial services, insurance and other sensitive areas).

You must pay creditor X before creditor Y 

This is a minefield.  Paying one creditor over another can be construed as granting a “preference” and can be reversed by the court or a liquidator if the business fails as a result of the preference or it was insolvent at the time.  What is more this can still happen up to 2 years after the transaction.

Move some of the assets to another company for a £1 and start again?

Careful as any transaction that is not deemed to have been done at fair value can be reversed by the court. In fact there are lots of Insolvency Practitioners who make a living getting these cases to court on behalf of creditors that feel they have been stitched up.

HMRC will not negotiate and will just wind the company up

HMRC enforcement are tasked with collecting 100% of the debt.  If this is simply not possible then they can negotiate on a reduced pay out over a period if the company proposes a CVA.  This is handled by another department of HMRC ( the voluntary arrangement service ) and they will take the case off enforcement.

Don’t do a Company Voluntary Arrangement (CVA) as they don’t work

Oh really?  They are often the only chance that a business has and for the record the majority of them do.  The ones that fail are poorly put together or the company has not changed sufficiently to meet the rigours of paying back debts over a 3-5 year period.

So if you are close to a director of a distressed business the best advice you can give is GET ADVICE from SOMEONE ELSE WHO IS AN EXPERT!

This all sounds quite blunt but we want to help directors. We are currently dealing with a company where the director’s brother gave such poor advice that the director is now likely to lose everything; His house and a £1m business.  This inspired me to write this page as a warning to others.

PPe

PPE Medpro in Administration Move

PPE Medpro Limited, linked to Michelle Mone and Douglas Barrowman has filed a notice of intention to appoint administrators.  This follows the judgement by the High Court today that they must repay the government £122m for supplying non-compliant surgical gowns to the NHS.It should be noted that the intention to appoint administrators is a way of protecting the company from aggressive creditor actions, such as winding up petitions.  It gives the company protection for 10 days whilst it tries to rescue the business.  This might be additional finance or a sale.However, following the loss of the High Court battle many will ask can the government get its money back.  There may be legal appeals, so it may not be the end of the matter.  However, if the company does go into administration, which needs to be likely in order to be allowed to file the "intention" then it will be difficult to get money back.  The company only has assets of £666k having spent £4.2m on legal fees.The company will be run by the admistrators and most likely put into liquidation very quickly as it cannot trade.  The liquidators will then have to go through all the books and records and investigate the conduct of the directors etc.  If, and it is a very BIG if, the liquidators find wrongdoing on behalf of the directors then they may be able to claim against the personal wealth of the directors or ex-directors (not Mone or Barrowman as they were never directors).  The liquidators would have to PROVE that they were fraudulent and wilfully negligent in the handling of the business/contract.  There is or has been NO suggestion that this is the case.  The argument centred around the contract and what was agreed that should be supplied.People will be angry that the PPE was not fit (according to the NHS) but that does not mean that it was the directors fault and they should be held liable.  This is simply a breach of contract case.It is worth remembering the extraordinary circumstances in which PPE procurement took place. Many companies and individuals came forward in good faith, wanting to help meet urgent demand in the Pandemic. With the pace and pressure of the situation, it was almost inevitable that misunderstandings etc would happen​.Here is what Michelle Mone had to say about the case"Today’s judgment against PPE Medpro is shocking but all too predictable. It is nothing less than an Establishment win for the Government in a case that was too big for them to lose. According to the judgment, PPE Medpro won its original pleaded case, having spent 4.5 years and £4.4 million defending it. However, on the opening day of trial, the Government pivoted to an entirely new argument, one that had never been pleaded beforehand. They claimed there was a lack of original “source documentation” around sterilisation, even though seven fully accredited sterilisation plants supplied gowns to other Governments and suppliers worldwide throughout the pandemic, without an issue. This quantum leap of faith on the part of the judge gave the government an overall win.  To use a simple analogy,  if a car looks, feels, and drives like, say, a Range Rover, then unless you can show how the car is assembled by the manufacturer, it’s not a Range Rover! That’s essentially what the judgment states, which contradicts all the evidence presented in court during the month-long trial in June of this year.   I've attached the complete press release from my husband’s spokesperson for your review. It lays bare the injustice of this judgment and the Establishment cover-up behind it."​

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PPE Medpro in Administration Move

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