Mindful Miles Challenge

The current situation unfortunately has put a hold on the fundraising events we planned for our Charity of the year – NORTH STAFFS MIND, a number of the staff at Moore Recovery Stoke will be taking part in their Mindful Miles Challenge. Over the coming days you will see individual challenges being posted here and on our LinkedIn page, please take a look, and donate to this brilliant charity.

Further response to Coronavirus disease

The world we inhabit today looks very different to the one we inhabited just ten days ago.

The restrictions placed on those businesses which remain open are as draconian as they are unprecedented.   Their imposition is one of absolute necessity in order to contain and limit the spread of Coronavirus enabling the Health Service to prepare for the predicted rise in virus related referrals in the coming days and weeks.  We must all stay in our homes unless absolutely necessary.

Put simply, the UK is in lockdown in all but name.

The very language we find ourselves using reflects the gravity of the situation.  In his broadcast to the nation the Prime Minister, leader of a War Cabinet, required every UK citizen to enlist in the fight against the virus, in a battle in which NHS staff and other care workers are in the front line.  If there had been any doubt before, now there is no doubt.  The country is at war against Coronavirus.

And yet life goes on.  Business continues.  With gatherings restricted to no more than two people, face to face meetings have all but become a thing of the past and seemingly overnight we have all become experts in Zoom, Teams and WhatsApp.

We live and do business in a connected world. Those connections may be virtual rather than physical but we still remain connected.

Every business is part of a supply chain.  Every business has its own customers. Every business has its own employees.  And every crisis has a beginning a middle and an end.

We are clearly in the early days of the current crisis.  But if we stay connected, communicate with our staff, our customers and our suppliers we can establish a new pattern of working; one which may look very different to what we have been used to, but one which will enable us all to weather the current storm and see the crisis through to the end.

The Government has put in place further measures to help businesses survive these difficult times.  In addition to those mentioned in our previous communication, the following steps have been taken:

  • The introduction of furloughed employees
  • Similar assistance for the self employed
  • A 3 month extension for the filing of accounts
  • Postponement of or online alternatives to AGMs

The relaxation of the wrongful trading offences under the Insolvency Act 1986 – although those relating to fraudulent trading will remain.

Furthermore, the Government has announced new provisions for businesses which are struggling because of the current crisis. These include:

  • a moratorium for companies giving them breathing space for from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure
  • protection of their supplies to enable them to continue trading during the moratorium
  • a new restructuring plan, binding creditors to that plan

It is clear that through the introduction of these measures the Government is offering a support package designed to see businesses through the current economic crisis and into more stable and hopefully prosperous times ahead.

The links to the Government’s survival remedies are set out at the end of this email.

These are undoubtedly the most challenging times any of us has lived through.  If you wish to discuss what can be done to help you and your clients please do not hesitate to call us on any of the numbers below.

In the meantime stay safe and please accept our best wishes to you and your circle of colleagues friends and family.

https://www.gov.uk/government/news/regulations-temporarily-suspended-to-fast-track-supplies-of-ppe-to-nhs-staff-and-protect-companies-hit-by-covid-19

https://www.gov.uk/government/news/companies-to-receive-3-month-extension-period-to-file-accounts-during-covid-19

https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme

Moore Response to Coronavirus disease (COVID-19)

Dear All,

The content and tenor of the Prime Minister’s daily press briefings leave us in no doubt that the UK and indeed the whole of Europe is on a war footing. Against a threat which comes not from the skies or from the seas but from an unseen enemy whose very presence is having a profound impact on our daily lives, in our homes and in our places of work.

The spread of Coronavirus and the precautionary measures put in place to contain it have already had a dramatic impact on the UK economy, as is evidenced by the increasing number of businesses forced into reducing their workforces or their opening hours, especially in the leisure and hospitality sectors.

In recognition of the level of disruption predicted to be experienced by UK businesses the Government has announced unprecedented levels of support for the UK economy in the sum of £330bn.

Much of the substance of the support measures remains to be expanded upon. At present, the major areas of assistance are:

Support for businesses paying sick pay

Support for businesses paying business rates

Support for businesses paying taxes, including VAT

Provision of the Coronavirus Business Interruption Loan Scheme

There can be little doubt that challenging and uncertain times lie ahead for the UK economy and in particular the owner managed businesses which are at its heart.

We cannot predict how long this period of uncertainty and disruption will last. But in the meantime we would wish to assure you and your clients that if you require any advice or assistance or even just someone at the end of a phone to act as a sounding board then we will be here for you.

We are observing the social distancing guidelines in the office for ourselves and for clients. We may not necessarily be able to meet face to face but with video and teleconferencing as normal a service as possible will be maintained.

Indeed, like many of you we have already put measures in place to ensure that the business of Moore Recovery in Stoke on Trent will continue uninterrupted.

In order to be responsible to ourselves, our family, friends, clients and the public at large, we are keeping up to date with all the guidelines recommended by the Government and WHO and making sure we follow the recommended regulations.

Please do not hesitate to contact us on any of the usual numbers or by email. In the meantime we send our best wishes to you and your circle of colleagues, friends and family.

Mr N J Dingley & Mr M H Abdulali

Partners

What is an IVA and is it right for you?

 What is an IVA?

An individual voluntary arrangement (IVA) is a legally binding contract between an individual (the debtor) and his or her unsecured creditors, under which the debts owed by the debtor to his or her creditors will be compromised by time and or amount, depending on the debtor’s financial circumstances.

Typically, an IVA will enable the debtor to repay a proportion of his or her debts over a period of time; usually no longer than five years. The proportion to be repaid (the ‘pence in the pound’) will be determined by what the debtor can afford and what the creditors are prepared to accept.

In any event an IVA should offer a better outcome for unsecured creditors than if the debtor were to be declared bankrupt.

What is the role of an Insolvency Practitioner during an IVA?

The IVA proposal is prepared by the debtor with the assistance of an Insolvency Practitioner (IP). Provided the IP is satisfied that the proposal is, amongst other things, fit, fair and feasible, he or she will agree to act as ‘Nominee’ and place the proposal in front of all the creditors.

An IVA must be approved by 75 per cent by value of a debtor’s unsecured creditors. If the proposal is accepted, the Nominee becomes the Supervisor of the IVA and it will be his or her responsibility to ensure that the terms of the IVA are adhered to.

When an IP is first approached by a debtor with a view to proposing an IVA, he or she should always make the debtor aware of the alternative courses of action which are available. The IP should provide a copy of, or provide the website link to ‘Is a Voluntary Arrangement right for me?’. This is an explanatory leaflet on IVAs published by R3 – The Association of Business Recovery Professionals.

What are the benefits of an IVA?

For the debtor, the principle benefit of an IVA is that it avoids the restrictions of bankruptcy, under which a debtor cannot:

borrow more than £500 without telling the lender that he or she is bankrupt

act as a director of a limited company or be involved in the promotion or management of a limited company

  • carry on business under a different trading style
  • be a trustee of a charity
  • work as an insolvency practitioner
  • sit or vote in the House of Commons or the House of Lords
  • be a school governor
  • be a solicitor or accountant

If a bankruptcy petition has been issued, this can be superseded by an application for an Interim Order, allowing the debtor time to propose an IVA.

Whilst the fact of an IVA is a matter of public record – it is entered onto the government’s Individual Insolvency Register – the contents of the proposal remain confidential between the debtor and his or her creditors.

When might an IVA be a good option?

An IVA might be the right option if:

  • a debtor runs a good business but it is insolvent, then an IVA offers the best practical solution to save the business and repay monies to the creditors
  • by virtue of a person’s job or profession – e.g. accountant, solicitor or MP – bankruptcy would prevent them from earning a living then an IVA would be the preferred alternative
  • a third party will put in money for creditors to preserve the family home

What are the disadvantages of an IVA?

Despite its appeal, there are naturally some disadvantages to an IVA, including:

  • A ‘contributions based’ IVA can last up to five years. An income payment agreement in bankruptcy, however, typically lasts three years.
  • As every IVA is recorded on the Individual Insolvency Register, it will appear on any credit reference searches for up to six years, leading to possible difficulties in obtaining future credit.
  • The initial costs of an IVA can be significant. The Nominee’s fees may have to be paid by the debtor up front, which may be a lot to ask of a debtor already in financial straits.
  • If a debtor fails to comply with the terms of the IVA the Supervisor will be obliged to terminate the IVA, thus exposing the debtor once again to his or her unsecured creditors. The Supervisor may also be obliged upon the failure of the IVA to petition for the debtor’s bankruptcy.

What are the alternatives to an IVA?

If you have nothing to lose, for example if you live in rented property and bankruptcy wouldn’t have a detrimental impact on your ability to earn a living, then an IVA might not be right for you and bankruptcy may well be the most appropriate solution.

There are some other alternatives to an IVA, including:

  • a debt management plan (DMP) – administered by a debt management company, they will collect money from the debtor each month and share this between the creditors in proportion to their debts. Debtors should be aware that creditors may continue to charge interest on their debts or may decide not to participate in the process. Unlike an IVA, a DMP is not a legally binding agreement.
  • doing individual deals with creditors – this may be feasible if the number of creditors is relatively small and creditors are willing to cooperate.
  • a debt relief order (DRO) – this is only available if debts are less than £20,000, net assets are less than £1,000 and the debtor has disposable income of less than £50 per month.
  • do nothing – clearly this has its own inherent risks.

https://www.thegazette.co.uk/all-notices/content/103510

What restrictions are there during bankruptcy?

Upon the making of a bankruptcy order, for a period of twelve months thereafter the person declared bankrupt (the debtor) has certain obligations to his or her trustee in bankruptcy and certain restrictions placed on his or her actions and conduct.

These restrictions are summarised below. The debtor cannot:

  • borrow more than £500 without telling the lender that he or she is bankrupt
  • act as a director of a company or be involved in the formation, management or promotion of a company without the court’s permission carry on business in a name or trading style different to the one under which he or she was made bankrupt
  • be a trustee of a charity
  • work as an insolvency practitioner
  • sit or vote in the House of Commons or the House of Lords
  • be a school governor
  • be a solicitor or accountant

How long do bankruptcy restrictions last?
In short, restrictions last until an individual’s bankruptcy ends. Provided the debtor cooperates with his or her trustee in bankruptcy and has not been dishonest, the debtor will usually be free from restrictions when twelve months have elapsed. If the debtor has not cooperated, the trustee in bankruptcy may apply to the courts to have the twelve months automatic discharge suspended until the debtor cooperates.

Furthermore, if upon investigation it comes to light that the debtor is found to have committed a bankruptcy offence then the Official Receiver (OR) may impose a Bankruptcy Restriction Order (BRO) or accept a Bankruptcy Restriction Undertaking (BRU) from the debtor.

Offences giving rise to a BRO or BRU include:

  • gifting or transferring at an undervalue bankruptcy assets
  • preferring one creditor over another
  • borrowing money in the knowledge that it cannot be repaid
  • neglecting business affairs and in so doing increasing the debts of the business
  • not cooperating with the Official Receiver
  • fraudulent or dishonest behaviour, for example providing false information to obtain credit

 

If a debtor willingly accepts the OR’s findings or wishes to avoid the time and costs of attending court by reaching an agreement with the OR, he or she may provide the OR with a BRU. Typically, this will increase the bankruptcy restriction period from twelve months to three to four years.

If no BRU is provided, the OR can make an application to Court for a BRO to extend the bankruptcy restriction period to between two and fifteen years. This effectively brings the bankruptcy restrictions regime in line with company directors disqualification guidelines in that a company director found guilty of an Insolvency Act or Companies Act offence can be disqualified from being a director for two to fifteen years.
https://www.thegazette.co.uk/all-notices/content/103448

What are phoenix companies and are they legal?

Are phoenix companies legal? And what is the law regarding a business formed with assets of an insolvent company? Neil Dingley of Moore investigates. 

What is a phoenix company?

A phoenix company describes a business that is formed when the assets of an insolvent company are purchased out of a formal insolvency process, often by the existing company directors. After the insolvent company is closed, a new business begins to operate in the same way as before using the purchased assets.

The word ‘phoenix’ is given to these companies as in Greek mythology a phoenix bird cyclically regenerates and obtains new life by rising from the ashes of its predecessor.

When such a scenario occurs, creditors and observers frequently ask if this practice is legal, and it’s easy to see why. Often creditors, such as local authorities and water authorities, are obliged to accept such business rates customers without sanction and without question.

Is a phoenix company legal?

The truth is most companies don’t fail because of director misconduct. Therefore, from a strictly legal standpoint, there is nothing in UK law preventing owners, directors and employees of an insolvent company working for a phoenix ‘successor’, as long as the individuals involved aren’t personally bankrupt or disqualified from being a director of a limited company.

However, it should be said that if a sale takes place before the insolvency procedure, it would be investigated by a subsequently appointed insolvency practitioner.

There are also some restrictions on phoenix companies in general. For example, a phoenix company cannot have the same name or similar name to its predecessor without sanction of the court. Failure to comply will place directors in a position where they will face personal liability for company debts.

Why are phoenix companies legal?

Phoenix companies often sit badly when tried in the ‘court of public opinion’. But what observers and creditors may not be aware of are the circumstances pertinent to a phoenix company. For example:

  • The directors of a phoenix company may have given personal guarantees to the predecessor company and may face personal financial pressure – similar to creditors.
  • The new company may have had to provide a deposit or bond to HMRC if it required VAT registration.
  • If creditors wish to deal with the phoenix, it is customary if not accepted practice to increase prices to recoup losses from the first time around.
  • In order to be allowed to continue to hold office, the directors may have had to pay fines and/or provide undertakings to the Secretary of State for the Department of Business Energy & Industrial Strategy.

To summarise: provided they remain within the parameters of the law, phoenix companies are legal. However, the success of a phoenix company will depend on the market place and on the customers and suppliers with whom it trades.

About the author

Neil Dingley is restructuring and insolvency partner at Moore – Stoke on Trent and has a background in information technology and accountancy

How will the changes affect insolvency practitioners going forward?

How will HMRC’s preferential creditor status affect the insolvency process in 2020?

In the 2018 Budget, then chancellor Philip Hammond announced that HMRC’s preferential creditor status in insolvencies will be restored next year. Neil Dingley of Moore Stephens explains how this will affect insolvency processes from 6 April 2020.

What was Schedule 6 to the Insolvency Act 1986?

The Insolvency Act 1986 gained Royal Assent on 25 July 1986. Schedule 6 to this Act set out the different types of debt which were to be classed as ‘preferential’, ie those which were to be paid ahead of ordinary unsecured creditors. Under Schedule 6, the Inland Revenue (as was) could claim preferentially for 12 months outstanding PAYE and NIC, and HM Customs & Excise could claim preferentially for 6 months outstanding VAT.

What is the Enterprise Act 2002?

This remained good law until the enactment of the Enterprise Act 2002, at which point the Inland Revenue and HM Customs & Excise lost their preferential status.

In 2005, the Inland Revenue and HM Customs & Excise were combined into a single department, HM Revenue & Customs (HMRC), and in October 2018 it was announced that HMRC’s preferential status will not only be restored but extended to encompass any and all outstanding PAYE NIC and VAT at the date of insolvency.

HMRC’s preferential status will take effect from 6 April 2020 and more or less returns the insolvency creditor process to the pre-Enterprise Act 2002 era.

Why are HMRC receiving preferential creditor status in 2020?

These changes are being made principally to enable HMRC to collect more tax from insolvent companies and individuals. Some estimates say the move could raise around £195 million annually.

This will naturally benefit HMRC but is potentially detrimental to ordinary unsecured creditors and holders of floating charges, who will only be entitled to be paid after HMRC’s PAYE NIC and VAT liabilities have been paid in full.

From April 2020, insolvency practitioners and solicitors, especially those who issue winding up and bankruptcy petitions, will have to educate and manage the expectations of those clients on whose behalf petitions are issued.

It’s important to remember that not all debts owed to HMRC will have preferential status after 2020. However, those debts that are preferential, unlike pre-Enterprise Act 2002, will not be time barred. This will result in further reduced funds being available to pay dividends to unsecured creditors. Not only that, when preferential debts are increased, this will also inevitably result in a reduced prescribed part (S176A Insolvency Act 1986) in those cases where this applies.

Whilst issuing petitions was never a guarantee of clients getting their money back, under the new regime there is every likelihood of the dividend prospects to floating charge and unsecured creditors being diluted because of the increased reach of HMRC’s preferential status.

About the author

Neil Dingley is Restructuring and Insolvency Partner at Moore Stephens – Stoke on Trent and has a background in information technology and accountancy.

Challenging times: protecting yourself as a customer

Here are a few steps to take to protect yourself as a customer, by Moore Stephens.

If the forecasts are to be believed, UK businesses face challenging times in 2018. Among the casualties of 2017 were such household names as Monarch Airlines, Greenwoods and Jaegar.

And with ever-increasing pressure on household budgets, it’s essential that customers take whatever steps they can to ensure that they don’t get caught in the aftermath of a company administration or liquidation.

There are several ways that customers can protect themselves when making a significant purchase:

  • Make payment by credit card (remembering to pay in full when the statement is received to avoid incurring interest charges) – under the terms of the Consumer Credit Act, credit cards must provide protection for purchases above £100 and below £30,000.
  • Specific insurance is available for significant purchases, such as those associated with weddings.
  • Be wary if payment requests are for cash – this may be an indication that the shop or merchant is having cash flow difficulties.
  • If payment is made by cash, ensure that you are given a receipt or proof of purchase.
  • If you are unfortunate enough to become a creditor in a bankruptcy or liquidation, retain all purchase documentation until the case is closed – you may be asked to prove your claim if a dividend is declared, and your claim may be rejected if you can’t prove that you have paid.

About the author

Neil Dingley is restructuring and insolvency partner at Moore Stephens.