Category: Uncategorised

Bounce Back Loans – Are the chickens coming home to roost?

Eighteen months after the first national lockdown the wellspring of state aid has all but dried up and companies which benefitted from Government backed loans at the height of the pandemic are now facing the prospect of repaying those advances. There may not be the funds to do this and other creditors who have had to wait, may be knocking at the door.

If you are thinking:

What will I do if I can’t repay my Bounce Back Loan or Coronavirus Business Interruption Loan Scheme?
What are my options for repaying my Bounce Back Loan or Coronavirus Business Interruption Loan Scheme?
Can my business carry on without furlough support?
Is my business facing insolvency?
Should I seek insolvency advice?
Where do I go for insolvency advice?

You won’t be alone.

Directors who find their companies struggling to find the cash to meet their loan repayments and
other debts should seek advice sooner rather than later.

For those companies who are unable to manage their debts and for whom restructuring or an arrangement with creditors is not viable, insolvent liquidation may be the only option.

Directors have a duty to consider the interest of their company’s creditors when faced with insolvency and a creditors’ voluntary liquidation can be a quick route to closing down the business and dealing with the company’s debts in a structured way.

Directors have the powers to instruct an Insolvency Practitioner to assist with placing their company into liquidation, with a resolution passed by 75% of shareholders required to formalise the liquidation, and a second resolution passed by 50% of the shareholders to appoint a liquidator.

Creditors are given notice of the liquidation and whilst they cannot disturb the resolution passed by shareholders to liquidate the company, they can seek the appointment of a different liquidator should they wish.

It is the role of the liquidator to realise the company’s assets for the benefit of the creditors, in addition to investigating the company’s financial affairs prior to liquidation.

Any funds available after the payment of liquidation costs and expenses are paid to creditors in order of their priority.

Please do not hesitate to get in contact with our office should you need any advice or further information regarding insolvent liquidation. Call or WhatsApp us on 07706735834

The impact of BBLS and CBILS in Insolvency

The impact of BBLS and CBILS in Insolvency

 

In response to the COVID-19 pandemic, in late March and April 2020 the Government announced the introduction of the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS).

 

The purpose of the schemes was to provide timely financial support to businesses affected by the COVID-19 outbreak with government-backed lending; interest free for the first 12 months.

 

Since the schemes were introduced a total of 1,514,605 BBLS and CBILS applications have been approved, with in excess of £63.18 billion loaned (as at 13 December 2020).

 

When a company or individual who has received a BBLS or CBILS loan enters into insolvency proceedings these loans will be a creditor of their estate.

 

For loans under £250,000 no security or personal guarantee was required and therefore these will be strictly unsecured creditors, ranking behind preferential, HMRC (in respect of their secondary preferential) and secured creditors (subject to any prescribed part, in Corporate Insolvency).

 

For loans over £250,000 security or a personal guarantee might have been sought by the lender and therefore Directors may require independent advice on their own personal position. The lender’s position may also be improved in a corporate insolvency scenario should their loan be backed by security, particularly if there are fixed assets.

 

Insolvency Practitioners have also been tasked with scrutinising the use of the loans and whether they were properly applied for. The purpose of the loans was to support business expenditure and as such Directors may be held personally liable dependent on the outcome of the Insolvency Practitioner’s investigations.

 

If Directors/individuals or their advisors are looking to seek further advice in relation to this topic, or their financial position generally, please contact our office.

Finance Act 2020 & Personal Liability for Company Directors

With the reintroduction of HMRC’s preferential status the focus of the Finance Act 2020 has been firmly set on the debate as to the fairness of this change.

Somewhat overlooked therefore are other provisions of the Finance Act 2020 in relation to the recovery of Company tax liabilities from a Director personally; in the event of multiple consecutive insolvencies.

In perhaps a welcome attempt by the Government to challenge the use of phoenix companies, HMRC will have the ability to hold Directors (including Shadow Directors) jointly and severally liable for Company tax liabilities under certain circumstances.

The criteria which are required to be met are set out in Schedule 13 of the Finance Act 2020; summarised below:

  1. In a five 5 year period a Director has had, at least, two failed companies (i.e. companies subject to an insolvency procedure);
  2. In the same 5 year period the Director sets up a third company;
  3. The failed companies have all traded in the same, or similar activity; and
  4. The failed companies have a total tax liability of more than £10,000, the tax liability was more than 50% of the total unsecured creditors, or the failed companies had not submitted tax returns.

If these criteria are met, HMRC will have the powers to issue a Joint Liability Notice to hold the Director jointly and severally liable with the old and new companies for their combined tax liabilities.

There are similar provisions in the Finance Act 2020 with regard to companies which have entered into tax-avoidance arrangements and the Directors who have facilitated or benefitted from those arrangements. In such circumstances Directors can again be made personally liable for their companies’ tax liabilities.

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