Tax Arrears on VAT and PAYE

It is sometimes the case that directors blame HMRC for their business failure. In fact calculating tax owed is not a massive administrative burden expecially on PAYE and it should not be in dispute.  As such the inability to pay it is more a reflection on the business viability. Inability to pay usually means the business is insolvent

As we have covered many times before, if the Revenue and Customs issues a petition it is almost invariably because it has run out of options. HMRC does NOT issue petitions unless it is a last resort and patience with the debtor has run out.   Alternatively HMRC may send a letter threatening distraint.  We are seeing this as a more common form of collection as the thought of bailiffs turning up on the premises focuses minds.

Generally, to get to that stage the debtor  needs to have failed to make payments ( tax arrears ), then asked for a Time to Pay Deal (TTP). These have usually failed and the debtor has asked for a new deal. Once again, because the directors fail to cut costs and drive change, it fails and once again a TTP has failed.

As a director, if the company has had a time to pay deal or deals which have failed and you cannot keep up with the demands of the HMRC for repayment, look at a company voluntary arrangement as a permanent long term solution.

For example if you owe £100,000 to HMRC, it will usually allow say 10 months to repay the arrears. That's £10k per month. Can your business generate enough profit, say £100k profits to pay £100k back in JUST 10 months?

Whereas in a CVA you may pay back, say, £1k per month for 60 months. Can you afford £1k per month? This is surely better than falsely promising to pay £10k?

In addition, a CVA allows rapid cost cutting, redundancies can be paid by Government, you can exit onerous contracts and remove problems like unwanted leases quickly.

So don't blame HMRC for the company's problems, more often than not solutions like a CVA are the best option and HMRC WILL SUPPORT THEM!

Why do profitable firms become insolvent?

Great video from MoneyWeek explaining in simple terms how a "profitable" company can run out of cash and become insolvent.  The video explains the concept of working capital and overtrading.  Although it is made with an investor in mind it would be advisable for ambitious directors of growing companies to take note.

http://www.youtube.com/watch?feature=player_embedded&v=d0FY4xRT_yo

Directors' duties in insolvent companies

In law, if a company is insolvent then the directors have a duty to act in the best interest of the creditors and not  the shareholders.  As such, the first thing to establish is whether the company is insolvent.  We have an online insolvency test to help you establish this.   If your business is insolvent then you must act to ensure that you do not make the creditors situation worse.  So if you are in a hole with tax arrears, piling up debts to trade creditors then stop digging and take advice!

Some directors are guilty of wilfully piling up debt with no hope of paying back creditors and by doing this they are risking an action for wrongful trading that can lead to disqualification and personal liability for the company's debts.

Please read our page on duties of directors of insolvent companies to help you understand your position and your options.

Pre Pack Administrations To Remain In Current Form

The long awaited government review into pre pack administrations has come to an end and Ed Davey, the minister responsible, announced that they are not going to reform them as they were "not convinced" that the changes would benefit the position for creditors.  The main change mooted was to give the creditors a 3 day window, during which they could be consulted on the process.  The insolvency industry believed that this would mean that the value of any business would be quickly eroded and the most forceful creditor could negotiate better terms by withholding supplies for instance.  On the other side creditors with legitimate reasons to want to be more involved in the process and perhaps launch a bid for the company felt that 3 days was simply not enough time to get themselves organised.  Both cases are most likely true so it was a non starter really.

The Insolvency Service said that it would look at ways that the process could be made more transparent and it is there that there may be room for improvement.  SIP 16 statements can sometimes be quite cryptic and do not always convince creditors that the company was sold for best value.

Thamesteel in administration

Thamesteel, the Kent-based steel producer, is in administration today and Mazars have been appointed as administrators.   The plant has a turnover of £100m and its plant is in Sheerness. The company can produce more than 800,000 tonnes of steel billet a year and produces other steel long products such as wire road and bar.  These products are mainly used in construction and there has been a slowdown in the demand in the UK and Europe.  No statement has been released yet by the company or its administrators.

The 400 workers are expected to be updated today on the future of the plant.

Thamesteel was bought by Saudi Arabian company Al-Tuwairqi Group in 2002.

If you are an employee of the business then please take a look at our pages on your rights as an employee of a business in administration.

GDP falls in Q4 by 0.2%

It wasn't a huge surprise, but GDP fell by 0.2% in the last quarter of the year.  However, analysts expected a fall of just 0.1% so it does increase the likelihood of the UK falling into a recession, defined as 2 quarters of negative growth.  This will put pressure on the Bank of England to increase the measures to stimulate the economy known as quantative easing.  The coalition will also be facing pressure to find ways to stimulate growth.

Experian also announced that the number of corporate insolvencies rose in 2011 when compared to 2010. Experian said there were 21,070 corporate insolvencies in the U.K. in 2011, up from 19,818 in 2010. The proportion of the total business population failing (the insolvency rate) rose slightly up to 1.1% from 1.03%, Experian said.  This does need to be taken in context as an insolvency rate of just over 1% is historically very low compared to the nearer 2.5% in the early 90s.

Prior to Q4 insolvencies were actually down but it does go to show what an impact the Euro crisis has had on sentiment and consumer confidence.  The austerity programme as well is beginning to be felt.

Petroplus Refinery in Administration Talks

The Zurich based owners of Petroplus have announced that they are looking to put their UK based operations into administration after the failure of discussions with their bankers.  The refinery Coryton refinery in Essex - which supplies 20% of fuel in London and the South East may shut down and 1000 jobs will be at risk.   There only eight refineries in the UK - at South Killingholme, Fawley near Southampton, Grangemouth, Stanlow, Milford Haven, Lindsey in north Lincolnshire and Pembroke, as well as Coryton.

The closure of the refinery could mean supply problems across the South East but the public are warned to not panic buy petrol as this will just make the situation worse as local supplies get out of Sync.

A refinery is unlikely to be shut down permanently but a buyer should be found to restart supplies.  The company has announced its "intention to appoint" so no formal insolvency procedure has started yet.  The shares in Petroplus fell 87% today.