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Monday, 21 July 2008

"I am right and the Insolvency Act is wrong - a TRUE tale of dogged determination

You have to admire this guy. Today I received a report from a liquidator of a company we worked with in 2005.

Some 3.5 years ago my good pal Garry Mumford and I met a London based magazine publisher and this person's business and life partner. It was a limited company that owed nearly £650,000 to its creditors.

Although trading for 10 years it had yet to make real money but it had 2 titles one of which we thought was a very good product. Like all aspiring Rupert Murdochs they thought they would shortly build a publishing empire around this and the new events they had planned to fit the magazine's readership.

"We have a cash problem but we are not insolvent" During our first conversation we had referred them to "is my company insolvent page" on our website. There it lays out 3 simple tests: the Insolvent balance sheet test, the cashflow test - cannot pay creditors when due - and the legal actions test - it had 3 CCJ's. So it actually failed ALL THREE tests under s123 Insolvency Act 1986.
Quite comprehensive you may think? "NO we are not insolvent" said the life partner, our business is worth £12m. "The titles could be sold for that easily"!
Sharply bringing the discussion back down to earth we pointed out that as directors they were breaching their fiduciary duty towards creditors, the company was facing a winding up petition threat from HM Revenue & Customs and they needed to act quickly or face personal liability in liquidation and possible wrongful trading.
Seeing sense the publisher agreed and appointed us to restructure the costs, the debt and the business using a company voluntary arrangement (CVA). Disputing the debt, Mr G still insisted he was right, we were utterly wrong and refused to take part.
Given he was a director this may have been a problem but the other director agreed and this did not prevent our work getting done, although he singularly refused to believe the threatened petition was real or that HMRC were quite cross with the company.
My team had talked HMRC into not advertising the petition that they did subsequently issue, so we managed to put together a CVA and then published it after a few weeks. At the meeting HMRC REJECTED THE CVA. This was a shock for KSA as we actually get 97% CVA approval.
The reason for the rejection was a "consistent disregard for HMRC rules and reporting over a period of 7 years, allied to being late with EVERY VAT return and PAYE return for 7 years" They added " HMRC do not believe the directors are capable of complying with the tax rules and we hereby reject the proposals".
Quite categoric then, and this from a Civil Servant! So with the company facing winding up, the publishing director saw this coming and lined up a sale through a pre-pack administration. The business, now without Mr G, is now performing quite well we believe.
So that's that? Not likely. After the liquidation (following on from Administration) had been going 15 months Mr G made an application to court to "rescind the liquidation and the administration preceding it" saying he does not reorganise that the company was insolvent and does not recognise that the company had been placed into the insolvency regime of administration.
Mr G is very sure that everyone else is wrong and he is right.
So yours, truly, Garry Mumford, Eric Walls (the CVA nominee), SFP the administrators and liquidators and the small matter of a High Court Judge and the Insolvency ACT 1986 - are all WRONG and he is right.
One man crusade or certifiable madness - you decide.
You really could not make this stuff up could you?

1 comment :

Many thanks for your comments. If you have a private business problem and you want advice give us a call on 0800 9700 539 or email me at keiths@companyrescue.co.uk. If you are a professional advisor with a troubled client, please suggest they visit www.companyrescue.co.uk or contact me as above.

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