Friday, 30 October 2009
This is a more common question now for KSA.
The Insolvency Service (a Government Agency) has issued a statement saying it will use the new SIP requirements for administrators using this tool. This is called the Statement of Insolvency Practice 16.
A SIP is a rule book or guideline for insolvency practitioners to adhere to along with the legislation under the Insolvency Act and Enterprise Act.
SIP16 requires the administrator to report to creditors on their actions as follows.
Insolvency Practitioners should be clear about the nature and extent of their role and their relationship with the directors and officers of the insolvent company in the pre-appointment discovery period. Where they are instructed to advise the company, they should make it clear that their role is to advise the company and not to advise the directors on their personal position.
The directors should generally be advised to take independent legal advice, particularly if there is a possibility of the directors acquiring an interest in the assets in the pre-packaged new business or newco.
Practitioners must bear in mind the duties and obligations which are owed to the body of creditors in the pre-appointment period. They should be mindful of the potential liability which may attach to any person who is party to a decision that causes a company to incur credit and who knows that there is no good reason to believe it will be repaid, this could lead to wrongful trading issues.
When considering the restructuring or sale of the business or assets, the administrators should bear in mind the requirements of the Insolvency Act 1986. In administration these provide that:
• The administrator must perform his functions in the interests of the company’s creditors as a whole, and
• Where the objective is to realise property in order to make a distribution to secured or preferential creditors, the administrator has a duty to avoid unnecessarily harming the interests of the creditors as a whole.
Administrators engaged in a pre-packaged sale should therefore be able to demonstrate that they have considered the above. If creditors believe that their interests have not been considered they may complain to the Insolvency Service or the IP's regulatory body.
Where a pre-pack is used the following information should be disclosed to creditors in all cases, as far as the administrator is aware after making his or her enquiries:
• The source of the administrator’s initial introduction, in other words how did the case arrive on his desk.
• The extent of the administrator’s involvement prior to appointment and any marketing activities conducted by the company and/or the administrator.
• Any valuations obtained of the business or the underlying assets. We would always advise obtaining independent valuations.
• The alternative courses of action that were considered by the administrator, with an explanation of possible financial outcomes in each scenario.
• Why it was not appropriate to trade the business, and offer it for sale as a going concern, during the administration.
• Details of requests made to potential funders to fund working capital requirements and whether efforts were made to consult with major creditors
• Details of the assets involved and the nature of the transaction to newco
• The consideration for the transaction, terms of payment, and any condition of the contract that could materially affect the consideration.
• If the sale is part of a wider transaction, a description of the other aspects of the transaction.
• The identity of the purchaser, directors and any connection between the purchaser and the directors, shareholders or secured creditors of the company.
• The names of any directors, or former directors, of the company who are involved in the management or ownership of the purchaser, or of any other company into which any of the assets are transferred.
• Whether any directors had given guarantees for amounts due from the company to a prior financier, and whether that financier is financing the new business.
• Any options, buy-back arrangements or similar conditions attached to the contract of sale.
In our belief the pre-pack to a connected party will be a difficult "sell" now to creditors, unless all of these issues are carefully considered and noted. Where a business is pre packed to a third party, independent of the directors and possibly even secured creditors, then it will still be a very powerful and rapid tool.
The Enterprise Act 2002 and case law supports the use of the pre-pack sale but we also believe that in some cases this will be open to challenge, unless ALL of the issues above are considered and answered as part of the scheme. Other wise more pre packs could face challenge in court.
To complain about the misuse of a pre-pack administration see this web page or call the Insolvency Service hotline on 0845 601 3546,
Is your company viable but struggling? Talk to us about Pre-Pack Administration now!
0800 9700 539 or 01289 309431
Thursday, 29 October 2009
Call Keith Steven now if you are a struggling recruitment company - 07974 086779. Keith has personally been involved in over 30 Recruitment company rescues!
For an intial chat with an advisor (free) call national helpline on 0800 9700 539, London 020 7877 0050, Birmingham 0121 378 0671, Berwick 01289 309 431 or Newcastle 0191 482 3343.
It is often quoted that there are 4.7m SME businesses in the UK. The majority are one man/woman bands and usually self employed.
My mini tax manifesto is not directly aimed at them but I am comfortable that it would generate increased revenues for the micro businesses out there AND increased tax take for the Exchequer. The aim would be to drive business out of the recession, get more new companies formed (and protect the recession survivors) and get as many people off benefits and into work as possible.
- All newly formed companies to be exempt from corporation tax for the first 2 years after formation. For fast growing successful new starts, if the company makes £100,000 net profit in the 2 year period, then this exemption is lifted and "my" corporation tax rate below applies.
- Corporation tax (CT) rates for ALL companies would be 10% for all profits up to £100,000 pa; 20% CT for all profits from £100,001 to £300,000 pa; 25% CT for all profits above £300,001 pa.
- All new companies with up to 10 employees would be exempt from Employers National Insurance Surcharge on the new PAYE scheme for one year. In year two it would be 5% and in year three the normal rate (currently 12.8% Employers’ secondary Class 1 rate above secondary threshold). The aim would be to encourage new companies to take on people faster, thus reducing unemployment.
- When selling shares in a newly formed company I would re-introduce the taper relief system for capital gains tax as follows: Any gain made after three years - 10% CGT on all gains above CGT allowance (currently £10,100 pa). After two years 20% CGT, after 1 year 40% CGT would apply, the aim is to attract investment into new companies and keep that locked in. If an investor sold her stake for gain in year one of that company's life she would be hit hard for CGT. Statistically 65% of all new companies fail within 3 years, the incentive above would hopefully see more new starts survive that terrible statistic.
- NNDR - National Non Domestic Rates or business Rates. All new companies to be exempt from NNDR in year one. Then normal NNDR applies. This would encourage companies to take on properties that may be empty and start building their businesses. With the soft market for rents many landlords would love to see properties occupied AND this would mean the landlord does not have to pay empty property NNDR (If the property remains empty and unoccupied after the three month period then Empty Property Rates (EPR) becomes due and payable at the rate of 50 per cent of the full occupied charge. There are some exemptions to empty property rates such as properties which are classed as industrial, or those with a Rateable Value of £2,200 or less).
So my "radical" tax plans would hopefully encourage new companies (specifically not sole traders) to form, take on people, properties and build businesses. In time many would of course fail, many will go on to be larger employers paying full taxes, corporation taxes, rent and NNDR. they would create growth and wealth. They would hopefully act as a magnet for business angel investors, creative venture funders and of course banks should see the ability to lend to "protected" new companies.
Some of these proposals could apply to the surviving SME's such as CGT taper relief and the CT rates. But if they have survived they are generally stronger than new starts AND with lots of new companies forming they will have new customers to sell to as well as new competitors.
Any views or experts opinion that proves that my plans are impossible are welcome!
Wednesday, 21 October 2009
We have done some research on the national insolvency statistics and the results are shocking if you run an insolvent or struggling Scottish company. Amazingly, in Scotland in 2009, only 1% of insolvent companies were rescued by a company voluntary arrangement or CVA!
I think that is staggering! It is a small country of course, but here are the 2007 statistics that shows the "Rescue Culture" has largely passed Scottish business and the insolvency profession by:
2009 Half year Insolvency Statistics -Scotland only:
•307 Scottish companies were liquidated and of those more than 75% were wound up by creditors and the Court. Only 25% were voluntary liquidations initiated by the directors.
•97 companies entered administration in H1 2009, versus 47 last year.
•As for CVA only 4, yes you read that correctly, FOUR were saved by the CVA tool which is scandalous waste of good businesses. Incidentally the Government also wants more companies to use CVA! I suppose the fact that this was 2 more than last year means the use of CVA's grew by 100%! PS we led 3 of the 4.
•CompanyRescue wrote 4 CVA's in Scotland 2007 or 75% of the total approved. In 2008 we proposed 3 of the 4 in total.
•Of the total stock of Scottish insolvencies of 361 in 2009, some 58% were aggressive liquidations by creditors.
•Taking Administrations and CVA's as "rescue" tools only 15% of all Scottish insolvencies were rescues. Around 1% used a CVA.
Therefore we could argue BURIAL accounted for 85% of all Scottish Insolvencies in H1 2009.
So the standard approach in Scotland seems to be - if a company is struggling, whack in a winding up petition and knock the company over. The HMRC people in Scotland are very supportive of rescues and would much rather see the company survive in CVA than be liquidated and start again.
We have never had a CVA rejected by HMRC in Scotland. We have a good working relationship with HMRC Scotland over CVA's.
If you are a solicitor or accountant advising distressed Scottish companies, please make sure they are aware of CVA's! Or if you are a director of a Scottish business please call your only hope of a rescue - KSA Group!
Source of Statistics is the Insolvency Service see below.
Apart from the weather analogies I largely agree with this comment. As commented here several times, 200,000 companies are currently benefiting from the time to pay scheme for PAYE and VAT. When that ends we will see a surge in liquidations, administration pre-packs and I hope company voluntary arrangements.
Increased tax enforcement with a rise in VAT, government spending cuts, tax rises and rising unemployment have yet to really get going. When these things do combine you could see a "perfect storm" for SME companies. Sorry about the weather theme!
Tuesday, 20 October 2009
What happens to the 70p? This is written off, usually on completion of the CVA scheme. Of course this sharply improves the balance sheet and working capital of the company.
Debts written off in Company Voluntary Arrangements are not subject to tax. Under s144 Finance Act 1994 any debts that are written off as a result of a properly agreed company voluntary arrangement are not subject to taxation.
This exemption also applies to a Scheme of Arrangement under s425 of the Companies Act 1985.
Please see this page on our website for further information and the Act details
Thursday, 15 October 2009
It is usually because the company has no assets left of course, but click the link to visit this page for the answer.
There is another favourite question - "Will I be disqualified as a director if we liquidate the company"? "No" is the general answer if they have acted properly.
Obviously, if a director has acted wrongfully (click the link to our wrongful trading guide) then he or she may be at much greater risk of personal liability or even disqualification,
Wednesday, 14 October 2009
When a company has been liquidated or the business has been sold out of administration or pre-pack administration, the directors of the new company set up to acquire and run that business should BEWARE of the ability of HMRC to demand a security deposit.
HM Revenue & Customs has the power to require a security for the payment of VAT and this can be used particularly when a business has gone through insolvency and been sold to a new company. This can have a major financial impact on the new company.
Security may be required in the form of cash, or through an approved financial institution such as a bank providing a guarantee.
Under paragraph 4(2)(a) of Schedule 11 to the VAT Act 1994, HMRC may require any taxable entity, to give security or further security for the payment of VAT that is or may become due in future.
Circumstances where HMRC will require a deposit are where it sees a risk of non payment of future VAT, where a person is or has been actively involved in an existing or previous business that has failed to comply with VAT obligations.
How much might the deposit be?
HMRC would take the previous business' VAT debts into consideration and provided the new business is similar in size to the old one, HMRC would generally calculate 6 months of future VAT as being required (if the previous and new business pay quarterly) or 4 months if the previous or new business pays VAT monthly.
Will HMRC definitely ask for a security deposit from our new company?
No, but if the previous company or directors of both the old and new company have a chequered past with regards to non compliance with HMRC rules and have regularly not paid taxes on time, or have been involved in multiple business failures, then YES, the likelihood is HMRC will seek a security deposit.
What if we don't pay the deposit (i.e. we cannot afford it)?
You must pay it or cease trading. Or if you seek to ignore the demand, it is a criminal offence to continue to trade without providing the required security and HMRC may prosecute if the deposit is not paid upon demand. Under section 37 of the Criminal Justice Act 1991 a magistrate may impose a fine of up to £5,000 for each taxable supply (ie each invoice) made without providing security.
There is a right of appeal to an independent review or tribunal.
If considering a pre-pack administration or purchasing a business out of administration the new company directors should carefully consider what impact this would have on its future working capital requirements. In some cases, this could throw a major spanner in the works where compliance has been poor in the past.
We suggest that directors, particularly with a chequered history with HMRC, take advice from any proposed liquidator or administrator before completing the transaction to buy the business back.
Is your company viable but struggling? Talk to us about avoiding this VAT security deposit! 0800 9700 539 or 01289 309431
Warning! Be prepared to lose all of your investment. Secondly, do not rely upon buying an insolvent business as your only source of future income or investment!
This brief article (and certainly not legal advice) shows you how to go about buying a business from an insolvency practitioner (IP) acting as the “office holder”. We will not describe in any detail what the differences are between the various methods of insolvency here, as these are freely available on the http://www.companyrescue.co.uk/ website
We are asked this question almost every day; "How do we buy a business out of administration or liquidation"?
First some common sense advice.
Targets; we are regularly approached by people looking to buy a business out of insolvency. Our initial question is always – “what type of business are you looking for”? When the response is “any”, then I get very worried!
There are literally hundreds of different types of business out there, do you know enough about them all to be able to save/rescue/turnaround and drive ANY type of business? Remember this is a failed company, its future depends an immense amount of hard work, some luck and generally your money.
So set up a target “term sheet”, i.e. what type of company do you want to acquire, where in the country, what size and what markets it is involved in. Set up a target price structure, make sure that you have the money or know a good source of the funding needed. Then prepare an asset/means report, most IP’s will look to see if you have the means available to buy their client’s assets.
Organise a letter from funders, banks and proof of means should then be available quickly.
Make a list of advisors who can help advise you on the deal. You may need a lawyer and accountancy advice.
Who will run the company- YOU? If yes how many days a week do you want to work in or more pertinently ON the business? If you are not going to be available to run it – do you have people available who can run it for you? If you require, KSA can help with our specialist turnaround teams.
Warning! Be prepared to lose all of your investment. Secondly, do not rely upon buying an insolvent business as your only source of future income or investment!
Accessing the Market for your Targets
There are many sources of such opportunities, but it will require some leg work.
Try all of the following:
1.Use www.business-sale.com/ to sift through opportunities
2.Subscribe to London Gazette, it lists all insolvencies daily online
3.Read the Financial Times every Tuesday – it has adverts from insolvency practitioners (IP’s) concerning the companies they are handling.
4.Do web searches for failed companies, use RSS or subscribe to BBC, news services and so forth.
5.Perhaps the most fruitful source will be to actually build a relationship with a number of IP’s such as KSA Group, or indeed a larger IP firm like Begbies Traynor, Grant Thornton or one or more of the big 4 accountancy firms. Tell them your target business types and send them a synopsis of what you are looking for. Every receiver, administrator or liquidator should market the assets or business they’re working with. So if you get on their distribution list you will get early notice once they’re appointed.
Soon you will have a flow of opportunities coming in. Make sure to have some early discussion about what the issues are and the time frame the office holder is working to.
Once you have some opportunities I would suggest using a careful evaluation method. You may wish to design your own mini “due diligence” approach to sift opportunities initially. NB this cannot replace proper due diligence if you decide to make an offer!
This should include obvious questions like:
•What, or more likely WHO was the cause of the business failure?
•Has the cause been addressed?
•What is the market for its products?
•Is there a profitable niche within the market place for the company?
•Can it be viable if sales are lower and costs are reduced?
•Is it within easy travelling time for you?
•Is the existing management capable of running the company if you are not there 5 days a week? If not who will?
•What are the business’s objectives, do they match yours (for example can it be rebuilt and make good returns)?
•What is the EXIT strategy? Yes I know you are thinking of buying it! But how would you plan to exit? Too many people get too attached to the deal and not the exit!
•What are you buying? The assets? The name? The goodwill? The customer base?
Develop your own diligence list and then stick to assessing each opportunity this way. Don’t deviate from the planned target type, size and market, unless you have wide experience. So, if you identify a good opportunity that fits your criteria then move quickly.
What is the deal?
Is it a deal to buy the assets and goodwill? Its very unlikely that you will buy the company or the debtor book, but you should consider work in progress, stock, assets (financed or unencumbered).
Then ask if the deal is one payment, deferred consideration or a mixture of upfront and deferred. It’s often possible to get a time to acquire deal. But the office holder will generally want a lump up front to cover his costs.
Get access quickly to do due diligence.
This is a must, walk around the business, feel it, touch it and ask lots of questions of anyone who will talk to you within the business.
Find out what went wrong, has the business lost its best customers, can it supply cost effectively in future, what HUMAN assets walked out the door when the IP came in? Will the hoped-for new product / service ever get off the ground? Is the management motivated or simply serving their time while looking for a better job?
Working capital Required?
Do your forecasting for the new company based on sensible numbers not pie in the sky. How much money will the new company need for working capital after you have paid for the assets? No point in buying it and running out of cash?!
The main question! Generally an IP will use a professional valuer to assess what the assets are worth in a forced sale. You will not get access to that figure, so consider using your own knowledge or that of a friendly valuer to help assess what the assets might be worth. Then set a price that you think is fair and that you are prepared to open at. Set a maximum price and do not go over that if the IP comes back saying he has higher offers and are you prepared to bid higher.
“Don’t over pay” is easy to write but hard to make work in practice.
If your offer is accepted, ALWAYS use a lawyer to advise you and check the deal and ask about technical issues below.
Trade name Issues
S216 insolvency Act 1986 precludes the reuse of trade names unless the use is permitted by the court or office holder, and the acquiror was not involved with the failed company previously. Be careful of this - if you take on the directors/managers they could face criminal charges if this is not addressed properly.
By acquiring a business you may have to honour the employment contracts of ALL of the employees. This can be another legal minefield – so get advice on it, early.
Financial Assistance Rules (s151 – 153 Companies Act 1985) make sure the deal complies with the financial assistance rules. Don't understand what that is?! Suggest you get legal advice now.
Make sure that the landlord is involved in discussions – will it offer a new lease? Will you have to put down a rent deposit? How will this affect your working capital needs?
Same goes for secured asset lenders will they novate the deal to Newco? Will major suppliers supply? Are customers prepared to work with you?
These are just some of the key issues in buying a business out of insolvency and it’s a must to do your homework very carefully. Remember don’t get emotionally attached to the deal.
It’s just worth repeating again that this is a failed company, its future depends an immense amount of your hard work, some luck and generally your money.
Finally, "if it smells it’s usually off"! So walk away and save your money for another opportunity.
Monday, 12 October 2009
Leadgate Under 11's!
Leadgate Under 13's
Above are photographs of the Leadgate under 11 and under 13 cricket teams. Pictured at their home ground in Leadgate, Co Durham, both teams have enjoyed a great season. The teams practice on Thursday evenings and play their matches on Tuesdays and Sundays. Practice is always well attended, with children from 5 to 13 enjoying a great night’s fun (weather permitting).
Whereas both teams have had an excellent season, the under 11 team has done particularly well, going through the season unbeaten and claiming the league title. Following a victory over Sunderland in the regional semi final, the side has now reached the final of the area competition which, due to weather constraints, will now be played at the home of Durham County Cricket Club early next season.
KSA is keen to support local sport at junior level and was happy to act as sponsor for the teams. The photographs show the teams sporting their KSA jackets. Congratulations to both teams on an excellent season and best of luck to the under 11's for the final next year!!
KSA Group's offices in Gateshead sponsored both teams and we are happy that they are so successful! If you wish to learn more about KSA Group Newcastle please click here
Friday, 9 October 2009
The message is therefore clear: if your company cannot pay VAT, PAYE, NIC or Corporation Tax get on with asking for a time to pay (TTP) deal NOW.
I am sure the HMRC will still allow TTP's in future but it will be more rigourous in assessing why the company needs a deal, how long it needs a deal over and how much it can afford per month. This will require a much more formal and detailed approach. And it won't be a ten minute conversation with a temporary call centre employee either!
If you have had a TTP that has lapsed or failed then we understand that a second TTP may be very much more difficult to get through. In that case we suggest using our structured, professional Time to Pay Programme (click for details).
So the largesse of the HMRC will come to an end, as a result we expect to see a very sharp rise in voluntary liquidations, compulsory liquidations, administrations and company voluntary arrangements. We also expect to see unemployment rising as a result of the increased insolvency activity, particularly in the winter/spring 2009/2010.
Thursday, 8 October 2009
Wednesday, 7 October 2009
My subject was on a company voluntary arrangement for a Limited Liability Partnership (LLP), if you would like to view the Powerpoint presentation shown on the day, please click the link below to our KSA Media Page and you will see the Powerpoint link near the top of the page: http://www.companyrescue.co.uk/mediaroom
If you would like to attend one of the remaining events in Manchester on 1st December (SOLD OUT) and London on 10th December please contact Angela Laxton. See you there!
Head of Courses and Conferences
Association of Business Recovery Professionals
8th Floor, 120 Aldersgate Street, London EC1A 4JQ
Tel: 020 7566 4210 (direct)
Fax: 020 7566 4225
Mobile: 07917 829046
Monday, 5 October 2009
Now the CEO of HSBC bank seems to agree with us!
See this article in the FT today