Transcript of Video - Changes to Insolvency Framework
This transcript about changes to insolvency framework was created using AI and may contain some mistakes.
<inaudible> hello and welcome to today’s webinar, where I’m delighted to be joined by Martin Poland. Now I’ll introduce Martin in a minute and I’ll introduce what he’s going to talk about. And he introduced himself in terms of what he does and why you should listen to him. So today we’re looking at COVID-19 and we’re specifically looking at changes to the insolvency framework. And Mike is an experienced and insolvency practitioner and he’s restructured partner in FRP since 2017.
He’s a licensed insolvency practitioner, but he’s also chartered certified accountants. So like it goes without saying, when I’m talking to this audience, they’re coming out of COVID-19, we’re going to have solution on the backend. And this is where my expertise comes specifically into play. And we do our research in vending before these events, but I don’t speak into Myron.
Martin knows he knows his onions. He knows what the issues are. He knows what the practical problems are. So I’m really, really excited to hear him because I ain’t looking forward to learning from her. Okay. So just some basic housekeeping first in terms of downloads and the downloads, Jonathan has just put the downloads up with the chat box down below.
And so you can access the downloads for today’s event. If you’re on with us here, if you’re watching the recording, the demos will be over the site of the recorded webinar and you’ve had to access that material. And prior slides are exited. They’re very, very detailed in terms of going to be issues. So I’ll make sure to get your downloads.
If you’re on leave here with us, the advantage of calling on Lloyd for these events is you get to have these questions. So if you have questions, if you go down below, it’s either the checkbox or into the Q and a box, you can ask your questions. Now, if you open up the chat box, you do have two options.
You can ask a question so that it’s visible by all panelists and attendees, or you can go to the dropdown and just, you can just ask a question to panelists if it’s a private or delicate question, which sometimes can be, if you’re just getting a panelist, we won’t name you Martin. We said, we’ll see the stuff coming off. So the first thing you’d want to ask you to do folks is I’m going to ask you to go down into the chat box now and just say,
hi, where you’re from so that we know you’re there we go with the checkboxes walking. So if a few people who go in and do that, as far as we would greatly greatly appreciate this and in terms of timing, so this webinar’s kicking off at two o’clock. We have a five minute introduction. I’m going to shut up in a minute, the pastor over to America.
So he can introduce himself on FRP. And we’re going to have a 40 minute teaching space. If you ask questions in the chat box, we have to see them here. We’ve some time at the end to answer those questions, and then we would close down. But this thing is a one hour session. This is what our CPD, this is one hour of value.
We will have you here for 60 minutes. So Martin, I won’t get out of the way now and pass over to yourself. Perhaps Martin, if you could give a little bit of nice mention as to who you are, why people should listen to you, FRP, where people can find you and how you work and operate. Excellent. Okay. Well,
thank you Dez. And thank you for giving me the opportunity to speak today. So, yeah, as I said, I’m a restructuring partner within FRP based in the North of England. So I work across the tees Valley County, Durham region, Middlesborough Stockton, Darlington, and further afield. Um, I’m exclusively dealing with businesses in financial distress, as you can imagine,
over the last eight weeks, or we have been pretty busy, um, triaging clients to some extent in the first few weeks, as I’m sure many accountants on the call, where to point them in the right direction for the, you know, the government support that was out there for businesses and employees and ensure the right clients are accessing the right, uh,
information. It has been at the start, maybe a bit of a patchwork of approaches from local authorities. I think there’s a bit more uniform pharmacy now, but that at times clients have had to notify my local authorities, what support they are entitled to. So really it’s about information sharing, but from our point of view, now it’s focusing on the restart.
We’ve been through crisis management, we’ve stabilized the business through Siebel’s bounce backs, et cetera. And we’re now planning for safely restarting. Um, and me and my team are involved with a number of clients that are on that work, That stuff it’s it’s top of the moment. It’s, it’s it, it can, it’s just so challenging to see Marvin,
you know, good businesses, good people who who’ve done all the right things, maybe not trailblazers, but didn’t take any big risks. I just see good businesses and one people being decimated at the moment. It really is a travesty. And I agree when I’m dealing with clients in a normal environment, this is by no means normal clients have had, you know,
sort of days, weeks to, um, process the fact that they’re in financial difficulty, that they’ve had challenges and they come to you with, you know, um, knowledge about what their problems are and needing help. I think in this case, they have been shell shocked. Most of the clients who had fantastic businesses a few weeks ago, suddenly saw turnover,
disappear, accountants and lawyers, uh, included, uh, and you know, everyone, I want to count and describe it to me as, you know, they had to put their own mask on first. And, uh, and you know, it’s about securing their own practice, dealing with their own staff, dealing with the furlough and then planning for the future and dealing with climbing client queries.
It’s been, yeah, it’s certainly been an education for us all. I don’t want to be negative, but I think anybody who comes to an insolvency event in these times and is at least a realist it’s true, early marketing, isn’t it to say, actually, this is going to be other than we have visibility on insolvency events and you’ve got coronavirus followed by your potential Brexit impact it’s it’s is there any visibility or economists that you tap into?
Are they giving us any insights into what the future looks like and what the future six, 12, 18, 24 months time, not the near future. Yeah. Um, so far this year, we’ve actually seen while during the height of the, the kind of the crisis, should we say that we’re still not out of it, but certainly March,
April, we saw relatively benign low levels of insolvencies. And that was due to the fact that most clients or most advisors such as myself, and I’m sure people on the call, we’re working through mothballing furloughing, protecting ourselves communication with employees, creditors, um, you know, customers about what their plans were. And at that time I was talking to your colleague earlier,
does, and we were, I actually reached out to a couple of larger accountancy firms that I work with to say, look, we might need to succumb clients here. And so your staff, because we felt that the impact on business was going to be so significant that the whole of our sector let alone our practice would have struggled to deal with it.
But over time, government have the initiatives they’ve, they they’ve brought out. I describe it like a, it’s like a dam bursting. And the water was gushing from over here. Government policy was put on in this ball, water shooting, so that another policy and that patchwork of policy has, I feel supported lots of businesses that would inevitably have gone into a formal insolvency if they hadn’t have had that support.
The difficulty I see, I see is the fact that we’re now in this false covert economy. So at the moment we’ve got the support with HMRC. We’ve got deferral of payments with H with higher purchase with the bank. We’ve got a non domestic rates holidays. We’ve got grant funding, we’ve got CBLs, we’ve got bounce backs. All of that money is now that billions has been tipped into the economy and in a year’s time,
the bounce backs and the Siebel’s are going to have to start to be repaid. So it’s vital that to my mind, one of my key messages to all businesses is, you know, work with your existing advisors to get the plan ready. You know, it is not free money you’ve had there. You know, there’s some tough decisions to be made about how we’re going to pay this back and how quickly the economy is going to come back.
And I think the initiatives that government have brought in have hate to use the analogy, looking at the NHS, but kind of lowered the peak. So I do feel that there will be some inevitable insolvencies terminal insolvencies as a consequence, but I think the government initiatives do give businesses the best chance they have to try and put a plan in place. But you know,
too many, too many businesses I come across don’t access the, you know, just when they need to speak to their accountant, their solicitor have a conversation perhaps with a peer or another business owner, they shut up shop because they think it’s kind of get the trenches and they don’t reach out. And they really should because planning for the next 12 to 18 months is vital,
But that’s not just a Corolla issue in your business, in your business area. Like in solvency in the girl award is exactly as you described this, but in general, in insolvency business owners, as the shirt didn’t come down and they go with the siege mentality and they can make fatal mistakes by not talking to their accountant by not talking to somebody who can guide them through.
Yeah, that’s true. Uh, one of the messages you’ll see me mentioned today, a couple of times is, you know, early advice gives the greatest scope for a rescue. It always does, but entrepreneurs, you know, they’ve always had that locus of control close to them. You know, I got myself here, I’m going to get myself out of it,
certainly at the SMA size. Um, and you know, it’s, it’s difficult. Many with hindsight will always say, I wish I wish I’d spoken to my accountant earlier. I wish I’d spoken to you earlier, but it’s human nature. Unfortunately. Um, you know, one of the big worries when I been to many is speaking to their spouse,
let alone, you know, speaking to their staff and their managers, it’s, you know, sharing the information that life might have to change to rescue a business. And those are tough conversations to have. Okay. Martin, do you want to, do you want to share your screen there and move to the slides and tell us a little bit about first of all,
I both yourself and FRP. Okay. Fantastic. Okay. Thanks days. Okay. So, I mean, I’ll just skip through, this is the handout you will have seen, I’ll skip straight through to my slides. So today I’m going to be presenting on the changes to the insolvency framework that I think are relevant to counseling advisors. Uh, many of those have been,
uh, coming in as a consequence of COVID-19. Um, for those of you that, uh, haven’t seen the slides, uh, I’ll just pick up the agenda for today. So very brief introduction to FRP a minute or so I’m going to go through the current, uh, insolvency, uh, options and the law briefly. I know you’ll be familiar with it,
many of you, uh, but it just allows us to frame the changes that are coming. I’m going to talk about the proposed changes. I’m going to talk about directors’ duties and wrongful trading. Uh, you’ll have seen the press about it and the relaxation of those provisions for a period. And that is due to end in what a few days time,
the 1st of June as we understand it. Uh, and then there are a few of the matters that I think are directly relevant to advising accountants, uh, which I’m going to talk through towards the end of the presentation. So I far P very briefly, uh, we are a national firm with offices, uh, that the North of Scotland down to Brighton,
uh, with 53 partners and over 360 staff, we have been through our own, uh, challenges in terms of a mass migration working from home and making sure we check in on staff in various locations, uh, various, um, uh, sort of, uh, hope lives, et cetera. And I’m sure many of us have been through that,
the five pillars to our firm, I’m from the restructuring team. So I deal with businesses with, uh, with problems is the best way to put it, but we also deal with corporate finance debt advisory. Uh, we have forensic services which are nationally renowned, uh, and, uh, engaged by, uh, in many, uh, legal cases.
And by over national, uh, top four accountancy firms, um, pension advisory, Just, just to clarify Magnin, and obviously you’re on here as an insolvency expert from FRP FRP is this broader firm, but the reason why we have you on here is your work one on one with the general practitioner. You’re the insolvency brain surgeon. Obviously you’re educated here,
anybody here. So the people here are possibly insolvency experts themselves, but for general practitioners, what are your core service offerings is helping SME firms help their clients through the problems? That’s all right. I mean, we are a national firm. Yes. But, you know, I want a team of 12 based in Stockton aunties in the tees Valley. And I cover most of my,
uh, you know, most of my work, probably 95% of the work that comes to me are the clients that are referred to me, uh, come from business advisors. So it’s about 55, 60% accountants and other 20 odd percent from legal advisors. And the other is made up of maybe brokers or business angels, et cetera, that, that people that advise businesses,
uh, recommend their clients, that we build longterm relationships of trust between us and their existing advisors to bring in our expert knowledge. Cause you know, insolvencies in each area when, when they need it. The majority of the firms I work with, uh, I would say sort of three to six partner size firms of accountants. Um, and it’s usually owner managed businesses.
There are outliers on that, you know, frequently, but that’s the core of, of the clients that I work with. Okay. So the current law, I think if we’re going to talk about insolvency, I’m going to very briefly, uh, just define insolvency. I think many will be familiar with the cashflow test, the balance sheet test. And I’m going to talk briefly about the legal test.
So cashflow is, can we pay our debts as a, when they’re falling to the balance sheet, do assets equate to greater than our liabilities and the legal test is do we have an expired statutory demand that we haven’t satisfied if we fail any of those? We are technically insolvent under the insolvency act. I think I should just mention the definition that we’ve seen in the seagulls and the bounce backs,
which is the undertaking in difficulty definition, which some may be familiar is from the ISI commission’s guidance on state aid. Um, it’s effectively broadly the definition of a, of an undertaken in difficulty. Um, do we, are we part of it? And so how we submit it to an insolvency process, um, do we fit the criteria to enter into an insolvency process?
Um, I’ve more than half of our share coupled more than half of the share capital disappeared as a consequence of historic losses, et cetera. There are some, if there’s a book debt to equity ratio in any bit dire ratio, but I think the key tests accounts we’ll see is my clients are unable to pay the crown as, and when it falls to,
it’s not paid my invoice, we are now balance sheet insolvent, and it’s at that point, directors move into the so called danger zone. Okay. The current insolvency options are in front of us. Now the formula options would be at company voluntary arrangement administration. So those are rescue procedures here, and the credits is voluntary liquidation and compulsory liquidations are effectively terminal insolvency procedures.
You’ll see at the top, I’ve put in far more restructuring and that is management’s turnaround plan. And that is a big part of what I do. Uh, advisory is pre formal insolvency. I have just for the purposes of clarifying. There is another liquidation process in the UK brought in their members’ voluntary liquidations, but we’re not going to be covering that today.
Okay. So, um, it’s important to talk about, and obviously when considering the life cycle of a business and formal insolvency options, as you can see from that corporate lifecycle are relevant towards the end of the declined, uh, decline curve. And there are there’s ample opportunity to try and put in place various rescue and restructuring plans without formal insolvency, which at the moment don’t have support from legislation.
Albeit we’re going to come onto some changes that are proposed. Uh, but as you see the longer a client leaves, it typically the more likely it is a formal insolvency is required. So informal restructuring, I’m not going to spend a lot of time on this, but this is effectively any plant. The management wants to propose to their creditors to avoid a formal insolvency.
It clearly needs buy in from key stakeholders. So the bank, maybe it’s landlord, maybe a key supplier. It might be necessary to speak to a key customer, but it’s about can we massage our existing working capital through bringing forward debt to days, re rescheduling payments with suppliers, um, to try and make our existing working capital work for the business.
Um, I think the important one point I wanted to draw from this, which maybe some clients aren’t aware of, you’ll see, there’s a line that says RPO. We done in the C loan. Um, so the RPO do have it at the Regency payments office. That is the RPO. They have a financial assistance scheme. So where a company is unable to cover the cost of it to be done,
going to see. And as a consequence would inevitably be forcing to insolvency and those jobs lost the redundancy payments office can be approached and a loan can’t be given to cover the cost of redundancy. You have to have explored all of the insolvency, so all of their funding options. Um, and, uh, it is a bespoke application to the redundancy payments office.
This times are about six to eight weeks, what it is it’s, you know, it, oddly it has been a tool that I’ve used recently alongside other working capital management issues through everything evolve. This is the, basically the, the, the application of last resort. That’s right. Yeah. If we can’t refinance, we haven’t got the support from the bank stakeholders,
can’t put further funds in, have we con is it enough to just fund the redundancy costs that we need to, we know we need to restructure the business from this size down to the car, which is leading a minimum viable. How do we pay those redundancy costs? The RPO can step in What kind of an interest rate there, or does it vary?
Um, as the last time I applied, we didn’t get to, I think it is relative. I I’m trying to think. I don’t think there’s any interest on it. I can, I can confirm that I will send you an email to confirm, but I’m pretty sure it is interest free on that loan is all available on the redundancy payments office website,
by the way, super. Okay. I’m going to company voluntary arrangements. I’m not going to take you through the whole process here, but we know we need 75% of the value of secure creditors to approve, but clearly we need our secured creditors to buy into our plan because they’re the people that are providing us with invoice discounts in arrangements with our banking arrangements,
we can’t spring this plan on them. The first hurdle is always will existing funders work with us. I think the part message for company venture arrangements at the moment is that we see them very much in Vogue for retail businesses and with casual dining. Uh, they’ve hit the press over here fairly, fairly regularly. Um, and they are subject to challenge.
They, they argue used frequently to try and restructure lease obligation obligations with landlords for these multi-site operators, the appeals we’re seeing a largely on the unfair prejudice grounds as you’ll see at the bottom of that slide. And that’s where the scheme, uh, the, the creditor feels that their position individually has been unfairly prejudiced by effectively this binding of all creditors to an agreement.
Most of the time we’ve seen the court actually pushed back on that and the CVS have not been overturned, uh, material regularity. So I go on, Maybe it’s too early, maybe it’s too early. You’re looking for 75% of unsecured creditors. And in terms of agreement and is binding on all creditors, like, can you see the CDAs are going to become more problematic in this new environment for people to say,
well, fuck, like, are creditors more likely to cook their losses and just say, well, this is possibly going to be a recession, like what we’ve never seen before. And because that’s the reality is that while the recession, the global financial recession, that was an 80 2009, it definitely impacted, and it definitely impacted, but it didn’t impact all parts of the UK.
No, as hard as it did lower parts of the world and our people. Now, our creditors going to entertain this just in the hope of getting something back, our accreditor told to say, gen Y I don’t think this is workable, I think are going to see a growth in company volunteer arrangements. Um, and I think that on the basis that from the clients I’ve worked with just over the last few weeks,
there has been an understanding across the supply chain, across the business world, that we are all in this it’s affected what, 80, 85% of businesses, professional practices. Um, and you know, if there’s a process, if there is a core viable pre COVID business there that could be rescued via a restructuring of historic debt, I think clients will be relatively supportive.
So suppliers will be supportive. The key one is often the crown. So the crown as an involuntary creditor, we don’t, we don’t order that every quarter and bring up for some payers. You weren’t, they, you know, we opened the doors and we incur that debt. They normally take the pain. Most of the pain, they have a service called the Voxer management service.
And that is a team that specifically reviews voluntary arrangements day in and day out. We’re very familiar with the terms that they will propose and the initial soundings on them. I’ve got one in with them at the moment, uh, that they will be supportive. They will give businesses an opportunity to try and trade out of the COVID-19 challenges they’ve had. So I think we’ll see more,
uh, is the answer there. Um, administrations, I’m not going to spend a lot of time on, but admin is another rescue process. There’s a cascade of purposes in the UK with administrations, and we have purpose a rescue, the company purpose B can we achieve a better return for creditors than that we might otherwise have enjoyed over liquidation or purpose C is,
are we able to achieve every turn to one or more preferential and secured creditors? Um, about 5% of the administrations, uh, purpose, a focus, pretty much football clubs, because if you do not rescue the company, you lose your share and you do arrangers and you drop down to the bottom of that league pyramid. Um, I gave another presentation on administrations themselves and sip 16 compliance,
et cetera. Um, so I’m not going to go into any detail cause I want to move on to, uh, to, to changes criticism, to liquidation CBLs. Um, they have a terminal insolvency, however I’ve put end of businesses, economic life question Mark frequently with lots of the clients I’m dealing with fitting a restart of a business into the administration framework,
just isn’t cost effective sip 16 is a one size fits all, and there are ways and mechanisms of effectively rescuing a business out of liquidation. But again, we’re not here to talk about that. Um, I think it’s important to note that in liquidations and administrations, there is the director’s conduct review under the company directors disqualification act. There is no investigation into director’s conduct in a company,
voluntary arrangement, compulsory liquidation. I think the point that I wanted to raise here where, I mean, HMRC in the UK petitioned for more, uh, winding up than anyone else in the UK. I think there are about 65% of UK petitions presently, uh, and not intending to change that until the 1st of June, when it’s being reviewed, they have dropped all pending,
winding up petitions in the UK, so that as you can imagine, this freed up a lot of the insolvency cots time. Um, so, you know, clients are at risk of, of winding up proceedings in the UK. Um, I think the key point to note is if a client does receive a winding up petition, realistically at the moment it’s taking between six and seven weeks for a court hearing to be heard.
Now, the key points for our client are when that petition lands, when it’s served on them, it cannot be advertised in the London Gazette until seven days after service, but it must be advertised seven days before the hearing. So you’ve got a window there of say four or five weeks where you have got a chance to try and deal with this petition.
As soon as it is advertised, your bank account is frozen and your invoice discounting facility is frozen. And unless you’re going to go and get a validation order or suspend advertising, you know, your business then is going to struggle to function effectively at all. So it’s about if there is a petition landing, how are you going to deal with it and contact,
you know, contact? And it’s obviously practicing all the accounts as early as possible to see whether there’s a plan view. The relevant part with compulsory liquidations is the date of petition is the relevant date for void dispositions. And what that means is if a company goes into liquidation seven weeks later, anything your client has done in that seven weeks is technically void.
So if they’ve just paid your bill, unfortunately it’s obviously practice. They can ask for that back. So, you know, if a client is going to deal with this issue as well, going to carry on, regardless, anything they do in that period is going to be void, void and less validated. Okay. So moving on to the changes that we have announced,
I was hoping by today, I might be able to put a bit more meat on the bones, but we understand the, the bill will be in the house this week, but we only have what has been announced today. So that’s what I’m presenting on. So we’ve now got, we’ve talked about the administration company, voluntary arrangement that the rescue procedures,
we’ve got two liquidation procedures in the UK that the client led one, which is the CVL, which I would typically deal with the court led one, which is a compulsive process. We’ve now moving on to two more procedures, moratorium. What are the challenges I have with rescuing businesses, even though I can see there’s a viable business there. And I think we can avoid the formal insolvency,
the wolves that are already at the door. And we don’t have breathing space to allow us to put the planning in place where we can protect ourselves from maybe the landlord’s action. Maybe the HMRC are looking to take control of goods. Maybe we’ve got a County court claim that they’re looking to enforce a moratorium, which will be outside of any other insolvency process will give us a 28 day period to look at restructuring,
that business it’s going to involve the court. And the insolvency practitioner in this case will be called the IP monitor. So if you receive any correspondence about a moratorium and an IP monitor, that is this new process, the only moratoriums that are available at the moment within the UK are within insolvency processes. They’re within the pre and post appointment for an administration regime.
And they can for small companies be available in company voluntary arrangements, but this is a standalone process. Now the IP has got to be comfortable that the criteria for the moratorium is met when making the application to court creditors can challenge the moratorium. However, that can only be on the basis that the, they don’t think the conditions are met and they can prove that all that unfairly prejudice,
28 days flies in an instant. When you’re looking at crisis management and in this, the government’s proposal allows, it does propose that you can extend the moratorium for a further 28 days subject to 50% of creditors approving. So, you know, this could be a very useful tool to rescue businesses within the UK, uh, available to clients. We are just waiting to see the final detail on exactly how that’s going to be structured.
And the expectation with the moratorium is that the business will exit as alive business or Vive and insolvency process. But the hope is that this will be used to rescue businesses is a going concern outside of formal insolvency. Now where these moratoriums in place suppliers often, whenever I’m looking at a rescue, even within all the processes, suppliers seek to terminate their contracts,
most contracts within the UK, as many will be aware, have termination provisions upon insolvency events. The new supplier provisions will prevent suppliers from terminating their agreement where there’s a moratorium in place. So they have to continue to supply. So your client will call you and say, this client is not paid me, owes me X amount of pounds. And they’re telling me I’ve got to continue to pay they’re in a moratorium.
I’m not supplying them technically and legally they have to continue to do so. The challenge I see here is this is a court process. So someone’s gonna have to make an application to court to say, this supplier should supply and they haven’t sought them out. Please judge the windows we’re talking about here are so short. I can’t see it happening within the timescales that you really need.
So unless it’s a power that an a, an insolvency practitioner can literally file a notice at cart it’s stamped. And then it goes out to the supplier. You know, if you’ve got an it business that has, it’s it shut off on a Monday, but you can’t get in carts or next Tuesday your business has gone. Um, so we will see how that goes.
The clients, In fairness, though, we need to think about that practically. I do appreciate that, that the proposed legislation has focused on protecting the business, particularly the national economy, but really am I going to keep pouring money into a black hole now that there’s, I’m on notice that it’s probably not going to come back to me and we all need to pull on our national Jersey.
I’m pulled together because we’re all in this together, but I can see how I can see the challenges with this. I am not being able to force suppliers to keep playing. It’s, it’s, it’s a basic concept of limited liability protection, um, and the right to choose. Oh yeah, there are some protections. So within that moratorium period, the company must pay for the services that have been provided within that period.
Now, a creditor can apply to court on the basis that it puts upon them. Why don’t you financial hardship, perhaps to continue to supply in various circumstances. But, and also if that company doesn’t pay for those services, then they can’t be terminated. If the contract would automatically have come to its end within this window, it will end. Um,
in my opinion, we will continue to, in most cases, deal with these things by commercial city and by discussion and by, by cooperation. And perhaps there might have to be some months and payments paid, but I think time will always be the most critical factor. And to my mind, the, the, the thought behind this and the purpose is trying to achieve is fantastic.
I’m just not sure the courts are gonna be able to act quick enough to deal with this. Um, Go back completely slate. There is a level of protection for the supplier, because this is the business. They get the moratorium. It has said, well, they’re distressed, but they’re valuable. They do exhibition concentrate. It’s bigger picture stuff. So in theory,
it should work, but in three verses in the reality, it’s True. Yeah. I mean, it should pay for these services within the moratorium period. Um, time will tell, uh, well, we’ll see the final detail and then we’ll see practically whether it will work in the real world. Okay. And then finally, just on the pure insolvency processes,
being new restructuring scheme, um, you may be familiar with the scheme of arrangement that’s available under the companies act, um, which can happen outside of the fall, but insolvency, I’m not going to speak to speak about that here. The new strict restructuring regime is an attempt to try and replicate something similar to the American chapter 11 process. Um, we’ve been consulting on this since 2016,
again, in 2019. And given COVID-19, the government have brought this back on the agenda with a view to this being law very, very quickly. Um, it, a new restructuring raising will be independent of a moratorium with a two state court process. And the court will have the power to kind of settle a meeting to discuss, uh, to,
to, to, to put an agreement in place and the power to bind descending credit dissenting creditors creditors will have an opportunity as they were opposing the U S to counter propose. So if they’ve had a look at the plant and they want to make changes, if they can’t by application to cart, how that will be managed and who would lead creditors in that way,
I’m not yet sure whether creditors will come together via body. Uh, I’m not sure. Um, it’s, it’s, it’s, it’s a relatively longterm it’s. I said it’s a, it’s a concept that’s been around in the U S for some considerable time. And it’s a concept that we’ve not had here in the UK. We will see, I will see many situations that will fit the criteria here.
It will come down to, I think in some cases, the cost of actually having to involve the court and a barrister to put these things in place, they are hugely costly in the U S maybe they will be more suitable for larger, larger businesses. Um, time will tell It’s obviously that the whole concept and you’re coming on to director’s duties around full trading I’m director of responsibilities,
but we see it practically on an ongoing basis, the option, or would administration, or the option of some kind of an arrangement that actually the money that it costs to invest to get that result. That sometimes it’s you just wonder, okay, let this thing go and put the money in over here. And it does the cost of the tipping points.
I mean, all the legislators have a very difficult job, and because they’ve had to produce legislation that’s fair and it’s equitable, but sometimes the legal costs from these process, you just wish there was a cheaper, easier way that didn’t require a senior center. Yeah. And I think with this, and with company voluntary arrangements, the biggest challenge is always the impact on relationships with customers.
So in principle, you think this is fantastic. We’ll we’ll ring fence, all our historic debts. We’ll go from paying what we are required to pay to what we can afford to pay, and we’ll trade ourselves out of this situation. But that doesn’t change the fact that you are now in a rescue process. Your, you know, if you’re tendering for work contracting businesses,
you tend to be alongside someone who’s not in a rescue process. You’ve got a competitive disadvantage. If you’ve got key supplier relationships, they will, they may change terms and conditions in terms of costs going forward. It’s the, it’s the intangible impact of going through a rescue and the perception in the marketplace that often are the biggest challenge. And it’s the defect.
It’s the most difficult impact upon a cashflow to try and predict, okay. Um, administrations, our administrations, there is only one process, but light touch admin is a, is a term that’s been bandied around over the last few weeks. Um, the recent example is my phone been appointed as administrators over Debbie Adams, uh, may be aware that we also been appointed over,
um, Carluccio’s and these businesses I’ve gone from, you know, basically shrunk down to zero turnover overnight, like many businesses did, it needs a protective of, of a moratorium and administration. So the court step in, um, either in this case, I believe it was a director led appointment with the bank support. The administration is live, the moratorium is in place.
And typically step in on day one, put management controls in place, authorizing all payments, lot of management, uh, removed, and you are looking to try and find a buyer for the business. I’ll trade what you can. Well, there’s no trading here. And the cost of an administrator dropping in on a case like this could be significant when there’s no income,
light touch, pretty much he’s referring to the fact that management are left with a huge degree of authority. So the administrator grants powers back to management that typically wouldn’t have it. And it’s to an attempt to try and multiple operations with as little cost as possible with as little risk as possible with the hope that a buyer will come forward, or there’s an opportunity to recapitalize.
Once there is clear visibility on what the future of trading conditions will look like. Um, so light touch out men is it’s, we’ve got the moratorium in place and the plans are being put in place alongside perhaps well, alongside a confidential marketing process to bounce the business back, which might exit via company voluntary arrangement, you know, into admin. We’ve got the protection,
we come out via CVA, but it’s a new concept. And there’s been a bit of press coverage about that director’s duties and wrongful trading. So we went into the last few minutes here. Um, what is wrongful trading? Well, wrongful trading is when a reasonable person should have formed the opinion that a business cannot be rescued, but the director continues anyway,
if you continue anyway, the extent to which the business loses Mar muddy from that point to the point of insolvency is the extent to which a director can be asked to contribute to the assets of a company in the UK. At the moment, the government has suspended the wrongful table provisions until the 1st of June. That may well be extended. I think it’s important to note that the burden that the reasonable person should form the opinion definition doesn’t apply,
where if you are a qualified accountant and you are a director of a company, then that’s burden of responsibility. You know, you’re held to a higher standard. So you are, you, you should have been aware probably earlier than they be the standard director. So just, just be aware of that. My argument is overly simplistic to suggest that director’s minutes director’s meetings can demonstrates the basis for decision making at the time was the right one.
Is, is that an overly simplistic solution? I am that stair the solution. No, I am going to come onto mitigation techniques and absolutely documented decisions is, is center of all of that. And it’s the advice we gave on accountants give time after time. It’s the easiest thing to do to get those forecasts independently prepared, put your plan together, bullet point those minutes,
keep that documentation. And if the plan doesn’t work, at least you’ve got a document that was put together with your accountant’s assistance. At the time to say, look, we had a plan and it would work the position wasn’t going to deteriorate that not the point of no return, but this event happened, you know, three months later, two weeks later,
whatever it might be and documenting decisions is is, is vital. So yeah, absolutely is important because if to the outside world, it looks like, well, hang on, you stop paying your crown three months ago that creditor started a County court claim proceedings. Clearly you’re insolvent then. Well, there might be circumstances that would give rise to the, to an opinion that will actually,
there was a way back. There was a plan. So yeah, absolutely documenting is, is, is critical despite them, um, effectively relaxing wrongful trading, all of these misfeasance provisions are there, these antecedent transactions, um, transaction defaulting, creditors, fraudulent trading, et cetera. The key, whenever there’s evidence of insolvency from a director’s point of view is making all decisions in the best interest of creditors as a whole.
If you do that, then you’re going to mitigate your position, you know, should I continue to declare dividends to myself? Is that in the best interest of my crepitus as a whole And the decision making process Martin, it is okay to be in a position where I actually visit going to get worse before it gets better. As long as the decision is made.
Well, we’re going to turn the corner here at a point. Yeah. I mean, you know, there are, well, right now, there are tens of thousands of, uh, companies in the UK and businesses that will be trading whilst they are technically insolvent. And the key is, you know, if they avoid the formal insolvency, no offense has been committed.
If however, they ultimately end up in a formal insolvency provision position, it will depend upon the actions management have taken within that intervening period that will determine whether they have a risk or not. So documented decisions. Decisions is vital, but I think the relaxation of wrongful trading shouldn’t be seen as a complete carte blanche to do whatever you want. It is still important that there is a viable business at its core.
I think given we’ve got accountants on the line and they will, there’ll be many LLPs in there. There is section two, one, four eight, which amends the insolvency act under the LLP provisions and that very much mirrors wrongful trading for LLPs. And that is where if a reasonable, a person should have formed the opinion that the business was insolvent. So we’ve got evidence of insolvency.
Any money is taken out of that LLP from that point to the date of a formal insolvency can be clawed back. So repayments on current accounts, paying for your, the higher purchase on the car, pay the credit card off, whatever it is, they can be clawed back. And there’s no relaxation of that. So just be aware, okay, but you mentioned here Dez about,
you know, what, what should we be doing? Well, you know, acting in good faith, implement good management practices. You know, if we only have a board meeting, once every blue moon, then let’s have them, you know, once we in crisis, let’s have them every week, let’s have them every two weeks. If we need to,
let’s show that we’re doing something different to take this crisis seriously. Um, maintaining upstate financial information, you know, having a 13 rolling cashflow right now is I think one of the best tools most businesses can have particularly SMEs gives them visibility. And they’ve got that document there that they’re updating every week that they’re just ready to drop the turnover in. You know,
some of them might have some level of, of, of trading now already, but having that decision making tool to give yourself, you know, forward-looking financial function right now is vital because businesses have got to be able to react quickly without it you’re flying blind, in my opinion. Okay. Document meetings. You mentioned that does, um, it’s about communication.
You know, businesses I’ve since 2008, 2009, I’ve seen supply chains work with each of them more than I’ve ever seen them do before. And there is a willingness to support businesses rather than them going into a formal insolvency and communication is at the core of that utilize government support goes without saying and take professional advice. Okay. There’s a few key changes.
I’ve just been pulling together over the past few weeks, which I think are relevant to everyone on this webinar. Um, company directors, disqualification act, these old companies at the moment in the UK are a, they slipped through the cracks. I have a, probably seven, eight times a year. I get approached by an accountant with an aggrieved client.
Who’s owed money by a company that seems to have been dissolved, struck off a non filing, or the directors have absolutely committed an offense by striking them off. There’s a consultation at the moment and we’re anticipating it being brought into law that the official receiver will have the powers to investigate the conduct of directors of dissolves companies. They will have the powers to demand the documents for that dissolved company.
Um, and it won’t require the restoration when clients are coming to me to ask about this. I, you know, when accountants are coming to me, the difficulty or the barrier to justice here is often the cost of restoring that company to the register with these powers that is no longer necessary. So the investigation could happen whilst it’s dissolved. So it should no longer be an easy way out for a number of a number of dodgy directors.
Should I say HMRC? So if you’ve got clients with tax payer arrangements, I’m sure many accountants have approached HMRC. They are agreeing to suspend suspend payments and have pretty much on the three calls I’ve had used the same phrase so that most of them must be using it. They’ve said we’re all in this together. Call me back in June. Um, they’ve paused any insolvency activity,
as I mentioned earlier. And even though you’re in an existing time to pay, you can still defer your current fats and ring up about different current pay as you earn. And we understand that the intention will probably be to bind them into a new arrangement in June. If you are just looking to defer the current tax that you’ve accrued, whether it DEFAT or pay pays you earn or CIS,
you will be aware of. I believe HMRC I’ve pushed out now that they are expecting that tax that we aren’t paying in this period to be paid in the current tax year. I do think that if you have got a tank to pay arrangement and you’ve deferred current tax compliance historically will be key for HMRC. You know, if you’ve been habitually poor at maintaining your tax affairs,
will they really give you a time to pay arrangement and roll additional debt into it? I’m not sure. Is there any, is there any true Martin in the perception that somebody like you who’s the hairless end of the scale gets a better result in dealing with HMRC than the entity themselves? Are there accountants like w w when somebody, like you goes on,
they go, okay, who’s this guy. Oh, all right. Back on the Saudi C D do you, do you negotiate a better deal of art? Is that just the policy? Um, I would say it depends on who you ring so I can have the same call that you could, and I could get someone at HMRC that will agree my deal,
and they would reject yours and you think, wow, hasn’t Martin done a fantastic job. And the next one I’ll ring up and they’ll say no, when you’re living back at someone different and you’ll get the deal through. So if HMRC say no, um, I always, you know, before I get anything into too much detail, if I can tell whoever it is is going to say,
no, I’ll put the phone down and I’ll call back again. Um, there are circumstances where the tax is of a greater value, so significant, outstanding balances. Yes. We have had success where accountants and clients haven’t managed to, um, and whether that’s a different day, a different time, um, or whether it’s just the fact that they know that we’ll look,
this is going to be a liquidation and they’re going to get nothing, or we’re doing this deal. I would always back my, you know, that’s what I do. I do deals. I would always back myself to get something through. But if you’ve got significant historic noncompliance, you know, the best deal in the world will pretty much, in most cases,
not gay to Marcy to come on board. It, it is a, it’s a huge challenge. I can just picture, you know, Martin. Okay. Yeah. We don’t care what they have or what they don’t have. Um, yeah. I don’t think we’re going to do the mangoes. I’ve gone into a tunnel. I’m taking a break and I’m really laughing at that because that’s what we,
that’s what we see some people doing here in an Irish context. If you get the wrong person on the phone, it doesn’t matter. It just doesn’t matter. I hope you go again, put it back the next day. Uh, yeah. I’ve had clients who’ve had significant noncompliance and significant balances outstanding. And they said, well, I’m going to bring HMRC.
You know what I’m saying? Yeah, absolutely fine. But these are the steps we’ll take. If they say no, and I’m amazed. I said, well, it took me 10 minutes. I’ve not had to give them any cash flows and they’ve agreed it I’ve got 12 months. And so it is, you know, if it’s the first issue,
it’s the first challenge. You are pretty much going to get a time to pay arrangement, Do the HMRC, um, place a different emphasis and value on the payment of Poe versus backs. And they, in an Irish context that they didn’t do is if Poe is not paid, they can actually patch that to the directors and the basis that’s employee tax.
And whereas with, with, with vacuum, or like to get a deal, some guidance for a lot of us policy practitioners in these pay your PA. If you’re going to pay one thing, obviously we’re in a different time now, but prioritize your Poe and have your back and your other sets because you have more leniency and they’ve got more school models.
That’s obviously not the case in the UK in your experience. It depends what stage it’s at with the UK. So we’ve got obviously the local debt management teams, we’ve got late stage debt payment. We’ve got the kind of less chance saloons of the insolvency team in Worthing and the advancement team in Cardiff. So it will depend on where it is when it gets passed out to their field force team,
which are the agents that work from home and jump in the car and I’ve got a laptop and attend premises. Um, it’s amazing some of the deals that you can literally talk them through whilst on the phone, um, complaints, history is the biggest factor, but now I don’t see the being an issue, you know, other than the penalties and interest that’s accruing and applying,
you know, uh, playing the payments against the right debt so that you, you know, minimize that accrual. I don’t see a big difference between the two at all. Okay. Um, obviously arrangement, it’s just a brief one that if any clients of yours are in company, voluntary arrangements, HMRC have said they will agree to a payment break.
And on the last one, we’ve just done that agree to six months payment break. Um, you might guess the sector, um, you know, that’s their sort of leisure and tourism. Uh, we might have to go back again and say, we need another six months. Um, in terms of the extensions, even though HMRC have agreed this,
and there might be a single biggest creditor, they, these schemes do need far more variation, tax abuse and insolvency. I think the relevant point here for accountants to note is that HMRC will be granted new powers to make directors and all the individuals jointly and severally liable for companies tax liabilities. And this is where there’s been a tax avoidance or evasion, you know,
intentional, uh, or, or repeated insolvency and nonpayment. Now that’s the new bit. There are bits of legislation within the UK that do allow the veil to be lifted, uh, but repeat insolvency and nonpayment and potential personal liability. That’s quite interesting. So we’re waiting to see the detail on that in terms of dividends. This is a question I’ve been asked repeatedly over the last few weeks.
Um, there are, you know, most clients within the UK SME owner managed businesses are going to do or against a director’s loan account with a view to declaring a dividend from distributable reserves. Um, clients may have reserves now, but that is a dangerous strategy when there is this environment at the moment that we do not know when, when the world is going to go back to anything like normal.
So if we’re, if there’s any prospect, we might erode reserves, even though distributions may be lawful. So you have sufficient distributes where reserves, if a company subsequently goes into insolvency, that dividend could still be at misfeasance, was declaiming that dividend to my shareholders in the best interests of creditors as a whole. No. So it could be clawed back.
If I would always say to directors in these circumstances, review the, you know, review the way you remunerated from the company with your accountant consider whether you should be on the pays, you won’t scheme for a commercial salary. The benefit of doing so is if the company goes into a formal insolvency, no, one’s going to ask for that money back,
it’s come through the payroll. Yes, it’s less tax efficient, but it’s yours. And another reason I’ll be, it’s not the motivating factor is, you know, when a company goes into a formal insolvency process, it’s claims that the employees claims for be dependency pay and pay in lieu of notice are based upon a 12 week average of the earnings and the government step in and pay those up to statutory maximums.
So you go from someone who’s taken 20,000 pound in dividends having to pay that back because it was a misfeasance to someone who’s drawn, okay, a net let’s say 16,000 pound salary, but they’ve accrued rights. And the government suddenly going to send them a check for a few thousand pounds for their redundancy, their paint live notice. Um, it it’s just future-proofing yourself in case there is an insolvency event We’re waiting for the last 10 minutes here.
So I know we’ve got some of you on live with us, and we have some of you in our Facebook group. And I just have a question in here for the Facebook group. Can we invite more people at my firm each through the Facebook group can invite more people, but obviously you can invite more people into the Facebook group where we will stream our webinars.
We’re going weekly at the moment twice weekly. But if, if you know of anybody, any friends, colleagues, and who would benefit from CBD from experts like marketing, and just send them the link on the email that you got and the better register and the CPD get verified CPD as part of this phone. So that the next thing is anybody who’s on here,
live with us, put your questions down the chat box, or the Q and a at the bottom of the screen. If you’re watching the live stream within the Facebook group, put your comments in there and jr was feeding into me. And so we watch for questions, but if you want to, if you want to take it home and for our last seven or eight minutes.
Yeah, no problem. Okay. Well, I think it was just really to note that I think many people feel that courts aren’t doing anything at the moment while it’s completely the opposite. They are holding virtual hearings. They’re using Skype for business at the moment to conduct hearings. So no pressure from suppliers will result in court proceedings at some point, those that have seen the provisions about the,
uh, ability of the inability to petition to, for landlords to follow the crown procedure, which is a commercial rent arrears recovery provisions, um, or at forfeit leases as a consequence of COVID-19, that protection is only in place for those winding up. And those actions from landlords, it’s likely that that are, we feel will be extended to be sector specific.
So again, leisure tourism hospitality may get some further protections there. Um, but that’s important to note, um, there is talk of a COVID-19 declaration being able to be made to give some sort of 90 day moratorium. I’m not sure that’s going to come in with the moratorium, but it’s been a, an idea that’s that’s been mooted. Um, I think the final part of this I think is relevant is crown preference.
So hate Tomasi lost their crown preference in the UK in 2003 secondary crown preference was due to come back in on the 1st of April. What does that mean? Well, if we look at the order of ranking a distribution, we can see here that we’ve got the fixed charge holder would get paid first. So that’s the bank secured on the property. Let’s say we’ve got the preferential creditors,
which at the moment are just arrears of wages up to 800 pounds per employee and accrued holiday pay. And then we’ve got the floating charge credits or the bank conduits to venture that will crystallize over the stock, the chattel assets, et cetera. Um, and then we get, if there’s any funds left, um, we’ve got something that go to the unsecured creditors.
I’m not going to go given the time and I’m not going to talk about the prescribed part. Um, but I think what is relevant is now we’ve got the bank, we’ll get it. Somebody under it’s fixed charge. So if it’s got a mortgage that will get that money, let’s say it’s still holding the owed another half, a million pounds in this plant and equipment and this stock and this cash bank,
et cetera, et cetera, what it will set off the cash at bank, but the stock and plants and equipment. Now he’s going to be first applied against the preferential creditors. So those employee claims, but now HMRC secondary reference will kick in which will be its collection of VAT. The companies pay as you earn, and the employees, national insurance contributions.
So it’s the taxes. It claims are collects on behalf of the government from third parties. And if you imagine that number’s going to be quite, it could be quite significant from a, you know, I said, it’s a big jump off the ladder of, of, of importance. And I said, we’d draw for the floating charge predators, the unsecured creditors to come in after that,
there’s no protection for creditors because somebody who’s going to go longer. It’s going to be gone in the first three that you betcha. MRC is one of my fault, everything. Yeah. And I think, and, and why is that relevant? Well, it’s relevant for not only that dividend to unsecured creditors, but its dividend it’s relevant from the bank’s position.
So I’m G to present to four different banks on the implementation of secondary preference, which has been delayed from the 1st of April to the 1st of December because the banks are lending based on their dementia, security value as they call it. And they’re having to review everyone because suddenly there’s a creditor, that’s going to jump the queue and sit in front of them. So their attitude to risk and lending is going to be,
is going to be affected by this change. Don’t take less than me when I say this. Those of you are joining me is low. You have her on the recording. And definitely don’t be less than the American, but from, from a, for the poor bank’s perspective and from a bank’s perspective. So, so the bank has this, the venture in place,
it was looking at risk one way. Now they’re going to have to review every single, guaranteed race. One of the worst times possible from a solvency and debt perspective. This is, you know, like this is, I’m totally it to, obviously I don’t mean this, but it’s all canned for the HMRC to write all the checks they are to underpin the economy.
When they’ve got this coming down, the lane, they won’t clean and the next four years anyway. But I mean back up to where they were as primary creditors. Yup. Now, and I completely agree with that sentiment. And, um, you know, there’s going to be a huge accrual of tax liability right now, which is going to affect every bank’s dimension of security.
Um, will it come in on the 1st of December as you know, so it’s been delayed to 1st of December, will it come in? I don’t know it is public policy. It is government policy. They want it to come in. I could see it being delayed, uh, but it is a big change. And right now with the banks and clients trying to plan for their huge uncertainty,
unprecedented uncertainty, um, having to deal with this at the moment, um, I just feel even by December might be, might be too great. So we shall see, but that is what’s coming to plan. No, that has brought them to secondary preference, breed, AIDS, Corolla voters, and the difficulty the government has in terms of reversing policy is,
well, we definitely can’t reverse the legislation. We don’t want to be seen to be reversing policy because one of the big global Clarion colds is don’t it out the bites this time, the businesses. So they’re there, they’re kind of cut all the way around. I’m definitely not going to express concern for the government obviously, cause that’s just not a popular thing to do,
but it’s, it’s, it’s, it’s, it’s quite a bind and they really are between a rock and a hard place here that cabinet this back slate. So there’s probably not likely to get any big announcements on there, something right at the end. So now the bites are going to be on tender hooks. Everybody’s going to be on tender hooks. It’s going to have an impact on credit,
massive impact, negative impact on credit. I agree, um, at the moment it’s due to come in, um, will it come in? I don’t know. I think, you know, the banks have got a lot of pressure at the moment. Not again, I’m not here to defend banks, but you know, if we have a look at the bounce backs and the seatbelts and the protection that the government had given,
you know, a hundred percent for bounce facts, 80% for Siebels any accountants in the room that are familiar with the enterprise finance guarantee scheme and the government support, there will be aware that when the banks tried to get those guarantees paid out by the government around 10% were paid out. So a bit like an insurance claim, the government will be looking at,
did you tick that box? Where was it an undertaken in difficulties? Should you have lent in those circumstances? Ah, well, we’re not going to support you. So the bank of balancing that, that risk of default with will ligament payout at the same time as looking at this, I think that’s a challenge That has been excellent. Where can we find you bulls that are on leave in the Facebook group,
watching the recording? Where can they find you? How can they get access to you if they found this session as an it knowledge imparting as I have. Okay. Um, so on LinkedIn, I’m there, uh, pretty regularly post on LinkedIn. I am following the government announcements. I’m following policy from our, uh, you know, professional body.
So you will see that I’m regularly on LinkedIn, uh, Twitter. I am simply at Martin Polin. Um, those are the two platforms that I use for business purposes and sharing and disseminating information. Um, my email address is very simple and it’s on our FRP website. So it’s please Martin dot firstname.lastname@example.org. But if you Google our website, you’ll find me,
but LinkedIn, Twitter, if there’s anything relevant, any changes on this, when it comes into law, any devil in the detail, that’s where you’ll see me pushing that through. Okay, Martin, thank you so much. I really enjoyed today and I hope that we will have you back again sometime soon. And for those of you who were giving us your time to be here today,
for those of you are watching the recording. Thank you. Yes, we are new to the UK America, but you’re going to see over the coming weeks and months, we’re rolling out a CPD model. There’s going to be a little bit different right now. It’s free. If you felt MicroStation or benefits, share with your friends, share with your colleagues,
this is pre CPD and it’s good quality. We, you will see us rolling out our model. If you have a CBD speaker that you particularly like, please do let us know or we’ll see if we can bring them here for you right now for today. I just want to thank you all for being here and Jonathan, our backgrounds, technical team to kind of American folks.
We’re in this together. As I see you again, let’s get a dog.