Winding Up Petition ~ lessons to be learnt for company directors

The recent winding up by the Insolvency Service of Jacob H Ltd (JHL) on 14th May 2014 provides a few lessons for directors; apart from the obvious one of making sure that you provide services that you are taking payment for. The company traded in London, but offered large goods vehicle (LGV) driving services across the UK and did not actually provide the services in the majority of cases. You can read about the actual Insolvency Service case by clicking here.

The Insolvency Service investigations supervisor David Hill said: “This company appeared to have no intention of providing the services it claimed it could and instead duped customers into paying for service they were never likely to receive and winding it up protects the public from losing more money in this way. “The winding up should serve as a warning that the Insolvency Service will take action to remove rogue companies from the business environment.”

The company failed to file accounts but it is known that £130,000 was taken in deposits and even where refunds were agreed they were never paid. The average customer paid £920 deposit to book their lessons so the number of customers involved and eventually defrauded were quite substantial. It is not clear if criminal charges may follow but the directors Hussain Ahmed and Mohammed Khaled will now be interviewed by the Official Receiver and a full investigation of the directors actions will now follow. The directors can receive disqualifications from 2-15 years, fines and even a jail sentence for the most serious offences. The Insolvency Service was alerted by Islington Trading Standards who had received 40 complaints of services not being provided despite being paid for.

What the Insolvency Service does

The Insolvency Service is a government body and is responsible for all compulsory liquidations (winding up) in the UK via the official receiver. One of the key tasks of the official receiver on behalf of the Insolvency Service is to identify why the company ended in an insolvent liquidation and became insolvent in the first instance. It has a lot of other wide ranging powers from paying redundancy to insolvent company employees to investigating live companies that warrant their attention. You can learn more about the Insolvency Service here http://www.bis.gov.uk/insolvency.

Failing to file annual returns

Directors should be aware that failing to file accounts with Companies House is a criminal offence so can leave a naïve director with a criminal record and there is no point in blaming the accountant even if it is their fault. Whilst there is no law stating Directors must have qualification as a director you have the responsibility for filing the accounts and you will be expected to demonstrate ‘sufficient levels of skill and knowledge’ to manage the company affairs.

Directors have a legal obligation under the Companies Act 2006 to file annual returns and failure to do so on time will result in escalating fines, dependent on the delays and end in possible personal prosecution of the director and directors' disqualification. It is also worth noting that as a director you also responsible for acting responsibly and complying with other laws too such as

• Employment Law
• Health & safety Law
• Insurance law
• Tax law
• Insolvency law

Failure to comply with these laws can have severe implications for directors and this can range from disqualification from acting as a director to going to jail so if you are in any doubt you should seek relevant professional advice.

Abandoning the company

Simply resigning as a director will not negate any liabilities or responsibilities you may have incurred whilst acting as a director. In any event leaving a company without a director is also a breach of the Companies Act and may lead to the directors being disqualified and investigated as if they had been “liquidated”. The investigation can be instigated by the director of corporate enforcement so abandoning your company should not be considered an option. By abandoning the company you are openly demonstrating disregard or ignorance of the law and either one will not be received well by the Insolvency Service.

Wrongful trading   

The directors have continued to trade and subsequently increased the debts to the company and therefore are likely to be charged with wrongful trading. Wrongful trading is better thought of as irresponsible trading and this would be accurate on the face of it in these circumstances. If proven, wrongful trading can mean the directors being made personally liable for the debts accrued in the time period when the directors knew, or should reasonably have known, the company would end in an insolvent liquidation.

There is also the point of the deposits themselves and clearly they should have been kept separate from the company funds so that customers wanting a refund could have been made easy. By ring-fencing the deposits they also protect customers money from being absorbed into the company account for paying bills and being misused. For example if the customers were told that they can have their money refunded if they were not satisfied then the ‘not isolating’ the potential customer refunds only adds more evidence of misuse of customer deposits. This situation can be made worse if those monies were then used for the director’s personal use. So the simple answer is keep personal and business funds separate, but also keep deposits separate too, possibly in a customer trust account or something similar – ask your bank for more information.

Offering services you do not provide

There may be charges against the directors from Islington Trading Standards for not providing services as advertised.

Generally a company; when advertising goods must:

• Match the description
• Be of satisfactory quality
• Be fit for purpose   

Clearly in this case none of the above applied, so there may be a prosecution to follow on this matter, also.

To find out more information about a specific insolvency solution; get business debt advice, or to simply learn a little more about insolvency, in general, please visit our website by clicking here.

A View on UK Economic Recovery; Bank Lending & SMEs:

Some interesting statistics flying around over the weekend what with the economy doing far better than expected it looks like the Bank of England governor may need to make a decision on interest rates in a matter of a few months. I am not sure Carney will be forced into making the decision that soon. He doesn’t strike me as a man who will be forced into any situation. The economy badly needs a long spell of stability and low interest rates, not a step into the unknown that a hike in rates would bring about. We have a fledgling housing market that is seeing a well-earned recovery and with wages still suppressed there is unlikely to be a return of a much feared ‘bubble’. Carney is more likely to link wages to inflation as a ‘get out of jail free card’ to get himself off the hook.

I may be proved wrong but I am hoping we don’t see any rates rising until well into Q4 2014 or early 2015.

Barclays decision to ‘transfer’ 800,000 of its small businesses away from free banking towards a charge based structure will do no favours for the already hammered reputation. Barclays insist the move will only affect about 250,000 businesses currently banking with Barclays – so that’s all right then. Business lending has never been a priority with the banks barring a few exceptions and is rarely more than 10% of any the major banks total lending. Major banks do not like lending to small businesses and never have to be fair to them and the Basel II rules make it more difficult for lending to take place.

Okay, so I understand business lending had risen slightly over the first half of 2013, but if you are already starting from a very low starting point then it’s not really great news. In any event, I now understand the percentage of lending to small businesses has fallen back by about a third to around 7% of total bank lending that may contribute towards businesses having cash-flow problems and seeking debt advice sooner, without the support they need from the banks. The bottom line is small to medium sized businesses are just not a core demographic for any of the major banks and the sooner businesses realise that banks are no friend to business the better.

Written by: Mike Smith

Banks; Friend, or Foe to SME's?

Having read over the weekend of yet another breaking banking scandal is it not about time these disgraceful fat-cats were seriously taken to task? As a company turnaround consultant I come into contact with the shameful banking practices on a frequent basis. This latest ‘revelation’ headlining the newspapers is not news to those of us in the insolvency business as there have been suspicions for years around the insolvency practices and banks. A lot has to do with the banking culture itself which has become more and more arrogant and remote from its original purpose – to lend and provide services to its customers.

Successive governments have had far too close a relationship with the banking heads. The most notoriously bad banking and political relationship was of course between Fred Goodwin, ex RBS boss and Gordon Brown, who has arguably been deemed "the worst chancellor ever".

Gordon Brown appointed Goodwin of all people to advise on the regulatory aspects of banking and sale practices and duly gave good old Fred a knighthood in gratitude. The appointment of Goodwin advising Gordon on banking regulation was not so much the blind leading the blind, as the equivalent of King Herod being asked to advise Mothercare on the latest range of comforters. It should not, therefore, come as any surprise that on top of the rate swap mis-selling debacle we now have this latest, equally shameful list of accusations against RBS of stealing property at an undervalue.

We come into contact with situations like this through our line of work and one example could be a recent case where a director was sold ‘insurance’ to cover his company against rising interest rates until, you guessed it, the interest rates fell and his cash-flow was destroyed. This was an interest rate swap product and even though he complained, he got nowhere with the bank and eventually the company went into default with his mortgage payments – the actual mortgage he had ‘insured’ and trying to protect.

The director had secured a RICS valuation for over £2m and yet, just one year later when the company, now starved of cash due to the horrendous interest rate payments he was paying to the bank, was forced into company liquidation. The bank appointed liquidators then sold the property off at a value of £800,000 knowing that my client had personal guarantees in place further protecting the bank. He not only lost his business but also his wife, having long suffered the pressures of supporting a stressed husband, she had finally had enough. He also lost his children and immediate access to those that made his life worthwhile. All this because greedy individuals looked after their own interests first and believed they had the right to do what they could with no thought that they may be doing wrong. But these ‘scams’ do not only involve bankers, they drag in the associated large insolvency practitioners who sit on the banking ‘panels’ as they may have too cosy a relationship with the banks. This may be another area for investigation by Vince Cable who appears to me to be one of the few politicians with any sense of integrity. 

Of course the newspapers rightly focus on the lost businesses and the hardship that this causes, but what it also does is knock our confidence in the established banks and the establishment itself to an extent. It is hardly surprising why banks are so despised; try getting a commercial loan, or worse a mortgage and the banks get tighten-up. Any mortgage applicant is treated like a criminal as they have the audacity to dare borrow money to improve their lot. 

Of course this would be funny if there wasn’t a more serious side to it and the serious side is the human fall-out of the pressure that these scandalous banking practices bring about. The fact that the Co Op Bank, set up to serve its members has been brought to its knees with £1.5billion gap means pensions will be underfunded and genuine investors will lose money. 

The banks have a lot to answer for and there does not seem to be any end to these banking scandals that have hit every man woman and child in this country and arguably the western world. The bigger question is what do we do to put this right? 

Written by: Mike Smith

Coming Out of Recession – Good News for business?

We are coming out of the longest recession in recorded history so this has to be good news doesn't it? The UK economy, we are told, has the strongest forecast in Western Europe. So, if the signs of consumers finally opening up their wallets are there then struggling companies across the UK should be pleased, and they can pat themselves on the back as having ‘made it through the storm’, right? Well not really. I don’t want to be a dampener on a struggling director’s hopes as there are indicators we can be cautiously optimistic about. The problem is based on past experience having been through three recessions that the most dangerous time for a cash-strapped company is when coming out of recession. The reasoning behind this is simple. If the ‘struggling’ company has cut back to the bone and cannot raise personal finance; ploughed in personal/family cash; reduced staff; sold off assets/stock; maxed out the company credit card and the banks being as helpful as ever and refusing to lend – the ‘straw that breaks the camel’s back’ is usually an influx of new orders.

You may think this is nonsense and that any bank with an ounce of commercial common sense would see a full order book as an indicator of something positive. Not so. We have had many cases where the order books have been full to the brim and the banks have refused to even provide an overdraft. They (The bank) did by the way allow an unauthorised overdraft of as much as the company wanted but at 27.9% APR. Factoring may help but my experience is this usually creates more problems than it solves for smaller companies.

So when orders start to increase and the bank account is empty what can directors do? There are few points to remember. Take a common sense approach and remember that when a patient has been very ill and is still very weak then start with a little of the right food often rather than gorge on too much of anything all at once.

My meaning here is that is important to gear up slowly if the company is cash-strapped and do not over trade and take too much on board. It is easy for a director to convince themselves that the more work you do the better things will get. Not necessarily – it could make matters worse. The fastest way to lose a good name is to let customers down. So, it’s important not to take work on that cannot be fulfilled competently and effectively and getting paid.

A director should set reasonable achievable goals and make sure the accounts/finance department talks to sales and is able to fund the growth. Ensure regular and frequent meetings are taking place and this is the time the director must have his/her finger on the pulse and work even harder and smarter.

If directors are a ‘one man band’ then they should be talking to someone other than a life partner/spouse that will provide an objective, informed unemotional view of the situation. This is an ideal time for the accountants to step in and provide support I would suggest. Whoever the director talks to they must keep the dialogue on-going until the company is back on its feet to make sure there is no disconnect between the service you have provided and what is paid in – not owed in. A business can grow on promises of payment – they need cash.

The nature of the business the directors are involved in will also matter. For example if they are in a building related trade then it may easier to get clients to fund at least part of the project with up-front cash. This can make a big difference to the chances of survival and not. This course of action may be more difficult with other businesses and directors will need to work smarter when providing the services to the client. For example is it worth having a word with your key supplier and showing them the full order book and offer to make them the sole supplier so they can see the benefit of increased sales.

Whatever the director does they must take care and whilst it is good to be cautiously optimistic it is foolhardy to believe simply obtaining lots and lots of extra work in itself will solve the problem – it may just make matters worse. Take care out there. 

Written by: Mike Smith

Who takes care of who when a business is insolvent?

When a company becomes insolvent the directors must take great care to fully address their duties and responsibilities; even more so than usual, as they will be watched very closely if they require an insolvency practitioner step in and process an insolvency solution for them.

Why is this? Simply put, as soon as an insolvency practitioner is engaged as a liquidator their main duty is to the creditors not the directors so your personal interests are not looked after by the liquidator once they have been engaged. For example increasing the overdraft within the normal day to day running of the business  would not be an issue, but what happens if matters start to go wrong? You may require personal help during the liquidation process and often afterwards. So who do you turn to if you can't go to the liquidator, surely they are there to advise you? Normally, you would need to engage an external consultant to advise you personally while the liquidator does his/her job. This is not the case with Jameson Smith & Co.

t Jameson Smith & Co we work very closely with you throughout the liquidation process and afterwards if required to help make sure that everything on your side runs smoothly and that you are protected personally as much as is possible. So the liquidator has a duty to the creditors (people your business owes money to) whilst having due care for the  directors and Jameson Smith & Co has a duty to the directors with due-care to the creditors. Who would you rather have on your side? This is not meant as a slight on the liquidator quite the contrary they have a job to do and we find that this brings a far more equitable solution and everyone is tended to and taken care of.

Is Your Focus Killing Your Business???

Focus... A small word with huge potential.

You may have heard of the old saying that 'you are what you eat'; well this concept can be applied to all walks of life and more specifically today, we want to cover this concept very briefly when related to business.

So moving away from the idea of food for a moment, what we are talking about here is where you place your focus and how that can affect the results in your business and in your life. Here's a good example; your sat at home watching the TV and the news comes on. Most people watch the news, yet few think about how the content of what is projected from this little box in your front room affects your mood and consequently, your actions from that point. Most of the information that is provided on the news is likely to not be very positive or happy as the press don't believe that it makes a good story and whilst watching one news broadcast is unlikely to have a lasting affect on your subconscious you may start to be convinced of certain beliefs about the world around you, due to the content of the information that you are absorbing.

... and it's not just the TV...

What we absorb in our daily routines and through our habits can and often does determine the type of lifestyle that we live.

What sort of people do you surround yourself with on a daily basis? What sort of books, or magazines do you read? Positive? Negative? Supportive? Destructive? Motivational? Limiting???

All these things should be taken into account in order to work towards becoming a more balanced business owner or employee.

Slowly, but surely you may have been engaging in negative or self-limiting actions due to the type of people, or information that you choose to surround yourself with every day. If you look for the negative in the world, guess what you will find. Likewise, if you always look for the positive, you will find that, also.

All this can be wrapped up in a very simple, slightly amended, adage which is 'We are what we absorb'; in every sense of the word, so take the time to focus your attentions into more constructive, positive and ultimately successful areas of your life and your business, because they are there; you just need to focus on them for long enough and new habits and in turn, new results will be formed.

When people are met with challenges in business they often seek to blame the environment for the outcome and this is normal behaviour for us humans. In some cases a lack of focus can lead to serious situations such as bankruptcy or a winding up petition from a creditor against your business which leaves you with few options. Prevention is the best remedy and where you decide to put your focus can make the difference between success and failure... so think about what you focus on - on a daily basis.

Here's to your health in all forms and success in business whether you are a Director of a Limited Company, or you are employed by someone else's business.

Small success leads to large success...

By Tony Smith

Limited Company or Sole Trader?

Quite often we get calls throughout a week and a common question is "Am I protected?". What is the main difference to you as a person in business between a limited company and a being a sole trader? The simple answer is protection. When heading for insolvency a sole trader has the distinct disadvantage that their person debts and the business debts are one in the same thing. This is not always the case if you are running a limited company.

A benefit of having a limited company to a director is the protection that the limited liability status provides. If all of the company debts are unsecured and there are no personal guarantee signed on any of the agreements with creditors then you are far better protected that if you were a sole trader.

Clearly this does not mean that you can neglect your company's creditors, but what it does mean is that you can manage the situation with more personal security and less stress.

This seems to be a common misunderstandings when speaking with business people in the UK when discussing insolvency and the risks involved.

Portsmouth to be sold?

Looks like Portsmouth football club is to be sold off after a deal has been struck by administrators to off-load all of the senior players.

The previous FA Cup winners have been insolvent for some time now and they have been considered many insolvency solutions such as a company voluntary arrangement and voluntary liquidation.

The sale of the club will take place next week, days before the new season starts.

This shows the level of business that can struggle with insolvency, it's not exclusive to small UK limited companies. Businesses of all sizes can come into difficult times. The insolvency solutions are often the same to consider and it all depends on the company's situation as to which one they choose to help them towards their goal.

www.companydebt.com

HMV announce more losses

HMV have recently announced that they have more losses totalling at around £16.2 million and have also taken out a loan to help support the business in the near future.

The retail music firm has had around a 12% drop in profits compared to last year and the loan they have recently taken out is £4.4 million to try and aid the business' future.

The struggling limited company is trying to trade through the difficult period with a venture into selling hardware products and although a spokesperson has said that sales of the hardware products are on the rise, so far the plan doesn't appear to be doing enough.

I for one would like to see HMV stay on the high street as I believe it is a valuable asset to the UK's retail sector and provides a good selection of attractive products.

Retail has been hit hard as we all know and there are many businesses on the high street facing similar situations but with the added challenge of not being able to borrow money for whatever reason. When a limited company is struggling and is approaching insolvency there are a few solutions that can be selected to help the business to either trade on or close down with the potential for the same director to start afresh with a new company.

Simply closing down with debts to consider may be a situation for voluntary liquidation such as a creditors' voluntary liquidation. Alternatively, if you want to keep on trading with the same legal entity you may want to consider a company voluntary arrangement. More about these solutions can be found at www.companydebt.com.

Is the UK becoming a Brothel for Irish Bankruptcy Tourism?

While bankrupts in the UK face only one year in financial purdah, in Ireland it is 12 years – despite promises of reform from the Dublin government.

This has led to a number of Irish Business' entering the UK and changing their Centre of Main Interest (“COMI”).

Two recent cases cast different dispersions about the ability to change a person COMI

The first case was an Irish couple who built up a €1bn (£800m) portfolio of luxury property, stretching from London to Washington DC and Stockholm, will attempt to file for bankruptcy in London on Thursday.

Brian O'Donnell, a high-profile Dublin corporate lawyer, and his psychiatrist wife, Mary Patricia O'Donnell, are accused of being among the Irish "bankruptcy tourists" fleeing to the UK to use Britain's more lenient bankruptcy laws. Mr McFeely’s Coalport company built the Priory Hall apartments in Dublin, and the O’Donnells are being pursued by Bank of Ireland for €75 million in unpaid loans related mainly to property investments. Both claim their main centre of business activity is Britain where the bankruptcy laws are different to those in Ireland. The High Court has currently adjourned the hearing and it is not certain where COMI lies.

Another case involved Mr Quinn, a well known Irish businessman who originally was declared bankrupt in the UK on presentation of his own petition. He contested that he had switched his COMI to the UK. The Irish Banks were not happy that he had declared bankruptcy in the UK and sought to seek an annulment. This was based on the fact that he had not disclosed various tax and other disclosures when going bankrupt. The Bankruptcy was annulled in the UK and a few days later he was declared bankrupt in Dublin. 

No Buyer as Yet for Clinton Cards...

Over 40 Clinton Cards stores have closed down by the administrators this month. The 43 stores that were closed were part of the 330 store that were not included in the deal confirmed on the 7th June.

Among the stores that have closed are the sites that include Basildon Town Square, the Galleries shopping centre in Bristol, the Glades shopping centre in Bromley, the Liberty II shopping centre in Romford and Wrexham's Regent Street branch.

A representative at the insolvency practitioners that have been appointed as administrators feels that there is a strong underlying business within Clinton Cards despite the current economic conditions.

New loan scheme for young entrepreneurs

David Cameron has just launched a new loan scheme to help young entrepreneurs start in business.

The new 'StartUp Scheme' is targeted towards bringing much needed funds to your business people between the ages of 18 and 24 who can prove that they have a strong business plan. The average loan amount is based around £2,500. This comes as a welcome gesture, given the lack of support from banks in this department.

According to Cameron's enterprise advisor Lord Young the UK could have up to 900,000 more businesses within our economy if we took the a similar route as the USA.

On top of the loan which is at a rate of around 3% and can be over a period of up to 5 years, young business entrepreneurs will also receive advice, support and training to help their business plans have more chance of success.

Is this enough though? We are hoping that this will be enough to strike-up interest and enthusiasm in the young hopefuls, however, with banks being unwilling to extend or even provide overdrafts in some cases - it will be hard for come of these youngsters to stay in business. Hopefully, the banks will follow suit and start being more supportive across the UK to help business men and women that are in need of extra money to keep them in business and away from liquidation.