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.

Are HMRC Withdrawing Support for Time To Pay Arrangements?

I have heard through the grapevine that HMRC are looking closely at withdrawing support for the Time To Pay arrangements from this April and these arrangements have been so popular in the past with SMEs in clearing company debt; too popular, perhaps. Some may be surprised to hear me say, but I believe generally that HMRC do a good job in very difficult circumstances.

IT System Changes and Staffing Losses

HMRC have had to endure IT system changes which have not always been as successful as they should have been. Cut-backs in staffing numbers reduction in pension benefits as have all civil servants along with chopping and changing of what jobs are completed where. The communication systems were antiquated though they are trying to catch up and some at the higher levels finally have access to external email. There is an awful lot of confusion inside and outside regarding the new phone systems which frankly leave a lot to be desired as there is only so many times you can hear Vivaldi or Green Sleeves before you start banging your head on the desk in tune with the beat.

Attempted humour aside, any cut-back on the SMEs ability to agree a time to pay arrangement would be a severe set-back to those companies who genuinely need help when coming out of recession. We deal with company debt and HMRC negotiations as part of our work and the time to pay arrangement has been a valuable tool and saved some companies - no question.

The longest recession in recorded history

Coming out of a recession is bad enough but coming out of the longest recession in recorded history is another. I am hoping that Carney keeps the interest rates down as businesses need as much help as is possible. Okay, I know there will be some out there saying “Well I pay my taxes on time so why shouldn’t they?” I accept the point, but I do come across a large percentage of smaller businesses who have cut to the bone to survive. Once a company does this they are very vulnerable and it is easy to get into difficulty for no other reason than a larger business debtor has decided to pay later than agreed. You can argue these companies should not have placed all their eggs in one basket, but the reality is these smaller businesses represent a significant part of the British economy.

I appreciate these HMRC time to pay arrangements are time consuming and so I assume they are costly to manage and monitor, but what is the alternative to a time to pay arrangement? 

Could there be trouble for Thomas Cook?

The travel company, Thomas Cook have been struggling for some time. The tour operator firm has just confirmed greater losses in Q2 than they had hoped and is a stark comparison against the profits in 2011.

The total losses for Q2 are said to be £26.5 million. If we compare this against the profits of the same period in 2011 which was around £20.1 million the travel company clearly has cause for concern.

Comparing the same period within a 2 year time frame displays a volatile trend so anything could happen.

They were hoping for sales form their Olympics packages to support them throughout this period, however, sales have been disappointing low.

Many companies are having insolvency difficulties and cash-flow problems at the moment in the UK and deciding which solution to take such as a company voluntary arrangement or biting the bullet and going through a voluntary liquidation can be hard. What sort of solution will Thomas Cook reach for?

A common word mentioned several times when representatives from Thomas Cook have been questioned is 'challenging'.

Let's hope that the travel firm is up to the challenge and comes out stronger on the other side.

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.