BCR Insolvency Practitioners

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New Ruling on Administrations could benefit companies needing a moratorium and hamper those with Onerous Articles of Association

May 20th, 2011

The High Court recently provided great news to Company Directors who need protection from hostile creditors.

Directors of all limited companies may now take advantage of the moratorium available when filing a Notice of Intention to Appoint an Administrator, which will provide immediate protection from any creditor or other person taking action against a company or its assets (e.g. bailiffs, landlord distraint and winding up petitions).

This moratorium is available even where there is no Qualifying Floating Chargeholder.

But this also means that Notice of an Intention to Appoint an Administrator MUST be given in all circumstances, which could delay the urgent appointment of Administrators whilst a ‘reasonable notice’ period is given.

The Court also found that an out of court appointment of administrators was invalid on two counts:

there was no valid board resolution; and
there was no notice to the company/shareholders.

It is imperative that a Board Meeting is validly convened and constituted. Disagreeing or hostile directors can no longer hold disregard for the Articles of Association of a company and force the appointment of an Administrator. This should never have been able to happen before this ruling, however nobody had previously challenged the validity of the appointment of an Administrator on these grounds. It demonstrates the importance of making sure your advisers deal with your situation thoroughly.

So for disagreeing boards of directors this ruling could thwart the appointment of an Administrator by a minority number of hostile directors entirely. There are other ways to place a company into Administration and perhaps these routes need to be considered. We have utilised all possible routes to place companies, LLP’s and partnerships into Administration where there are disagreeing stakeholders. Contact us for further help and guidance.

Minmar (929) Limited & Teejinder Paul Chohan v Freddy Khalatschi and Martin John [2011] EWHC 1159 (Ch)

Court/Winding-up/Bankruptcy Fees from 1 June 2011

May 19th, 2011

The total Costs of commencing an Insolvency process will increase for the 2nd time this year on 1 June 2011.

The costs will now be:

	Court Fee £	Deposit £	Total £
BANKRUPTCY:
Debtor’s petition	175	525	700
Creditor’s petition	220	700	920

WINDING-UP:
Petition	220	1,165	1,385

ADMINISTRATION:
Petition for an Administration Order	175	-	175
Notice of Intention to appoint an Administrator, or, Notice of appointment of an Administrator	35	-	35

Any application under Insolvency Act 1986 where no other fee is specified	155	-	155

Any other petition if no fee specified	220	-	220

The latest increases are as a result of the Insolvency Proceedings (Fees) (Amendment) Order 2011.

CONSULTATION ON PROPOSALS FOR A RESTRUCTURING MORATORIUM – PUBLICATION OF RESPONSES

May 18th, 2011

Last week, Edward Davey published information on the consultation about a restructuring moratorium – in essence additional support for Insolvency Practitioners and other significant stakeholders to provide a framework that will allow more restructurings to take place, which should in turn increase the returns to stakeholders affected where a company suffers losses and runs up debts/liabilities.

Insolvency Practitioners often find opposition to increasing returns to stakeholders from the very people they are trying to protect. This seems almost crazy, but unfortunately it does happen – suppliers terminate contracts, increase prices, or deliberately slow down supplies of essential goods and services. More discussion will need to take place before anything concrete is put in place meaning it is likely to be well into 2012 before anything could take effect, which may be a little late for the emergence from the 2009 recession, however businesses will inevitably struggle even in better times, so it will be useful for the future development of the UK Business Recovery profession.

A summary of the responses can be found on the Insolvency Service’s website here, and copies of the non-confidential responses to the consultation can be found here.

“WRITTEN MINISTERIAL STATEMENT

EDWARD DAVEY, MINISTER FOR EMPLOYMENT RELATIONS, CONSUMERS AND POSTAL AFFAIRS; DEPARTMENT FOR BUSINESS INNOVATION AND SKILLS

CONSULTATION ON PROPOSALS FOR A RESTRUCTURING MORATORIUM – PUBLICATION OF RESPONSES 11 MAY 2011

I am setting out today the stakeholder responses to our consultation on proposals for a Restructuring Moratorium. When launching the consultation, the Government was focused on setting a path to balanced and sustainable economic growth across the economy, with increasing jobs and prosperity. This included looking at the challenges and risks faced by business in the refinancing and restructuring of existing debts.

The consultation document invited views on a Restructuring Moratorium which would enable viable businesses, with a realistic prospect of implementing a successful restructuring of their financial affairs, to obtain a flexible breathing space outside of a formal insolvency procedure during which the restructuring could be negotiated and implemented.

Forty-two businesses, individuals, and representative bodies responded to the consultation. Responses received suggest that, whilst the refinancing and restructuring of company debt remains a valid concern, the urgency of the case for introducing such a moratorium is not as great as previously thought. Those working on large restructurings tell us that they have been able to use existing mechanisms to get around some of the problems that the moratorium is designed to address.

There have been suggestions that a greater impact might be achieved by the restructuring moratorium were it also to tackle issues such as termination clauses (whereby suppliers can cancel essential contracts and threaten the viability of company’s rescue plans) and “cram down” mechanisms (to reduce the power of small creditors to block proposals). These are significant and difficult issues. It would be helpful to have further discussions with the main stakeholder groups to explore how much support there might be for addressing these issues; the best way in which to do so and the implications of introducing such further measures.

The Government has therefore decided that the next step should be to publish the responses to the consultation that it received to allow all concerned to understand the various views expressed. My officials will then work with stakeholders both to refine the moratorium proposals and to consider in more detail the additional areas that have been raised.”

Banks are being supportive and avoiding Liquidations and Administrations

May 15th, 2011

It was nice to read an article in the Daily Mail entitled ‘The True Scale of Corporate Collapses Masked by Banks’.

Some Insolvency Practitioners like Philip Wood and Kevin Lucas of BCR have been saying that despite popular belief banks are being supportive, although not supportive to give businesses new lending, just supportive of the companies they currently have as customers – this will not of course apply to all situations – look at Silentnight – however in general banks are being supportive.

The article in the Daily Mail highlights this. Banks are writing off millions in debts to avoid forcing customers into Liquidation, Administration or Receivership. Why? Becuase there is no exit route, so why force a business or its borrowers into an unnecessary situation where there is no positive outcome to be achieved for anyone?

But by not forcing companies under, there is merely an inevitabel delay in many business failures. Just like the HMRC stance of 2009 and 2010, the support will help some survive but for many it merely means that they extend the period of their demise.

What banks and HMRC themselves are poor at doing is persuading their customers to seek professional external advice. Any many business owners are fearful of seeking advice, especially from an Insolvency Practitioner. But when a business (sole trader, Partnership, LLP, or company) is in financial difficulty, an Insolvency Practitioner will bring some realism, some honesty and most importantly a solution to the situation, but most Insolvency Practitioners only provide an Insolvency Solution, but there are some who fortunate to have other skills and backgrounds to bring innovative solutions to the table. BCR are fortunate to have 2 Insolvency Practitioners who are also Chartered Accountants and have a wide background of non-insolvency experience. Their position is rare and clients benefit greatly from the solutions they can devise.

The lack of pressure being applied by banks is masking the true extent of the problems within UK businesses, this will only emerge as 2011 and 2012 unfold when growth is flat, cash becomes even tighter and the knock on impact of inflation, unemployment and austerity affect more than the retail and leisure sectors.

Who is next?

May 6th, 2011

So FOCUS DIY has become the latest retail casualty of 2011, some may say no surprise there, but with retail Administrations increasing at 30% year on year at present, is it that much of a surprise?

The FOCUS DIY Administration has caused concern about a fresh wave of retail insolvencies and out of town ghost centres to accompany the high street emptiness. Easter was hot and temperatures are set to stay high, this was and is good news for retail, after all Next announced encouraging results recently due to the good weather and supermarkets are doing well with sales of barbecue items and drinks, but this is of course at the detriment of many leisure and food outlets.

There are many retailers on the at risk list including JJB and HMV, whilst there is speculation about a few others too. But Focus suffered like many others have done in the last few years and will do in the future – trying to compete on a large scale with better established, better promoted and better resourced competitors, without any usp or key differentiator. Trying to turn a business’ fortunes around in the current climate with unwilling lenders and backers, and consumers with ever decreasing disposable income, is an almost impossible task – all evidenced by the retail failures of the last few years – none have come as a surprise.

Many retailers will need to face the inevitable and take the decision to call it a day before personal liabilities accrue for those running the business when there is no prospect of improving the position. We are currently working with a number of retailers and the outlook is not great, there is a lot of hope in their turnaround plans, more than ever before, but it is important to ensure hope is turned into realism not in the future but now – realistically what is the likelihood this will happen, don’t work on hope, work on realism, anything above this is a bonus. If realism suggests it won’t work then change the plan, try a CVA and really descale, go back to doing what you are good at, a core business, where margins aren’t so tight and the business isn’t trading on a knife edge.

So will the Administrators of FOCUS find a buyer? I suspect like most large scale retail operations a buyer(s) will be found for the majority of stores but inevitably a reasonable proportion will close. FOCUS does not appear to be another Woolworths, so I doubt all is lost.

Dismissal automatically unfair under TUPE

April 26th, 2011

In May 2008 a company entered into Administration, which was not a Pre-pack Administration, and after a month of trading it was sold as a going concern.

Upon appointment, the Administrators undertook their review of the business and decided to dismiss the Chief Executive on the day of their appointment.

The Chief Executive took his former employer and the purchaser to a tribunal claiming his dismissal was not for an economic, technical or organisational reason, but in fact it was as a result of the impending transfer of the business therefore rendering it automatically unfair.

The tribunal agreed, and the appeals tribunal also agreed, that it was unfair. It was decided that despite at the time of the dismissal the purchaser had not been identified, the business was always going to need someone in the position of Chief Executive and that it could have been foreseen at the time that he would be replaced, which he subsequently was, therefore the dismissal was automatically unfair.

This is another warning to purchasers of insolvent businesses from an Administrator that the TUPE risks are severe and need to be factored into their consideration of the position. Conversely it is yet another problem facing Administrators when it comes to rescuing a business and/or achieving a sale as prospective purchasers will be nervous or offer significantly less as a result of TUPE, thereby reducing returns to creditors.

TUPE does not help when attempting to rescue a business, achieve a going concern sale or a Pre-Pack Administration and we have seen a number of purchasers opt to buy a business from liquidation because of the severance of TUPE.

The ruling is of course good news for employees and may see tribunal claims rise further as many dismissed employees will struggle to gain new employment.

Red Tape removal and reuse of name

April 26th, 2011

The Government is trying to reduce red tape and is looking at the display and promotion of business names – where, when, by whom, etc (Business names).

Any changes to the need to prominently display names will render it difficult to identify the party with whom someone is trading. This has become a signficant issue with a Company Voluntary Arrangement (CVA) that we are currently supervising. The registered name of the company was also its trading name (minus the ‘Limited’ word), and this trading name was also used by a previous company that went into Administration (the one we are supervising is the phoenix company) and on the majority of communications provided to us all that has been used is the trading name.

It is therefore unclear to creditors who is liable for which debts – the company in Administration, the company we are supervising, or another party, and it is a matter we must now try and clear up accurately for the creditors of the CVA.

If changes are made regarding the registration or promotion of business names, it is even more important for businesses to understand the legal entity with whom they are trading.

And as for the position of Section 216 of the Insolvency Act 1986 and reuse of name, it doesn’t appear on the governments target list, but the possible relaxation over the legislative policy of registering identical or similar names seems to be at odds with the policy to try and prevent its reuse and avoid ‘phoenixing’. It will be interesting to see what happens.