How equity release can help personal insolvencies

Insolvency is on the rise. This is a cold, hard and unfortunate fact. One faced by many people and which stems from both over reliance on credit and also the worldwide banking crisis. Following the crisis the banks were no longer in a position to keep feeding people credit, instead it seems they have actually swung the other way and started cashing these debts in. Faced with this there are many people who are struggling to maintain payments and are in fact facing insolvency. Continue reading

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Bankruptcy petitiion guidance

Bankruptcy is a process of dealing with outstanding debts that an individual cannot afford to pay. When a bankruptcy petition is filed, assets such as personal property, house and income are used to pay the person’s debts. A bankrupt’s financial affairs are agreed with the creditors and closely monitored to ensure that the interest of creditors is protected and the bankrupt does not misuse his or her money any further.

How to file a bankruptcy petition?

Firstly, only the courts have power to consider bankruptcy cases. Anyone can file a petition for bankruptcy. If the debt exceeds £750, also the creditors to whom the sum is owed can individually or collectively bring bankruptcy proceedings against the debtor.

Bankruptcy has severe consequences, before applying to the court, it is therefore important to obtain free advice from solicitors, local Citizens Advice Bureau or the National Debtline to ensure that bankruptcy is the most efficient way of dealing with your financial difficulties.

Bankruptcy Petition – Forms

The bankruptcy petition consists of two bankruptcy forms:

  • Debtor’s Bankruptcy Petition; and
  • Statement of Affairs, Debtor’s Petition

The original forms along with two copies need to be delivered to your local bankruptcy court.

Are there any costs of filing for bankruptcy?

There are bankruptcy fees that need to be paid before the court is to consider your case. Currently, the fees are:

  • £525 for the costs of bankruptcy case management;
  • £175 paid to cover the court costs of dealing with the case. This fee can potentially be waived if you receive any income support.

Who is the Official Receiver?

Upon bankruptcy, your property is transferred to a trustee who oversees and manages the entire bankruptcy process. The trustee can be either an officer of the bankruptcy court, also known as the Official Receiver, or an insolvency practitioner (a qualified debt specialist).

The role of the Official Receiver is to collect your assets and protect them for the interest of people whom you owe money to). The Official Receiver will also produce a detailed report on the causes of your bankruptcy and publish information about the fact that you were made bankrupt in the London Gazette. Finally, the Official Receiver will organise your discharge.

What are the consequences of filing petition for bankruptcy?

Filing a petition for bankruptcy can result in severe consequences. Firstly, if you are a business it means that you will stop trading and your workforce will be dismissed. Persons regulated by the Financial Services Authority or the Solicitors’ Regulation Authority will not be able to continue their career in the regulated profession. You will have to hand over assets of any value and any spare income you have, above the costs of living, will be used to pay your creditors off. Bankruptcy will also affect your credit score and you will not be able to take a mortgage or loan for a minimum period of six years. You will also lose the right to use your bank account.

What is the difference between winding up and bankruptcy petition?

Both essentially mean the same in different contexts. Bankruptcy petition is used with references to individuals, whereas winding up is a process of a company being made bankrupt.

What is the order in which creditors are paid off?

Upon bankruptcy, the creditors are paid in order of priority:

  • Secured creditors (i.e. banks, lenders, mortgage providers);
  • Floating charge holders – floating charges are used by companies to raise debt finance. They are secured against assets that the company is still allowed to use on a day to day basis in the course of its business activities;
  • Preferential debtors (this includes your employees who have not been paid their salaries);
  • Unsecured creditors;
  • Company members (shareholders).
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Creditors Voluntary liquidation – the basics

Creditors Voluntary Liquidation

What is insolvency?

Insolvency occurs when a company is in financial difficulties and cannot pay its bills and cannot extend its overdraft facility any further. Corporate insolvency is highly regulated by statute and is divided into different types, which gives a company different options to rescue itself from financial trouble.

What is liquidation?

Liquidation is a type of corporate insolvency. During liquidation a company is no longer able to trade. An appointed liquidator who collects all the assets conducts the process.

Types of corporate insolvency

There are three types of liquidation:

  • Members Voluntary Liquidation (MVL): it occurs when the company’s members make a decision to wind the company up to pay the debts which are owed to them. The company is still solvent and the directors must make a statutory declaration of solvency confirming that the company is able to pay its debts in full within the specified time limit (typically 12 months).

  • Creditors Voluntary Liquidation (CVL): in this type of liquidation it is the shareholders’ decision to put the company into liquidation. The difference from the MVL is that there are not enough assets to pay off all the creditors’ debts and the company is insolvent.

After the voluntary liquidation procedures finish the company’s life is brought to an end (the company dissolves). It usually occurs three months from the filing of final accounts by the liquidator (an insolvency practitioner). MVL will change into CVL if the company becomes insolvent and is unable to pay its debts in the process.

  • Compulsory Liquidation: bringing a petition to the court starts a compulsory liquidation. It can be brought by:

  • Creditors of the company (people, institutions or organisations who are owed money by the company)
  • An administrator (an appointed insolvency practitioner)
  • An administrative receiver (AR) (a licensed insolvency practitioner appointed by a creditor holding a floating charge)
  • Directors or the company itself (although they will usually choose the quicker and cheaper voluntary liquidation instead)

CVL Process

The company will hold a meeting and vote by special resolution to wind the company up voluntarily and a general resolution to appoint a liquidator (he or she is normally nominated by the creditors). A liquidator makes an assessment of the state of the company’s affairs and calls a creditors’ meeting within 14 days. A liquidator will place an advertisement in the London Gazette and two other local newspapers calling the meeting and write to all known existing creditors of the company to inform them about the meeting.

At the meeting the directors of the company must present a statement of company’s assets, debts and liabilities. The creditors can also vote on appointing a liquidator if they do not agree with the existing nominee.

Liquidator’s duties

The liquidator is an agent of the company and has got powers given to him by the statute. The liquidators’ powers include:

  • Collecting and realising the company’s assets and to distribute them within the order of priority prescribed by the law;
  • Maximising the assets available to creditors (preferably converting them into cash)
  • Investigating and reporting on the conduct of the officers (such as directors) of the company

After a company has been wound up the duties of the liquidator depend on when the CVL started. If it started before 5 April 2010:

  • Presenting the account at the final meeting with shareholders and creditors (and advertise the meeting in the London Gazette 1 month before)
  • Sending the account in the form of a return to the Registrar of Companies within one week of the meeting

If the liquidation started after 6 April 2010:

  • Presenting a full progress report at the final meeting with shareholders and creditors of the company (and advertising the meeting in the London Gazette 1 month before)
  • Sending the final progress report to the Registrar of Companies within one week of the meeting

The company will be dissolved 3 months after the final meeting is registered at Companies House.

Consequences of CVL

  • The main consequence of CVL is that once the process is started a company cannot perform its functions and needs to be wound-up

  • The directors lose their powers (unless they are authorised by the liquidation committee or, if one is not in place, the creditors)

  • The assets of the company will be sold by the liquidator
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Company administration

COMPANY ADMINISTRATION: WHAT YOU NEED TO KNOW

When a business is struggling financially, there are a number of options available for it to use in an attempt to save itself.

One option is to place the company into administration. This involves appointing an Administrator (who is a licensed insolvency practitioner). The aim of administration is to protect a business from its creditors whilst a restructuring plan is established. Once this has been completed, it may be possible to rescue the business.

Is Administration the Right Option for My Business?

Administration

In order for administration to be a viable option for your business, the business must be a reasonable size, be able to predict profitability and also have reasonably predictable cash flows. Additionally the directors must feel that hostile creditor(s) will have a significant impact on the company’s future. Once this process has begun, directors have no control over the future of the company. It is the Administrator who decides whether the company should be sold or liquidated. The company also receives the breathing space from its outstanding debts to look into the process of restructuring.

Creditors Voluntary Liquidation

If your business does not have the key requirements mentioned above, an alternative to administration could be a process known as creditors voluntary liquidation (also known as company voluntary liquidation or CVL). This process involves the winding down of the business. All the assets are liquidated (which means selling them for money to pay off outstanding debts and creditors). This option is normally the appropriate one to use if you believe the business is no longer viable.

Company Voluntary Agreement

Another option that is worth considering is a Company Voluntary Agreement (CVA). This is a process by which the company negotiates with its creditors regarding debt repayments. Creditors are often keen to consider a CVA rather than liquidation, as they are likely to receive higher returns/repayments. Under the CVA process, cash flow is likely to improve, directors can remain in control of the company (if they so desire), creditors can receive dividends (which means they receive payments and keep the company as a customer) and the company is protected from excessively aggressive action by its creditors. Administration fees can often be 5-10 times greater than the fees accumulated in a CVA process.

The Advantages of Administration

One of the main advantages of the administration process is that it prevents the financial position of the company from worsening. It is also a quick process (especially if an Administration pre pack is used), and is therefore relatively simple to carry out. An Administration pre pack involves selling the company either to a third party or to the existing directors. The business and assets are sold to the new purchasers, but the continuity of the company remains unchanged.

You should be aware that the Administration pre pack method can generate negative publicity if the purchasers are the existing directors of the company, as it could seem like they are just trying to avoid liability.

The Disadvantages of Administration

As has been mentioned, one of the main disadvantages of administration is that the directors lose control of the company. Additionally, costs can reach high levels depending on the length of the process. Another disadvantage is that administration is a public event. Correspondence will therefore be changed to read the company name followed by (in Administration). As a result, suppliers and customers are fully aware of the situation, and may become adopt a wary stance towards the company.

What Does the Administrator Do?

The Administrator’s role involves taking control of the management of the business, along with the responsibility required to restructure.

Who Appoints the Administrator?

If the correct forms are sent to the court, the business itself/its directors can appoint an administrator without having to obtain a Court Order. However, if the company has chosen to liquidate rather than go into administration, the Administrator must apply for a Court Order. It is important to note that no order will be successful if the floating charge holders (most of the time these are the banks), have been given 5 days notice of the company’s decision to appoint an Administrator. The floating charge holder still has the right to appoint an Administrator themselves should they so wish.

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Insolvency specialists become … insolvent

Insolvency specialists go into administration

In an unusual twist on the current economic conditions (you might think that Insolvency specialists are in on eof the only sectors which should still be thriving) Bond Partners LLP, a firm which had offices in both London and the Midlands, has gone into administration.

Another feature of this situation is that, with an administration, certain assets of the business, principally with a professional services firm it’s work in progress, can be sold, and it’s no great surprise that in this case, assets have already been sold. Controversy abounds with administrations in that another feature of some administrations is that some or all of the individuals who had some management or ownership role in a business which leaves debts owed t0 creditors which won’t be paid,  end up buying the assets and in this case it appears that the work in progress was sold to former members of Bond Partners. To mitigate the anger often felt by creditors in such cases, in this instance the administrators were able to conclude an arrangement whereby a proportion of  fees from the work in progress sold  will be due to the administrators who in turn will distribute those fees, after payment of their won fees and any priority claims, to the creditors.

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Top accountancy firm insolvent !

Even accountants not immune from insolvency

Think accountants, think financial prudence and a safe pair of hands – yes, but accountants are in business just like all the rest of us, and they are not immune to insolvency, nor are lawyers or doctors and dentists.

Publicity to the large number of solicitor practices which have gone to the wall has been limited, but one case of insolvency in accountant practice has been widely reported in the last week because the practice concerned was a top 50 ranked practice in England & Wales.

The practice in question Target Consulting Group had employed around 200 people with a number of offices around the country, with different functions under an umbrella group.

As with many other administrations, whilst jobs will still be lost, there are some attractive assets within the Group and it seems that some have been sold off already, and the accountancy part of the business, as opposed to corporate finance and other divisions has not had to go into administration at all.

The above shows the value of setting up a group structure of companies such that even if parts of a business are insolvent, others that are not can survive. It also shows that running a business is tough, even for those with significant skill on the face of it, professional training and years of experience. Of course it also demonstrates that with any economic downturn on such a broad scale as we are seeing, it will permeate to all levels of society.

In fact, with solicitors, it is quite noticeable that a number of practices are perhaps good at advising others but when it comes to their own business management skills and decision making, this isn’t so great. Maybe that’s why they became solicitors in the first place !

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Court of Appeal case on removing administrators

Court of Appeal case regarding administrators

The recent case of  Finnerty and another v Clark and another [2011] EWCA Civ 858 is very interesting relating to the issue of applications to remove administrators. Those in the insolvency field will already know this is discretionary for the court but is not an easy application to succeed with.

The Court of appeal reiterated that a court of first instance has wide statutory discretion and that to succeed, the applicant does not need to prove misconduct, unfitness, or a lack of integrity by the insolvency practitioner.

The Court went on to emphasise that :-

  • There must be “good or sufficient ground or cause for the removal of the administrators and for their replacement by another administrator”. If the application cannot satisfy this test it should not go on to consider it’s statutory discretion.
  • In the case in question, the administrators had refused to start legal proceedings to challenge the underlying security in a property transaction. Whilst that application would have been funded by individuals who had given personal guarantees and would have benefitted from a successful challenge by the administrator, the administrator was entitled to refuse to make that application.
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Property loans & Ireland, the position gets worse

Bad loans in Ireland – we knew it was bad but …

The latest half yearly results from Lloyds Banking Group show some quite scary figures.

We are all aware that due to unprecedented cavalier lending in the property sector, exposure by the banks was high. The reckless lending was particularly bad in relation to Ireland which had created numerous property moguls almost out of nowhere. Well, the position continues to deteriorate.

Lloyds figures released this week now provide for a huge  £17bn of impaired Irish loans, which do not look like being paid any time soon. The figure above represents an increase of over £3 billion in the impairment just over the last 6 months as property prices continue to fall in both the UK and Ireland.

These figures are staggering and astronomical and simply remind us of the true madness of the first decade of the 21st century, which we are all starting to pay the price for and for which few have been or will be held accountable.

Your comments ?

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Not blue sky thinking but positive action

Insolvency – happy endings ?!

Some much needed commonsense is working wonders in the current economic environment. Insolvency practitioners are all too often seen as “executioners” in terms of jobs but under a scheme running very well, co-operation between IP’s and the Jobcentre is thought to have assisted up to 32,000 in finding new jobs quickly instead of redundancy if there is an impending insolvency situation.

How it works

The scheme works by way of partnership between insolvency practitioners (IPs) via their trade body R3 and Jobcentre Plus. Ip’s are encouraged to advise Jobcentre Plus about the likelihood of redundancies in a given situation as early as possible giving the Jobcentre some time to seek to find alternative employment for the staff likely to be affected.

This si an excellent scheme and reflects well on all parties, not least Insolvency Practitioners. More creative solutions to difficult business situations should certainly be encouraged.

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SME’s finance and business failure

Some stats about what small businesses can’t get credit

In the ongoing credit crunch environment, with banks being extremely reticent to lend, and with such situation likely to represent the reality for some time to come, a business seeking credit needs to have it’s house well and truly in order before seeking finance.

Small businesses of course focus on generating more money coming in than going out, and this focus is completely understandable. However, failing to have systems and documents in place at an early stage reduces significantly the ability to raise finance and sources of help are available.

Research has been conducted on the above by restructuring and insolvency firm FRP Advisory who surveyed 150 accountancy, legal and financial advisors.

Some of it’s findings were :-

  • 60% of those surveyed  said that less than half of their SME clients produced regular management information on company results, not tracking their own
  • 67%  of advisors surveyed predict a rise in the number of corporate insolvencies  during 2011.
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