This month sees a return to lighter nights, trees and flowers waking up from their long slumber and poking out into the sun and a more optimistic sense than has been displayed for the past two years at least.
But this month will also see the final removal of the last of the pandemic business support measures which could provide an immediate challenge to several businesses.
Additionally another protection for commercial tenants is being lifted, removing a 14-week notice period that their landlords have to give before any possible eviction proceedings for unpaid rent or historic rent arrears that haven’t been brought up to date.
According to the Insolvency Service official corporate insolvency statistics for last month, compulsory liquidations rose to their highest level since July 2020 with 118 recorded.
Winding up petitions are classified as a compulsory liquidation so even with current restrictions, the category is up 131% year on year and up over 120% from the previous month’s figures.
This is the clearest indicator that their use is increasing and with no restrictions at all, could well see them rise even higher.
BusinessRescueExpert’s guide to winding up petitions
Chris Horner, insolvency director with BusinessRescueExpert, said: “The final removal of restrictions coupled with rising energy costs and ongoing supply chain issues will bring a lot of pressure on commercial tenants who are already in financial difficulty.
“During the past couple of years, Covid related debts were effectively ring-fenced to encourage consensual repayment plans.
“Corporate landlords had little choice but to accept rent reductions, deferrals and even waive some arrears in order to secure income for the longer term.
“Now these protections are disappearing at the end of the month, it means landlords can be far more aggressive in their approach to tenants with outstanding debts by being able to bring winding up petitions and threaten eviction.
“Some businesses that are already struggling to service their debts and are undergoing cash flow and working capital pressures should act to get advice immediately before their position worsens or their landlord and other creditors lose patience and decide to force the issue themselves - which they can at the end of the month.
“These next four weeks could be the last chance for a company to make the necessary changes they need to survive.”
There is a window of opportunity available right now but it is slowly closing.
In less than a month, winding up petitions and statutory demands return and after being denied their use for over two years, many creditors will be itching to use them to help improve their own finances.
We offer a free consultation for any director or business owner who wants to discuss how they can bring their company back from the brink.
The best time to get advice is always right now so take the first step and get in touch today.
If the past two years from February 2020 have had a signature motif then that will surely be the one that most of us would agree with.
Just when we think we’ve turned the corner and are heading to brighter times ahead, there’s a pothole in the road causing us to stumble or a roadblock necessitating a longer journey to get to our eventual destination.
February 2022 has been no different.
Despite Covid-19 cases reducing and pandemic restrictions being lifted with more to be announced, three named storms hit the UK within a week keeping potential customers indoors once more.
But with March and Spring just around the corner, the sense that we might finally be moving beyond the Covid years is strong.
Holding on to that optimism is important but before we fully look ahead for the rest of 2022, let’s catch up on the other business and insolvency stories that have happened in February.
Get up to speed with all the months’ news right here!
As we reported earlier this month, Liberty Steel and three other businesses controlled by
GFG Alliance received winding up petitions from HMRC - despite limitations placed on the process during the pandemic.
They are still allowed to be served if certain conditions are met including the cumulative debt owed to creditors had to be £10,000 or over which in this case, have been met.
The court hearing is scheduled for March so there is still time for an agreement to be reached but HMRC is just the first high profile creditor to signify they are willing to use the threat of winding up a business this year rather than tolerate further repayment delays.
Whoop Energy and Xcel Power
Two more energy providers have ceased trading adding to the collapse of the smaller providers in the market.
Whoop Energy provided gas and electricity to 212 businesses and 50 domestic customers while XCel Power provided a gas only supply service to a further 274 companies.
Ofgem are handling moving customers to other suppliers with Neil Lawrence, retail director at Ofgem saying: “Our number one priority is to protect customers. We know this is a worrying time for many people and news of a supplier going out of business can be unsettling.”
Under regulations, customers' energy supplies will continue uninterrupted while they are matched to a new provider.
With the withdrawal of Whoop and XCel Power from the market, the total of energy suppliers ceasing to trade since September is now up to 28 with Bulb Energy entering a special administration supported by government funds.
Four million domestic and business customers have been affected by their supplier going out of business but this might not be the last time we write about problems in the energy market this year.
Guarantor lender TFS loans went into administration in February.
The company was a guarantor lender which required a family member or friend to guarantee repayments if the original borrower couldn’t make the repayments.
A spokesperson said: “The main causes of the failure of the business are rooted in unaffordable lending.
“It has been necessary to place TFS into administration in order to protect the business and the interests of creditors. This does not change the terms of any loans that have been taken out with TFS Loans Limited and they should continue to be repaid.”
Concert promoters M&B Promotions who put on shows for artists such as UB40 and Jason Manford have gone into liquidation.
An official statement from the company said: “It is with a heavy heart and deep regret that we must announce the cancellation of all our scheduled events, and the end of operations for M&B Promotions Ltd and our ticket platform Simple Ticketing Ltd.
“We have successfully delivered hundreds of events all over the country since 2019 with our final programme of events taking place in December 2021.
“The decision is the result of the extreme logistical and financial setbacks caused by the pandemic.”
The arts and entertainment sector was one of the heaviest hit by the Covid-19 pandemic and waiting over two years for large groups of people to gather in indoor or outdoor venues was too much for some of them including M&B.
Regal Luxury Homes
A static caravan business in Hull was wound up by the High Court and placed into liquidation following an investigation and action by the Insolvency Service.
Regal Luxury Lodges Ltd was established in 2019 but was no longer trading by early 2020. Despite this, a director applied for a £50,000 bounce back loan which it was inelligible to receive as it wasn’t trading.
The loan was obtained and an Insolvency Service investigation began which also found that directors had failed in their statutory duties to maintain, preserve and deliver adequate accounting records along with evidence that the company bank account was being misused.
As a result, the High Court in Manchester agreed that closing down the company was in the public interest to prevent it being used as a vehicle for fraud.
Dave Hope, Chief Investigator at the Insolvency Service said: “Regal Luxury Lodges Limited took advantage of customers by misleading them into making payment for lodges which it was unable to deliver and compounded this by an egregious abuse of the Bounce Back Loan scheme to obtain a £50,000 loan at the taxpayer’s expense, after the company had already ceased trading.
“The Insolvency Service has acted swiftly to bring this company under the control of the Official Receiver to ensure that the conduct of the directors can be fully investigated.”
A positive insolvency story to report.
Ann Summers, the adult themed retailer has finally returned to profit two years after entering a company voluntary arrangement (CVA) with their creditors.
During the pandemic their online sales doubled and revenues also doubled at its direct retail outlets.
Chief Executive Jacqueline Gold said: “I am delighted that Ann Summers has emerged after some very challenging years with a return to profitability in 2021.
“Everyone in the business has worked incredibly hard to deliver the turnaround and, while there remains much to do, I’m very grateful to every member of our team who has contributed to it.
“I’d also like to thank those landlords and suppliers who supported us through our CVA last year, which played an important part in helping us get back on track.”
Cheshire based housebuilder Mulbury Homes has filed notice of intention to appoint administrators saying it is the victim of a “perfect storm” of supply chain problems and the impact of the Covid-19 pandemic.
Since being founded in 2010, the company has built over 2,000 houses and expanded into affordable homes, care and open-market residential divisions as well as Mulbury City in 2015.
The company currently has 1,089 homes under construction that will temporarily stop while the future of the business is settled.
A statement from the Mulbury directors said: “We had a strong pipeline of projects and we were hopeful for the future. However we have not been immune to the very challenging conditions facing the construction sector brought by the pandemic, planning delays, cost increases and supply chain issues.
“We have been working tirelessly to keep the business going but the current conditions left us with no option but to call in administrators.
“We would like to thank our staff, clients, supply chain and partners for their support to Mulbury Homes in the last 12 years.”
Studio Retail Group
Online retailers the Studio Group have filed notice to appoint administrators based on a downgrade of expected profits.
The company’s share price dropped by more than 35% following the announcement that pre-tax profits for the full financial year would not reach £28 million, and almost definitely not the current market expectation of £35 million.
The company issued a statement saying it had requested a short-term loan of £25 million from its lending banks to fund surplus stockholding which it believed “was sufficient to enable it to sell through the stock to customers.”
The statement added: “Following detailed discussions with our UK lenders, the company has not been able to reach agreement with them to provide the additional funding Studio requires. The board therefore now intends to file a notice of intention to appoint administrators to SRG and Studio Retail Limited, its wholly owned subsidiary, as soon as reasonably practicable.
“Following consultation with the FCA, the company has requested that the listing of the company’s ordinary shares of 10 pench each be temporarily suspended.”
The company said demand in the early weeks of January had been “relatively subdued, with some margin erosion as they cleared some seasonal stock that could not be carried forward.”
The business started life as a catalogue retailer focused on gifts but expanded online dramatically and now sells clothes, home and electrical products on flexible payment terms to approximately 2.5 million customers making £578.6 million in sales during the last financial year.
Corporate & Professional Pensions
Personal pension provider Corporate & Professional Pensions Limited has appointed administrators after it was unable to pay out on Financial Ombudsman Service complaints about high risk investments in its Sipps.
Existing pensions will continue to operate while a buyer is sought for the whole of the business.
Bradford based online high end furniture retailer Shabby has gone into administration with the immediate loss of six positions.
Luxury Home Furniture Limited trading as Shabby ceased trading after suffering a slump in trade and related cash flow problems as a result of the pandemic and supply chain issues.
They supplied high-end sofas, tables, chairs, lighting and ornaments and recorded sales of £2 million in the last financial year.
A spokesperson said the business had expanded during the first lockdown but then became severely impacted by shipping delays, increased operating and import costs, the loss of its biggest UK supplier, adverse customer reaction to necessary price increases, creditor pressure and ultimately, falling sales.
“The directors tried to keep the business afloat but unfortunately this combination of factors had a devastating impact on its viability and they were ultimately unable to save it.
“The business has now ceased trading and we have been appointed administrators to find the best outcome for creditors.”
Leicester-based fabric wholesalers and importers VM Fabrics have gone into administration with the loss of 17 positions.
This follows the sad passing of its director in 2021 and the withdrawing of financial support and an invoice factoring facility.
A spokesperson said: “This withdrawal of support, combined with the company’s obligation to repay the significant sum due to the factoring company, adversely affected the company’s cash flow position.
“The administrators will be collecting outstanding debtors, selling any remaining chattel assets and ultimately maximising the return to creditors.”
Ye Olde Fighting Cocks
A St Albans pub claiming to be the oldest pub in England has closed its doors and gone into administration.
A plaque outside Ye Olde Fighting Cocks says an inn has been at the site since 793AD and ends 1,229 years of continual service due to the coronavirus pandemic.
Landlord Christo Tofalli said: “After a sustained period of extremely challenging trading conditions, it is with great sadness that we have to announce that YORF Ltd has gone into administration.
“Along with my team, I have tried everything to keep the pub going. However, the past two years have been unprecedented for the hospitality industry, and have defeated all of us who have been trying our hardest to ensure this multi-award-winning pub could continue trading into the future.
“Before the pandemic hit, the escalating business rates and taxations we were managing meant trading conditions were extremely tough, but we were able to survive and were following an exciting five-year plan and were hopeful for the future.
“However the pandemic was devastating and our already tight profit margins gave us no safety net. This resulted in us being unable to meet our financial obligations as they were due, creating periods of uncertainty and stress for all who worked for, and with, the pub.
“It goes without saying I’m heartbroken: this pub has been so much more than just a business to me, and I feel honoured to have played even a small part in its history.”
Covid restrictions have forced pubs throughout the country to close for long periods and Christmas trading was greatly affected in 2021 by the Government's Plan B measures, which discouraged mass gatherings as the Omnicron variant swept through the UK.
A drive-in cinema business running sites in Colchester, Newark and Milton Keynes has gone into liquidation.
Nightflix made the decision after planning permission for a permanent pop-up cinema on the site of a former supermarket was refused.
That and the ongoing effects of the pandemic led to the decision. A spokesperson said: “It is disappointing that Nightflix has closed down.
“The business suffered severely during the pandemic and subsequent lockdowns and was hampered in particular by the delay of new film releases such as James Bond. However in Colchester the local Whitehill & Bordon Regeneration Company has now taken on the assets of the business and will be relaunching the cinema within the next couple of months.”
Derby-based new and used car retailer Holt Cars has gone into administration with the loss of 17 positions.
The business was an approved franchise trader of Mitsubishi vehicles for 20 years but had experienced poor financial health through the pandemic.
The business closed to the public during the pandemic but remained open for click and collect purchases but the reduction in footfall led to a downturn in trade. This was compounded by the withdrawal of UK Mitsubishi sales which resulted in a significantly lower number of new cars being made available for sale than forecast.
This is indicative of the general state of the UK automotive market with new car sales in 2021 only 1% higher than the previous year and still remaining 28.7% lower than pre-Covid levels.
H Beardsley Logistics
The 90-year-old Nottinghamshire based logistics company H Beardsley has gone into administration with 32 positions being made redundant.
A spokesperson said: “Due to a combination of increased fuel and property costs and staff retention challenges, the directors took the difficult decision to cease trading.
“It’s disappointing to see the closure of such a long-established business in the Nottinghamshire area. This situation demonstrates that, whilst there are new opportunities in the transport and warehousing sector, significant challenges remain due to increasing running costs and staff shortages.”
If you’re a business owner or director of a company that hasn’t quite hit the ground running in 2021 then don’t worry.
You still have time to make the necessary decisions and changes you need to to make 2022 a real year of recovery but you have to take the opportunity while it presents itself.
Our free consultation with an experienced advisor is ready for you to book at a convenient time whenever you want to discuss how to help your business in more detail.
Once they’re able to see the bigger picture then they can let you know what options you have available - often more than you might consider open to you.
But the longer you wait to act, the less room to manoeuvre you’ll have so if you value your autonomy and choice - get in touch today to work on a better tomorrow.
Spending, meat, weight, alcohol - whatever the chosen variable, it was a time to reduce and recover from December’s excesses before enjoying them again in moderation with a return to normal activity.
And so far, with the reduction in Covid-19 cases and pandemic rules and regulations being rolled back, maybe this is the month when people can finally sense that they are getting back to normal.
This mood is reflected in the first set of monthly company insolvency statistics published this week by the Insolvency Service which saw a huge year on year rise as well as a more modest month to month rise.
The total number for January inclusively 1,560 which is more than double the 758 registered in January 2021 (106% higher) and 3% higher than the pre-pandemic total of 1,508 recorded in January 2020.
This is also the ninth consecutive month when the number of corporate insolvencies was both over 1,000 and higher than the corresponding number for the same month in the previous year.
Of the 1,560 English and Welsh insolvencies, the overwhelming majority are Creditor Voluntary Liquidations (CVLs) with 1,358 being recorded last month which is 87% of the total number of insolvencies.
This is an increase of 106% from a year ago and 3% higher than in the same month at the beginning of 2020.
In addition to this amount of CVLs there were a total of 118 compulsory liquidations (up from 48 in December); 71 administrations (down one from 72 last month) and 13 company voluntary arrangements (CVAs) (up from seven last month).
A closer break down of these figures shows:
The Insolvency Service further clarified their analysis with a short to medium term assessment of factors affecting the economy.
They said: “We are starting to see several macro-economic factors causing distress in businesses in the UK - primarily driven by global inflationary trends (which is resulting in increasing cost of living, bringing wage pressure) and also continued supply chain disruptions and raw material and commodity shortages.
“Sectors that are most vulnerable to all of these at the same time - such as construction, manufacturing and technology will be the most impacted. It may not be easy for SMEs to be able to pass cost increases onto the consumer, leading to short-term liquidity pressures and longer term distress.
“Businesses that thrived under the pandemic are now at risk - for example online low-cost retail businesses are now being put under considerable pressure as they struggle to pass price increases onto customers for fear of high volume demand falling away.
“We see clients in cyclical sectors such as agriculture suffering from liquidity pressures due to wage inflation, skills shortages, increases in cost of raw materials (due to supply disruptions and lower exports from producers) and, to some extent, the cost of transitioning to sustainable farming - which is impacting near-term cash availability.
“While this may not lead to insolvencies, businesses should evaluate various forms of accessible finance to manage these short-term risks. While optimising working capital cycles is a great way to release cash, other solutions could include borrowing against assets, raising project finance or seeking long-term debt (in scenarios where balance sheets have healthy asset positions).
Interest rate increases have not yet influenced insolvency levels, but considering the level of debt currently held, we expect this to cause additional pressures in the future, particularly in low margin and smaller businesses.
51 company insolvencies were recorded in Scotland in December which is 42 less than the previous month although the total is still 122% higher than a year ago although down 30% than in January 2020.
This was made up of 14 compulsory liquidations (down from 17 in December); 34 CVLs (down from 73) and three administrations (the same total as last month). For the fourth consecutive month there were no CVAs or receivership appointments recorded.
In January there were 18 company insolvencies in Northern Ireland, double the amount recorded in December 2021.
There were only three recorded a year ago so this is a rise of 500% but is still down on the 26 recorded in January 2020.
The total number of cases was made up of 12 CVLs, 3 CVAs, 2 compulsory liquidations and one receivership appointment.
The total number of UK company insolvencies for January 2021 is 1,629 - an increase of 41 from December 2020.
“A significant number of directors will be increasingly doubtful that their business can survive much longer”
Christina Fitzgerald, Deputy Vice President of R3, the insolvency and restructuring trade body, said: “The increase in corporate insolvencies is being driven by a rise in compulsory liquidations, which were 131.4% higher than this time last year.
“This suggests that creditors are now starting to take action over unpaid debt, having been legally prevented from doing so since the start of the pandemic.
“Numbers of Creditors’ Voluntary Liquidations have remained similar compared to this time last month, which suggests that many company directors are continuing to choose to close their businesses rather than attempting to carry on trading in the current climate.
“The figures published today highlight the toll the current business climate is taking on firms in England and Wales.
“Over the last two months, businesses have had to trade through a perfect storm of issues which will have affected them and their income. They’ve battled a myriad of factors including new Covid-19 measures, a slowdown in consumer spending and rising inflation with steep increases in energy prices a particular pinch-point. All of these will have taken a toll.
“After nearly two years of trading through a pandemic, these factors may increasingly become too difficult for many directors to deal with. Against a backdrop of continued pandemic-related uncertainty, there is likely to be a significant number of directors who will be increasingly doubtful that their business can survive much longer.”
Chris Horner, insolvency director with BusinessRescueExpert, agrees.
He said: “We might be able to look back on this period as divided into furlough and post-furlough as shorthand for all the support measures that were in place.
“Affected businesses had a portion of their wage bills covered. There were grants and business rates holidays and additional breathing space from creditors with the suspension of winding up petitions.
“Now we’re about to see the last of these measures being repealed so it’s unsurprising that many of them are going to find the going extremely tough in the next few months.
“The trend of business insolvencies is clearly rising as creditors are taking a tougher stance now they are able to.
“Business owners and directors are looking at a year of recovery that will be compounded by rising inflation, higher interest rates and taxes and potentially huge energy bills - with no price cap protection that domestic customers will have.
“Closing a business down is still a perfectly normal and natural part of the business cycle and the acceleration of structural changes such as the increase in online shopping and demand for home working means that we’ll undoubtedly see more in the next few months which makes it even more important to approach properly and professionally.”
That proper and professional advice is always available for any director or business owner who needs it - whenever they want to.
We offer a free consultation to anybody who needs advice on what they can do to help their business survive and hopefully thrive once they overcome their most pressing issues.
After virtually meeting or speaking with one of our experienced and expert advisors, they’ll know what options and strategies are available and how they can begin to act.
So it’s only reasonable that they earn a little more for this bargain.
But what is the best way to be paid as a company director?
They can take 100% of their earnings as a regular wage but also have other options that aren’t available to other employees such as being paid in dividends and/or pension contributions instead.
Each company and individual director’s situation will be different and their intentions will also differ. Some might want a reliable monthly salary being paid into their personal account but others might want to affect their company’s profits or tax bill, or their own personal tax situation.
Taking a regular salary from your business like the majority of your employees brings several benefits for a director.
Receiving salary remuneration means that the director and the company have to pay National Insurance Contributions (NICs) and will have to pay income tax at a higher rate than a dividend might incur.
Income tax doesn’t have to be paid on earnings until it passes the personal allowance limit (currently £12,570) but National Insurance Contributions have to be paid if the income passes the NIC Primary Threshold (currently £9,564).
In order to build up qualifying years for the state pension, salary must be at or over the NIC Lower Earnings Limit (currently £6,240).
Some directors choose to set their salary level between the Lower Earnings Limit and the Primary Threshold, so are able to keep their state pension but avoid paying NICs as a result.
When it comes to potential redundancy payments for directors, only PAYE salary is counted. If a company is facing a formal insolvency procedure then not only are directors not entitled to dividend payments but payments from the Redundancy Payment Service be more likely.
A dividend is most simply a share of the company’s profits and a legal alternative method of payment.
The amount a director or other shareholder can receive is based on the proportion of shares they hold. There’s no requirement to pay all or any profits as dividends - a company can retain its profits over any number of years and distribute them according to a schedule the board decides.
The main benefits of taking payment through dividends are:
There is a tax-free dividend allowance of £2,000 which can be used in addition to the personal allowance so you can earn up to £14,570 before paying any income tax at all.
While there can be some significant savings made on dividend income there are some other considerations to bear in mind. These include:
Additionally dividend tax is set to rise soon.
From April 2022, the basic rate of dividend tax will rise to 8.75% from 7.5%. Higher rate dividend taxpayers will be charged 33.75% instead of 32.5% and additional rate dividend taxpayers will pay 39.35% instead of 38.1%.
The rises in dividend tax don’t get as many headlines as other tax rises coming in because they will affect fewer people but those paying themselves in dividends or running their own businesses will certainly notice.
While salaries can be paid even when a company is making a loss, dividends can only be paid from profits.
If there are insufficient profits in a company to cover the amount paid out then they are deemed to be illegal (also known as ultra vires dividends which means “beyond the powers”).
This can expose directors to personal liability risks so if the company is undergoing financial stress then the only money that can legally be paid would be a small salary.
Because a dividend payment that cannot be covered by company profit becomes a director’s loan then there’s a risk that it could be classed as overdrawn at the end of the year.
HMRC insists that any money taken out of the company as such a loan has to be repaid within nine months of the end of the corporation tax accounting period for the year.
Failure to do this will see HMRC classify the overdrawn director’s loan account as income which means it becomes liable for both income tax and National Insurance payments.
Failure to do this could result in personal consequences including accusations of wrongful trading and the possibility of personal liability for this debt, fines and disqualification from acting as a director again for up to 15 years.
Another way to receive the benefits of tax efficient remuneration comes in the form of pension contributions paid directly from the company. This is distinct from contributing to your pension directly as it counts as an employer pension contribution.
Some of the other advantages of taking employer pension contributions in this way includes:
The final point is a critical one to understand. Individuals aren’t allowed to pay more into a pension in one year than they receive in salary. So if a director is receiving a small salary as well as dividends then they couldn’t pay very much into their pension.
Employer pension contributions aren’t limited in this way.
They are only limited by the annual allowance limit (currently £40,000) so any company can contribute up to this pension amount even if they are drawing a small salary in comparison.
The biggest downside of taking remuneration in pension contributions is that they can’t be accessed until the recipient turns 55.
So they can’t be used instead of a salary or dividends but as an addition to them.
Bounce back loans
Another new factor that has appeared in the past 18 months is the introduction of bounce back loans as part of the pandemic support measures rolled out by the government.
If a business has taken out a bounce back loan and used it to pay salaries, dividends or directors loans then this could affect what happens in a liquidation process.
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill finally gained legal ascent at the end of last year and the Insolvency Service has wasted little time in using the additional powers it granted them.
One of the main ones is allowing them to further investigate the actions of directors of dissolved companies to establish what happened leading up to the striking off and whether the business had an outstanding bounce back loan or any other debt.
They are no longer time limited so can go back several years to find if any directors had breached any of their statutory duties.
Chris Horner, insolvency director with BusinessRescueExpert, said: “The bounce back loan deliberately had a wide-ranging remit regarding its use but this is not totally unlimited.
“It’s use was to provide an economic benefit to the business during the pandemic.
“This can include purchasing new equipment or machinery, investing in other tangible assets, paying down existing debt or using it to pay for staff costs and wages including salaries.
“As long as directors can demonstrate that the loan was used on reasonable and legitimate company expenses or business purposes including a salary then they will have little reason to worry about any potential investigations.
“If it was used to pay dividends then the situation could become more complicated depending on the circumstances and we would definitely recommend seeking professional advice to fully explore the case and dispel any threat of personal liability to the directors.”
Being a director might be the most rewarding position in a business but it comes with a price.
The level of responsibility, decision making and longer term planning and thinking required is essential to the position as well as statutory duties and standards that also have to be adhered to.
And for many, there is also a full time day job within the business to manage as well!
Payment or remuneration is one of the advantages that make up for the additional burdens of management and leadership.
Like most decisions it shouldn’t be taken lightly or without professional advice from an accountant.
But for businesses that have been decimated by the pandemic and associated economic fallout and are facing real difficulties, dividend payments and bounce back loan debt could be seen as an additional obstacle either to the company’s future or its efficient closure.
We offer a free consultation to any director or business owner that wants to discuss their situation in more detail and wants guidance on how to deal with current problems or seek guidance about how their decisions during the lockdowns have impacted on their ability to restructure or shut down their business properly.
We’ll arrange a convenient time for a virtual meeting and then they can use the new information and knowledge to act, fully informed on what they can do for their and their company’s best future interests.
So it might not be a great surprise that Liberty Steel is facing a winding up petition brought against them by HMRC for unpaid taxes.
Their speciality steels division employs 3,000 workers across five plants in England at Rotherham, Stocksbridge, Scunthorpe, West Bromwich and Hartlepool.
Liberty Steel is one of four companies owned by GFG Alliance that has had a winding up petition issued against it. The others are Liberty Pipes, Liberty Performance Steels and Liberty Merchant Bar for a collective total of £26.3 million.
The Serious Fraud Office is also investigating instances of suspected fraud, fraudulent trading and money laundering related to GFG Alliance, who have denied any wrongdoing and have promised to cooperate with the investigation.
A spokesperson for Liberty Steel said: “Our priority has been to protect thousands of jobs in the UK. We’re committed to repaying all our creditors and continue to work with all stakeholders around the UK to create a sustainable future for our businesses following the collapse of Greensill Capital (their largest lender) last year.
“Against a very challenging backdrop in the UK with record high energy prices and imports, we have provided tens of millions in funding to keep our people in employment and maintain operations to serve customers and strategic supply chains while we complete our refinancing.
“We’re in continuous dialogue with all our creditors including HMRC to find an amicable solution that’s in the best interest of all stakeholders.
“Short term actions that risk destabilising these efforts are not in anyone’s interest, and undermine creditor recovery at a critical stage in our debt restructuring efforts that seek to secure the future of our business.”
An HMRC spokesperson said: “We take a supportive approach to dealing with customers who have tax debts, working with them to find the best possible solution based on their financial circumstances.”
A spokesperson for BEISS (the Department of Business, Energy & Industrial Strategy) said: “The government is closely monitoring developments around Liberty Steel and continues to engage closely with the company.
“As always, we stand ready to support their dedicated employees and their families affected by any developments.
“We have provided extensive support to the steel sector as a whole to help with the costs of electricity and are working with them to support their low carbon transition.”
HMRC have confirmed that total debt owed to them fell from £44.1 billion in Q2 of 2021-22 to £39.5 billion in Q3 but the debt available for pursuit (which isn’t subject to a Time To Pay agreement or otherwise deferred due to Covid-19) is at its highest level since before the pandemic.
Chris Horner, insolvency director with BusinessRescueExpert said: “All restrictions on winding up petitions are due to be lifted at the end of March but the high profile news about Liberty Steel and other related companies receiving them will still be a surprise for some.
“Any business that owes over £10,000 or over to a single or group of creditors is eligible to have a petition filed against them right now.
“There is a safeguard process built in however that forces creditors to seek repayment proposals from debtors in the first instance. They then have a further 21 days to respond before any winding up process can proceed.
“They can use this time to work on a repayment strategy or they can explore other options including administration or an insolvency moratorium that will give them even more time to work on a viable and realistic solution to HMRC and any other outstanding debts they owe.
“If you’re contacted by HMRC demanding repayment of outstanding debt then you should get in touch as soon as you can so - which remains the best advice on dealing with any creditor making legal demands.”
It’s still early in 2022 but there are several signs that society might be returning back to pre pandemic behaviour and norms.
Many businesses, especially in the hospitality and retail sectors, will be hoping against hope that the current downward trajectory of Covid-19 continues and customers get more comfortable with physically visiting premises and generally going out more than they have for the previous two years.
What will also follow is the final lifting of all economic pandemic support including the stay on winding up petitions of under £10,000 and the suspension of eviction proceedings against commercial tenants among others.
Which means that if you’re a business owner or director then you might have to deal with creditors and their demands a lot sooner than you might have anticipated or wanted.
The good news is that you can start preparing for this straight away by arranging your free consultation with one of our expert advisors.
They will work through your concerns and be able to let you know what options you have to deal with outstanding debts or any other problems you’re facing in a clear and focused way so you’ll understand precisely what you can do about them.
Then you’ll be able to spend the rest of 2022 doing what you do best and maybe, just maybe, enjoying it again.
Its main focus is the incident when the Ever Given cargo transporter crashed and blocked the Suez Canal - the world’s busiest shipping corridor - for a week leading to huge disruption in global supply chains.
It explores how shipping companies invest millions in sonar, weather radar and other systems to help predict obstacles on their course and other events that will hinder them - as well as continuing to use human lookouts.
Despite these tools, they can still be literally blown off course by unforeseen events and obstructions so they have to adapt quickly and come up with a new way forward or else find themselves stuck in one place at best or possibly in danger of sinking at worst.
The news of forthcoming energy price rises in the UK from April is the equivalent of a severe storm warning.
Businesses have little time to come up with a plan on how they will weather an increase of 50% or possibly even higher.
Millions of customers will see their domestic energy bills rise as the energy price cap was confirmed to be rising by nearly £700 taking the average default tariff bill close to £2,000.
The cap is also expected to rise again in October although sector regulator Ofgem have announced a policy consultation this week canvassing views and opinions on moving the sector to a quarterly cap level review rather than biannually.
They argue that this will see customers seeing smaller rises occurring in increments throughout the year rather than a huge increase twice a year.
Mark Bennett of energyhelpline.com said: “Last year’s wholesale energy price crisis, which saw costs increase nearly ten-fold by December, really caught the energy industry unawares resulting in 29 suppliers either entering administration or going into liquidation.
“Ofgem has reacted by making a series of changes to the price cap methodology, which means that from April and in times of significant upheaval, the price cap can be amended outside of the normal price cap cycle. In theory this would work both when wholesale prices are rapidly increasing, as well as when they are tumbling.”
The government is scrambling to find measures to offset the incoming price shock and is proposing a £200 loan to be repaid over five years and a one-off £150 reduction in council tax for bands A-D.
None of which will be applicable to businesses but will instead fall entirely on their workforces and customers instead.
The implications for consumer facing business sectors such as retail or hospitality are clear. A huge and sudden increase will probably see an immediate reduction in discretionary spending.
Businesses in recovering sectors suddenly facing huge cost increases themselves along with customers having less disposable income is a problem.
Additionally, companies will immediately face wage pressure from staff struggling to keep the lights and heat on at home at the same time as they will be juggling other incoming cost increases such as higher business rates, the end of VAT discounts in some sectors as well as increased transport costs and economy-wide labour shortages.
This is in addition to a rise in National Insurance Contributions of 1.25 percentage points while many local authorities are planning to increase their business rates to cover other shortfalls in essential services including social care.
Chris Horner, Insolvency Director with BusinessRescueExpert said: “Many companies have the conditions of a perfect financial storm heading right for them this April.
“Businesses on fixed energy deals will see them coming to an end and the marketplace for new deals will be minimal, if one exists at all.
“26 energy suppliers have failed and gone out of business in the previous six months alone and there’s no guarantee that more won’t follow this year.
“Some business owners or directors will be paying close attention and will already be looking at savings that could be made through reducing planned investment or putting off recruitment decisions.
“No matter what they decide, one smart use of time right now is to get some professional advice on what can be done to strengthen their businesses before the wave of energy price increases and any other unforeseen obstacles hole them beneath the waterline.”
A good captain can avoid most foreseen problems facing their vessel and a lot of unknown ones too by taking a prudent approach.
They will make repairs and course adjustments when they need to and won’t go full steam ahead into unchartered waters either.
The best leaders will also seek advice and counsel when they aren’t entirely sure which way to go - which is where we come in.
We offer a free consultation to any business owner or director who wants to explore their horizons and get some clearer ideas about what lies between where they are and where they want to go.
They’ll also be able to accurately appraise any threats to their firm and learn about what they can do to mitigate and overcome them in the closing window of action available to them.
The final lesson we can take from the story of the Ever Given is that even if every right decision is taken - things can still go wrong but the effects might be even worse in that scenario.
Which is why we’re always available to help - before, during or after running aground.
Lots of times.
Especially if your business is profitable but you have a new idea and opportunity you want to pursue but can’t because you keep finding yourself back where you are right now - mentally if not physically.
So what can you do to change your destiny and actually enjoy the results of your hard work and sacrifices?
Fortunately there are less drastic ways than stealing a groundhog and driving into a quarry.
One of the most effective and efficient ways is to consider a Members’ Voluntary Liquidation or MVL.
Usually, when a limited company closes and all outstanding debts have been paid off or satisfied then the directors can draw any remaining profit as a dividend and pay the income tax due on this amount.
Using an MVL as the method to liquidate the company instead, which is carried out by a licenced insolvency practitioner, means that any reserves can be distributed as capital so they are subject to capital gains tax at a lower rate. This could represent a substantial saving.
Additionally and depending on the unique circumstances of the business and its assets, the MVL could use Business Asset Disposal Relief (BADR) - which replaced the more well known Entrepreneurs’ Relief - and could reduce the rate of capital gains tax on qualifying assets even further.
There could also be other benefits available for shareholders in closing the business this way such as tax-free allowances like the Annual Exempt Amount but tax advisors would be able to give clearer guidance on these issues.
An MVL isn’t suitable or accessible for every business.
There are certain qualifying criteria that have to be met including:
Contractors have additional requirements to fulfill including being a shareholder and an employee of the company on giving an undertaking that they aren’t intending to trade via a limited company for at least two years following the MVL process.
For any shareholder wanting to travel, retire, change career, become an employee elsewhere or launch a new startup business, an MVL is the ideal vehicle to transition from one role to the next.
While an MVL can be advantageous and bring several benefits there are several factors to consider.
It might not be right for your personal circumstances depending on what your next career move is.
You might have more than £25,000 in assets but it might not be entirely cost effective to pursue, especially when you factor in the liquidator’s fee and any other necessary expenses required.
The best thing to do if you’re considering closing your business through an MVL or any other way is to get in touch for some impartial professional advice.
There might be other options available to refresh and restructure a business or dispose of it in other ways - especially if you’re at an early stage of the process and considering your next move.
Whatever you end up deciding - you can change your future for the better.
No matter what some groundhog thinks.
When asked to explain his Theory of Relativity by his secretary he explained it like this: “When you sit with a nice girl for an hour, it seems like a minute. But when you sit on a hot stove for a minute, it feels longer than any hour. That’s relativity.”
So while *January 2022 had the same number of seconds, minutes, hours, days and weeks as every other January there’s ever been - a combination of factors have made it feel longer than ever.
A similar thing happens with all the January business and insolvency stories that we collect and summarise for our readers.
Because we pay so much attention to them and other developments, we assume that everybody else does too - but this isn’t the case.
Which is a better explanation of why we do it.
Because our readers have their own companies to run and jobs to do, they do want to know who’s gone into administration; which businesses have entered liquidation and who’s been able to successfully restructure their debts with a CVA.
But they know they can catch up on our monthly summary right here knowing that if they’ve missed it, they’ve always got a second chance to catch up right here!
You Are Home
You Are Home - the luxury serviced apartments which provided the accomodation for contestants in Channel 4’s “The Circle” along with production crews for other shows including Coronation Street has gone into liquidation with the loss of 25 jobs.
The company founded in 2019 owned four sites in Manchester, Liverpool and MediaCity in Salford.
MD David Cahill said: “I’m sad to say that unfortunately YAH shut its doors and went into liquidation. Thank you to everyone who was part of the journey. Whilst it didn’t work in the end, we had a brilliant run in some of the most challenging times in the travel industry!”
He added that the firm, which also provided accommodation for business travellers, said the market didn’t return in 2021 as much as was needed for the company to continue and while it was slowly but surely improving towards the end of the year, it had not returned enough by December.
My Pasta Bar
The pasta restaurant chain owned by celebrity chef Gino D’Acampo has gone into liquidation with liabilities of over £5 million owed to creditors.
Opened in 2013 with a theme of self service based on Italian street food, the firm had three London locations when it closed along with all positions made redundant. None of Mr D’Acampo’s other restaurants or businesses are affected by the closures.
Corbin & King Restaurants
The owner of several high-end London restaurants including the Wolseley and the Delaunay has fallen into administration after trade was devastated by the pandemic.
Corbin & King was accused by its largest shareholder of failing to meet its financial obligations which holds a 74% stake in the company and says that the business was no longer solvent and in default on its obligations.
Minor International are also the groups largest lender and provided Corbin & King with £38 million in loans and loan guarantees which it says have been in default since May 2020
A spokesperson for Minor International said the company had rejected offers to put the company on a stronger financial standing and they had “no choice” but to put the business into administration.
They confirmed they had been unable to agree on a commercial strategy and reiterated that they saw administration as a way of safeguarding the long term viability of the business and said it was committed to supporting the group’s staff and preserving the firm’s brands.
Gieves and Hawkes
The Chinese parent company that owned the iconic 250 year old men’s tailor Gieves & Hawkes has been put into liquidation following an attempt to sell to new owners.
Other brands owned by owners Shandong Ruyi include Kent & Curwen which had an advertising deal with David Beckham and brands such as Aquascutum and Cerutti. They have called in liquidators after failing to find buyers either in China or the UK.
One of the advertising agencies in Wales have gone into administration after being unable to “find a path to viability” since the pandemic.
S3 Advertising were based in the capital city of Cardiff and had big name clients include S4C, Deliveroo, Iceland Food Warehouse and Public Health Wales. They employed 30 people at the time of the administration.
A spokesperson said: “It is with a heavy heart that we must announce that Studio Tri Ltd, trading as S3 Advertising, has formally entered administration.
“Despite a crazy talented team, supportive client base and ever-growing standards of work, the business has unfortunately not been able to find a path to viability since the pandemic.
“Thank you so much to all the clients and suppliers who we’ve worked with over the years - we are truly sorry to have let everyone down. Above all, we want to say the most almighty thank you to each member of team S3.”
The business had been operating for over a decade before a management buyout in 2019.
Viola Money, an electronic digital payments firm based in Chesterfield has entered special administration following a court order under the Payment and Electronic Money Institution Insolvency Regulations 2021 brought by the FCA.
This is the first administration brought under the new legislation which includes provisions to facilitate the return of customer monies by the administrators whose priority will be to gather the assets of the company and those it safeguarded on behalf of its customers before distributing funds to creditors as quickly as possible.
The owners of Midas Construction suffered their first loss in over 40 years this month before going into administration it was revealed.
One of the largest private employers in the South West, the Exeter based construction company employed nearly 500 staff who will be surprised by the speed of the decision.
All the companies in the Midas Group including its housing division Mi-Space are affected.
In 2021, it recorded an official £2 million loss which was its first deficit in 40 years of trading.
Midas was working on several high profile projects throughout the region in Cornwall, Exeter, Bristol and beyond into Newport in South Wales and Southampton.
A statement from the company said: “The company continues to operate while the directors work to explore all available options to achieve the best outcome for the business and our people, our customers, supply chain partners and all our stakeholders.
“Midas is committed to pursuing an outcome that will achieve continuity for our live contracts and asks all our valued stakeholders to remain supportive of the group at this time.”
Hull-based PDR construction has ceased all trading operations and gone into administration leaving 14 ongoing projects unfinished and the loss of 115 positions.
A spokesperson said: “The company has experienced challenging market conditions including the timely delivery of a number of recent projects, resource issues within the sector principally as a result of the Covid-19 pandemic, and contractual disputes with private clients including a recent significant lost adjudication.
“New work opportunities have been delayed as a result of the uncertainty in the economic and political environment causing a significant fall in turnover. The company had fallen behind with payments to its creditors and subcontractor supply chain, culminating in a winding up petition being served on the company on January 4th.
Iain Potter Construction and Chas Smith Group
South Lanarkshire based Iain Potter construction has gone into liquidation with the loss of 33 positions.
Previously working on a range of sectors including health, education and housing as well as private commercial and industrial clients, the business found itself “in a severely constrained cash flow position” which amid rising labour and raw material costs also saw “increasing overheads and certain contractual difficulties.”
A spokesperson for the administrators said: “The collapse of IPC is another worrying sign of the challenges presently facing the Scottish construction sector and, particularly, subcontractors. IPC was a well-known contractor and its insolvency will, unfortunately, not be the last we will see in the early months of 2022.”
Similarly the Chas Smith Group, a 99-year-old shopfitting business specialising in the auto trade has filed for administration with the loss of nine permanent positions in Glasgow and North London.
A spokesperson said: “The business has unfortunately been severely affected by the pandemic, with a number of projects cancelled or suspended, coupled with increased labour and raw material costs.
“These challenges have resulted in significant cash flow difficulties - despite every effort by its directors to keep the business trading, the severe financial problems meant the company was not viable.
“We will be working closely with the Redundancy Payments Service and other agencies to minimise the impact on the staff and are exploring a sale of the business and assets either in whole or in part as quickly as possible.”
Together Energy which also owns Bristol Energy has become the 27th energy supplier to close in the past six months.
The business was part-owned by Warrington borough council and Ofgem confirmed that it would appoint a new supplier for the 176,000 customers affected by the move.
The council could be liable for £52 million in equity, loans and guarantees to the company which it invested into in 2019 with the aim of earning a return on budget holes caused by central government cuts to local authority budgets.
A spokesperson for the council said it was “disappointed” that Together Energy was ceasing to trade due to the current energy crisis.
An organisation that described itself as “Europe’s leading impact investment bank” has closed its doors and gone into administration.
ClearlySo raised capital and advisory services for enterprises and funds and facilitated deals between investors and enterprises looking for investment.
The company ultimately raised more than £450 million for clients since being formed in 2012 although they managed no active assets themselves.
ClearlySo’s former CEO who left in March 2021 Rod Schwarz said the team could feel quite proud of its achievements in the past 13 years but added “to everything there is a season.”
Bolton based M&A Pharmachem that manufactures and sells paracetamol and opiate medicines has gone into administration with the loss of 80 positions.
Directors had continued to look for investment so it might be able to continue to operate as a going concern but given the financial challenges and difficult environment, the effort ceased and administrators will now look to sell the business’ assets including stock, property and intellectual property.
A spokesperson said: “M&A was a significant employer in the local area but without urgent investment the business was unable to continue and had to close. We are working with all staff to support them and help impacted staff in their claims.”
Precision engineering firm First Component based in Brierley Hill has gone into administration and is seeking a buyer.
Founded over 18 years ago in the West Midlands, the company provided a range of sectors including medical and aerospace.
All 56 employees have been made redundant and trading has been suspended as a result of the current financial position.
While a buyer is being sought, administrators would look to maximise returns from the business; assets if one couldn’t be found.
Big Home Shop and Physioroom
Two online retailers based in Padiham have been put into administration with 12 positions being made redundant as a result.
Big Home Shop sold garden furniture and outdoor equipment while Physioroom sold home exercise, recovery and injury prevention equipment.
A spokesperson said that Big Home Shop had recently experienced financial challenges caused by stock issues related to international shipping delays. This had resulted in a large funding requirement the company was unable to meet.
Physioroom was reliant on Big Home Shop for a number of services so that company was also unable to fund ongoing trade as a result.
While time might have seemed to have slowed to a crawl in the past four weeks, it will start to speed up.
Before we know it, it will be Spring and a quarter of the year will have gone - valuable time that any business owner concerned about their company could use to their advantage if they act sooner rather than later.
We offer a free, virtual consultation with an experienced, expert advisor at a convenient time for any owner or director that wants their story to be heard and explain, in detail, what issues they’re facing.
Once they have a better idea of your situation, they can explore possible solutions with you to improve things in the short, medium and longer terms - but only if you take the first step and get in touch while you’ve still got the time to act.
It didn’t quite work out that way did it?
In several ways it can be argued that 2021 was actually worse than 2020 personally and professionally for thousands of people.
But what about UK businesses? How did they fare in the second year of the pandemic?
The Insolvency Service recently published their final corporate insolvency statistics for the year so we can see real data on how the Covid-19 pandemic and subsequent support measures have affected businesses in the UK.
There were 14,048 company insolvency cases recorded in the UK and Northern Ireland in 2021 which was an 11% year-on-year increase but still 22% lower than in 2019, the last non-Covid-19 affected year.
The overall total of 14,048 can be broken down as follows:
There were only 475 compulsory liquidations last year which is not only a reduction of 284% on the 1,351 recorded in 2020 but is also the lowest recorded total in the last 15 years.
There were 12,662 CVLs last year which was a rise of 134% on 2020 but the second highest total recorded in the past six years and the third highest since 2006.
There were 795 administrations recorded in 2020 which was a reduction of 191% and the lowest total in 15 years since 2006.
There were only 115 CVAs recorded last year which is not only a huge yearly reduction of 225% but also the lowest number recorded since 1993.
There was one receivership recorded last year which was down from three a year ago but in line with the totals from 2018 and 2019.
In 2020, The Insolvency Service listed five factors which it thought had a material impact on the reduced number of company insolvencies. These were:
In 2021 only the first two measures retained their influence although less than a year previously.
Winding up petitions can be launched under certain conditions although these will disappear in two months and while there have been 15 moratoriums and 10 restructuring plans registered at Companies House since they were introduced, they haven’t been used in more significant numbers yet although this could well change in 2022.
Chris Horner, Insolvency director with BusinessRescueExpert said: “The unprecedented rise in creditors voluntary liquidations (CVLs) last year comes at the expense of compulsory liquidations and company voluntary arrangements (CVAs).
“At first glance, this tells us that more directors and business owners are biting the bullet and looking to close their businesses rather than restructuring their finances and debts or waiting for them to be liquidated by aggressive creditors.
“While there is always space to examine how a business can be rescued, the effect of the past two years on trading shows that directors are more inclined to close otherwise viable companies than reach agreements with creditors.
“It will be fascinating to see if this is a temporary phenomenon based on their experiences during the pandemic or whether it becomes accepted wisdom.”
When it came to the individual sectors of the economy, the top three categories remained the same but were in a different order.
Construction remained the sector with the highest number of individual company insolvencies with 2,302 (up from 2,042 in 2020) with retail becoming the second largest category rising from third with 1,673 (up from 1,532 in 2020) while the hospitality sector incorporating accommodation and food services was down a place to third with 1,499 insolvencies (down from 1,701 in 2020).
The construction industry traditionally tends to have the highest annual and quarterly insolvency levels but the well publicised woes of the retail industry battling reduced footfall and increased online competition have increased the number of insolvencies in their sector.
Hospitality has dropped a place despite another troubled year with additional lockdowns and less support than the previous 12 months.
Other notable sectors include Professional services (1,230), Manufacturing (916), Transport (485) and Real Estate (359).
Colin Haig, President of R3, the insolvency and restructuring industry trade body said: “The increase in annual corporate insolvencies has been driven by a rise in Creditors Voluntary Liquidations (CVLs), which reached levels not seen since 2009.
“The increase last year - and the surge in CVLs in the final quarter of 2021 - suggests that many directors are opting to close their businesses as they lack confidence in their trading prospects in the current climate. And while insolvencies still haven’t reached pre-pandemic levels, this is unlikely to remain the case for long.
“The increase also reflects the torrid 12 months businesses have faced as they attempt to carry on trading in the second year of a pandemic amidst uncertainty, change and challenge. Businesses have had to trade through lockdowns and restrictions, increases in energy prices and supply chain issues.
“And they’ve done so in an economy which only returned to where it was before the pandemic in November - just weeks before the Government’s Omicron measures were introduced.
“Given the current climate, we urge company directors to be aware of the signs of financial distress and seek help if any present themselves.”
We couldn’t agree more.
Warning signs come in many forms.
Problems paying staff, stock levels increasing or piling up, rent and tax debts becoming increasingly more difficult to keep on top of and lower income or trade are all signs that the business could be entering a phase that could be difficult to emerge from without advice, help and support.
The promise of a return to economic business as usual beckons but even if the early part of 2022 looks like it on the surface, rising energy bills, taxes, business rates and other expenses mean that customers and businesses might be squeezed tighter than ever before.
So acting now, working with us to identify which areas of your business need attention urgently and putting in place an effective and efficient plan to do it could mean that 2022 really is the year when your luck changes.
It’s the beginning of Spring and the lighter days and nights and clocks moving forward an hour genuinely give off the feel of a new year really beginning.
This March is going to be especially interesting from an insolvency point of view thanks to some changes that are going to have potentially big ramifications for hundreds if not thousands of businesses.
Firstly, the current restrictions on winding up petitions will be finally removed at the end of March.
They’re currently suspended for collective debts worth less than £10,000 and even if they meet this threshold, debtors still have to be formally written to so that they have a 21 day window to respond.
They can then either pay off the debt in full or make other realistic and appropriate payment arrangements to the creditor.
Many professionals and analysts awaiting the outcome of the change generally think that this will see a rise in the number of compulsory liquidations as a direct result but there could also be a rise in the use of a relatively new process called the insolvency moratorium too.
First introduced in the summer of 2020, there have so far only been 15 official uses recorded so far but the ability to allow a business to “pause” creditor action and give them a breathing space of up to eight weeks while they either raise additional finance, prepare a company voluntary arrangement (CVA) proposal or restructuring plan to be put to creditors is definitely a useful option.
Another change that could see an increase in the use of moratoriums and even a possible decline in the use of CVAs is the reintroduction of Crown Preference in insolvency cases.
A CVA allows directors to combine their total debts to creditors into one manageable debt total that is paid off monthly, usually over a term of five years.
Creditors can decline this plan and risk receiving a far lower amount, if anything, if the company goes into liquidation or they can accept this increased certainty of income and in return will often agree to write off a proportion of the total debt. Once the CVA is completed, all debt claims are settled.
It’s a useful tool to build consensus among creditors and also allow otherwise viable businesses that have incurred unsustainable debt during the pandemic era to have a clear way back to rebuilding a profitable business.
However, some analysts see the attractiveness of CVAs being diminished through the return of crown preference.
In a liquidation process, the insolvency practitioner in charge has to understand the preference order of creditors - which ones will be paid first.
These are usually classified as secured, preferential and unsecured creditors.
Secured creditors are those that hold security over a loan or asset belonging to the business such as mortgage or secured loan.
The next level of creditors to be paid are preferential which now includes HMRC but also includes company employees.
Remaining creditors are classed as unsecured and are the last to be paid out of the remaining funds after secured and preferential creditors are repaid.
In the 2018 budget, the Chancellor confirmed that certain outstanding tax debts would move from unsecured to preferential status meaning HMRC would be paid out earlier and in larger proportion than other creditors debts.
Official estimates from HM Treasury assume that up to £185 million a year could be recouped through this change - which to use one example is quite small compared to the expected loss of £4.3 billion through unrecovered bounce back loan fraud.
This small change could end up making CVAs far less appealing than previously.
Under the new creditor preference regime, If a small business proposes a CVA then they would need to include payment in full of all employer National Insurance Contributions (NICs) and potentially accumulated VAT before any unsecured creditors receive a penny.
Because a CVA still requires a 75% majority of creditors voting in favour in order for it to be accepted and because HMRC has to be paid in full first, this makes it more unlikely that unsecured creditors will vote to approve a proposal in which their payout is diminished and could be virtually nothing.
It’s one thing to ask them to support a business undergoing financial difficulty while it recovers but another to ask them to consider a higher chance of bad debt with a diminished return, if any.
Only 115 CVAs were recorded in 2021 which is only 0.8% of total corporate insolvencies for the year. In 2020 there were 278 CVAs and 355 in 2019 which was approximately 2% of the overall total which indicates the scale of the annual reduction.
Another event scheduled for March which could have an impact on CVA’s is when the Court of Appeal hears a challenge against a CVA instigated by New Look.
In May last year, the High Court heard a case brought by New Look’s landlords against the business, challenging the CVA both in its legality and overall fairness of their use by insolvent retailers to restructure lease liabilities.
The court rejected the complaint which solidified the continuing use of CVAs to reduce the levels of rent a company is obliged to pay over a particular period.
One aspect of the New Look CVA which was the use of a court approved restructuring plan which overrides the views of some creditors in order to bind all to an agreement - also snappily known as a “Cross Class Cram Down”.
The initial New Look decision upheld the use of CVAs in this way while the appeal finding will clarify matters further.
While we await the verdict, The Insolvency Service announced that it will carry out academic research into the treatment of property owners in CVAs compared to other creditors.
While the outcome of this research will be at least a year away, it could indicate a change of view on how CVAs should be used in future.
Any restriction on the use or overall favorability of CVAs could see a rise in the use of these restructuring plans but what the combined effect of both this factor and the return of crown preference could be remains to be seen.
Looking at the annual corporate insolvency statistics for 2021, there are some possible clues.
CVAs and administrations are both down on their 2020 totals but creditors voluntary liquidations (CVLs) have jumped 134% year-on-year to 12,668 which is not just the second highest total recorded since 2015 but also the third highest seen since 2006.
This indicates that more business owners and directors are choosing to close their businesses down and liquidate them, even if there is a chance that they could be restructured or rescued.
Most people hope that March will finally bring a return to some recognised normality and this might actually be the case.
But the changes and events we’ve highlighted here show that nothing can be taken for granted and that sudden changes in circumstances can often necessitate a change in strategy to achieve the best results.
What was the best option for a business in financial difficulties in 2020 and 2021 might not be best in 2022 - before or after March.
One choice that will always remain as the most important is to get some advice before making any decisions about your company.
Our free initial consultation for any director or business owner remains a crucial first stage in understanding the issues facing the firm and being able to create a roadmap ideal for them, based entirely on their situation and circumstances.
A CVA might be the ideal solution for one company but not for another - the options and choices available will always vary but taking the first step and talking to us is always a wise course of action.