None of which are going to make the business of just doing business any easier.
With less than 12 weeks to go until 2022 is upon us, this might be the most critical trading period ever for some companies.
It might very well be make or break for some businesses. If they don’t have a bumper Autumn and Christmas trading period then the new year might start with them looking at closing their business down for good and dealing with their outstanding debts and creditors.
This also includes bounce back loans that might have been taken out to support the business during the height of the pandemic and lockdown but have now come due and in many cases are overdue.
So we’ll answer some of the more frequent questions we’ve been getting from directors looking to restructure or close their businesses but are reluctant to proceed because of their bounce back loan debt.
Will directors be personally liable for repaying bounce back loans in liquidation?
Because the bounce back loan was designed to have inherent flexibility and be potentially used in several different but legitimate ways by businesses, it was not designed for a single purpose or use.
Primarily this was to provide an economic benefit to the business during the pandemic which could include replenishing stock, paying staff wages (separate from staff that have been on furlough), buying new machinery or bolstering its cash flow position either through paying down debt or building their savings.
Forthcoming law changes included in The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, while specifically being aimed at directors that have tried to dodge their legal responsibilities, might confuse and scare those business owners that have been doing their jobs and now think they might be held responsible for outcomes outside of their control.
The new bill will let the Insolvency Service specifically target and pursue those directors who acted either unethically or illegally.
The main measure sees the Insolvency Service given retrospective powers to investigate the directors of closed and struck off companies and how they acted in the days, weeks and months before their dissolution.
Any director or business owner that can demonstrate how the money was spent on legitimate company activity will have little to worry about from the Insolvency Service.
If the money was used to fund personal purchases or was given to family members for example then they could very well find themselves being made personally liable for the outstanding amount if the business can’t repay it’s bounce back loan arrears.
Do I have to liquidate my business if I can’t pay back the loan straight away?
If a business could have a viable future but can’t meet all its obligations at once including bounce back loans this doesn’t automatically mean that the company has to go into liquidation.
If HMRC are one of the creditors then a Time to Pay (TTP) arrangement can be negotiated.
This is a formal payment plan usually spanning 12 months which is at an affordable level for the company to make and keep up.
Of course depending on the size and types of the debts and creditors a more formal insolvency process like an administration or Company Voluntary Arrangement (CVA) might be more appropriate
Is liquidation possible with a bounce back loan?
Yes!
A business with an outstanding bounce back loan that it has no realistic chance of repaying can still be closed down or liquidated but only if it follows a certain procedure.
If the business becomes insolvent then the outstanding balance will be included in the process alongside any other unsecured debt and treated the same way.
A Creditors Voluntary Liquidation or CVL will usually be the method the licensed insolvency practitioner will use to progress closing down the company.
They have several legal tasks to fulfill while they complete their duties including compiling a report on directors actions leading up to the insolvency and identifying which creditors are owed what amount and how much any existing assets can be realised for to go towards paying off these debts.
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Directors will not personally have to repay any of these company debts unless they have entered into personal guarantees to obtain them or if the Insolvency Service subsequently discover cause for further punishment based on their investigations.
The next few months might raise more questions than answers for a lot of business owners and directors struggling to keep their firms on an even keel.
We’d like to think that we can help them find the answers they’re looking for no matter what conundrums they have to cut through.
Our free initial consultation is the starting point for them to work through their specific and unique situations with one of our team of experienced, expert advisors.
We can then work together to come up with a comprehensive package of options and solutions that can begin to be implemented straight away to bring about the necessary changes needed.
Get in touch with us today and we’ll get busy making sure that tomorrow will provide some answers you’ll like.
This is the highest individual monthly total since January 2019 and the third consecutive month that over 1,000 have been recorded.
So why are so many businesses with outstanding bounce back loans and other debts choosing a CVL to reach an arrangement with their creditors and close down?
There are several reasons, protections and advantages a CVL will give a director or business owner of a closing business.
Should you pay to liquidate your company? Yes and here’s why...
A CVL follows proper procedures and has protections
An essential and unavoidable part of the voluntary liquidation process is an investigation into the directors conduct.
The insolvency practitioner overseeing the process has to provide a report to the Insolvency Service summarising the activities of the directors in the weeks and months leading up to the insolvency.
Directors who disregarded their legal duties or acted dishonestly or fraudulently will have to answer for their actions and could face punishment including fines or being disqualified from acting as a director for up to five year.
In a CVL, this is a collaborative process with the practitioner who will ask pertinent questions but will also look for explanations and evidence to support those decisions taken for the benefit of the business at the time.
They won’t look to trip up or catch out - they will help the directors provide any necessary evidence to support their records and statements.
The forthcoming Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will give the Insolvency Service additional and retrospective powers to investigate the conduct of directors of improperly dissolved businesses in the past few years.
If they find any evidence of malfeasance then they will be able to issue the usual range of punishments but could also make those same directors personally liable for any unpaid debts.
This does not apply to directors or owners who close their business through a CVL.
A CVL is cost effective
A creditors voluntary liquidation can range from between £2,500 and £7,000 but should be considered as an investment rather than a cost.
As the process has to be completed by a licensed insolvency practitioner, the fee is unavoidable but you are also paying for the advice, support, knowledge and guidance that comes from using an experienced and dedicated professional with years in the industry.
They will guide you through every step of the process, will always be available to answer any questions you might have and can also highlight the main areas you could want to focus on such as whether you would want to reuse the company name at a later date or the most efficient way to purchase the assets of the business.
If there is any aspect of the process that they can’t dedicate themselves to - such as reclaiming redundancy pay for directors - then they can recommend appropriate partners that could help.
A CVL is efficient
The creditors voluntary liquidation is a streamlined, tried and trusted procedure that can be completed in as little as two working weeks from the initial meeting to business closure.
All of the essential meetings can be conducted remotely including the creditors meetings to reduce travelling time and expense and while the majority of required documentation can be securely uploaded, if anything has to be physically sent, the practitioner will provide a detailed list of requirements in advance to give you time to find the appropriate evidence.
After a free, initial consultation, the practitioner will provide a review of your situation and recommend your available options. If you decide to proceed with a CVL then the practitioner will convene the necessary creditors and shareholders meetings once officially instructed by you to act.
Once these meetings are satisfactorily concluded then the business can be legally placed into liquidation and the practitioner begins realising any assets and completing any outstanding issues.
A CVL is conclusive
A creditors voluntary liquidation will also provide solutions to many outstanding problems and issues hanging over business owners or directors of a company facing hard times.
These include finding solutions for unpaid bounce back loans, outstanding personal guarantees, directors loan accounts, leases, contracts, VAT arrears, overdue tax, rent and owed business rates.
As more signs of normality and pre-pandemic behaviour return for consumers, many businesses are still finding themselves having to deal with the consequences and effects of 18 months of disrupted trading.
And while the efforts have been nothing short of heroic, some will find that the combined circumstances will be just too much to overcome and otherwise viable businesses will have to look at alternative measures to survive in the short term.
But even this might not be enough to give the business a chance of future profitability and closure will be the only real option for them - although this will free them to pursue new ventures and opportunities in 2022 and beyond.
A creditors voluntary liquidation is the most complete solution to close down a company with outstanding debts but it might not be the only way forward.
Once a business owner or director has their free initial consultation with one of experienced advisors, they will better understand the range of options available to them, often more than they initially believed they had.
But they have to act quickly - the longer they wait, the less options they will have and the less favourable the conditions to act under.
After an unexpected decline in the number of company insolvencies in the UK in July, the August total rose to levels not seen since before the pandemic according to the latest official monthly company insolvency statistics released by The Insolvency Service.
For England and Wales alone, the total number of corporate insolvencies for August 2021 was 1,348 - this was up 251 from the 1,097 recorded in July and is 71% higher than the 788 insolvencies recorded in August a year ago.
The total is also broadly similar to the pre-pandemic total of 1,366 from August 2019 and represents the fourth consecutive month both of insolvencies numbering over 1000 and being higher than the same month a year previously.
Of these 1,348 company insolvencies, the vast majority were Creditors Voluntary Liquidations (CVLs) making up 1,256 of the total amount.
Additionally, there were 35 compulsory liquidations; 55 administrations; 2 company voluntary arrangements (CVAs) and zero receivership appointments.
Breaking these down further we see:
There were 89 company insolvencies in Scotland last month, up from 72 in July. This was also nearly double the number from a year ago and was 13% higher than in August 2019.
This comprised 11 compulsory liquidations, 76 creditor voluntary liquidations and two administrations. There were no CVAs or receivership appointments recorded.
From a historical perspective, compulsory liquidations have been the most common type of insolvency recorded in Scotland but since April 2020 there have been more than twice as many CVLs as compulsory liquidations. This has now been the situation for 15 out of the previous 16 months.
In Northern Ireland there were 9 company insolvencies registered which although five less than in July it was more than double the number from a year ago although 59% lower than August 2019.
This was made up of eight CVLs and one compulsory liquidation.
The overall total of UK company insolvencies for August 2021 is 1,446, which is up 266 from last month.
Colin Haig, President of R3, the insolvency and restructuring trade body said: “The insolvency figures published today highlight how much tougher the climate is for businesses and individuals than this time last year, and the toll the pandemic has taken on business and personal finances over the last 12 months.
“The increase in corporate insolvencies was driven by a rise in Creditors’ Voluntary Liquidations (CVLs).
“Numbers for this process were 115% higher than this time last year, and 30% higher than in 2019, which suggests that despite the opening up of the economy, there are a number of company directors who are opting to close their businesses after a year and a half of trading in a pandemic.
“This comes despite the fact that August was one of the better months for businesses since the start of the pandemic. The lifting of the final restrictions and continued impact of the vaccine rollout means that more people are working, shopping and spending and that looks set to continue as we enter the autumn.
“However, with the furlough scheme closing at the end of this month, company directors need to be aware of the signs of business distress and seek advice if any of them appear.
“If a firm is having problems paying rent, staff or suppliers, has issues with cash flow, or its directors are concerned about its future, now is the time to seek advice from a qualified professional, rather than waiting until the problem has become worse.”
The numbers couldn’t be any clearer.
For the fourth month in a row, company insolvencies are higher than they were a year ago and now are nearly back to where they were before the pandemic began.
This is before the furlough scheme finally winds up at the end of September and winding up petitions can begin for businesses that owe creditors over £10,000 - under this amount continues to be suspended until the end of March 2022.
As HMRC begins to increase their clawback of outstanding debts including overdue bounce back loans and VAT arrears, the next few months look increasingly tough for businesses already struggling with their finances.
If there’s a time to look for help and get expert advice on what options are available then it’s now.
Any business owner or director taking advantage of our free initial consultation might be surprised at how much room to maneuver they actually have, but until they get in touch and let us know their situation - they won’t know for sure.
What we know for sure is that the longer businesses leave it, the less opportunity they will have to act when they really need to.
The Twilight Zone was an innovative and groundbreaking TV science fiction and mystery series made in the 1950s and 60s.
It’s been rebooted several times but some of its most famous episodes have been updated and parodied so much that they become part of the general culture.
So much so that the original moral of these stories tends to get washed out and forgotten in the retelling.
One great example of this is the story of “a kind of stopwatch” that was remade as a film called Clockstoppers and as a part of The Simpson’s Treehouse of Horror halloween specials.
Both in the original and in the Simpsons version - a man or Bart and Milhouse acquire a stopwatch with one unusual extra feature - it can be used to stop time itself.
Like previous owners, they misuse the power, it breaks and while they ultimately repair it they remain marooned in time for several years.
The moral is that while it might be nice to stop time, it can’t be done permanently and time eventually moves on and catches up with us.
But what if you could pause time for long enough to give you space to work on ways to improve the financial outlook for your company or that could stop or freeze creditors actions while you arrange advice and assistance so that when they restart, your business would be in a stronger position to engage with them?
An Insolvency Moratorium might be the answer you’ve been looking for.
It allows businesses to have an enclosed legal breathing space away from creditors’ recovery actions like winding up petitions or bailiff visits while a recovery plan is formed.
This will restructure the company's debts and give creditors more chance of ultimately being repaid rather than seeing the company go into liquidation with the increased risk of not receiving repayment.
When first granted, an insolvency moratorium automatically lasts for 20 working days.
This can be subsequently extended for another 20 business days if required with more extensions available for complex cases and only with the consent of creditors themselves.
An insolvency moratorium is different from administration or a creditors voluntary liquidation (CVL) in several ways.
The company directors remain in control of the business and continue to run it on a day to day basis but a monitor is appointed to make sure that all conditions are being adhered to.
Of course the business also has to keep on paying any rent, employment entitlements or any liabilities that come from financial service contracts and the monitor’s fees and expenses - although this is agreed in advance.
What happens when a moratorium ends and time restarts?
Depending on various factors there are several ways an insolvency moratorium can be resolved.
The business raises new funds and investment from shareholders or directors own funds, or it could include a business loan secured with the aim of consolidating existing company debts into manageable payments.
A CVA is arranged with the creditors approval and the business continues trading and making regular monthly payments to creditors in return for being allowed to continue to trade and a proportion of existing debt being wiped.
Preferably after taking professional advice, the directors or business owner reach an informal payment plan with their creditors to begin paying down the debt. Additionally, if tax arrears are owed then a formal Time to Pay arrangement could be reached with HMRC.
Missing repayments for both could have serious consequences so should only be entered into carefully.
Sadly not every business can be saved even with an insolvency moratorium. If the debt and other issues prove to be insurmountable then the moratorium is ended and the business enters administration or liquidation.
“If you knew time as well as I do, you wouldn’t talk about wasting it” - Alice through the looking glass
Rules are changing at the end of September for winding up petitions and several other instruments including the final end of the furlough scheme.
The end of the year is in sight and the remaining weeks and months should be spent trying to regain momentum and build up to the best Christmas trading period for at least two years.
But what if you’re struggling with deciding which repayments to miss or trying to raise enough liquidity to make the minimum costs needed to avoid running up arrears for bounce back loans or other borrowing?
Even before thinking about an insolvency moratorium or other procedure, you should get in touch with us.
We offer a free initial consultation for any director or business owner who needs some impartial, expert advice on what they can do to help get their business back in shape for a hectic end-of-year period.
You could have more options than you think and if you’ve acted quickly, could even start to implement them and see results very soon.
However time will continue to tick by and if you don’t use it wisely then you could still have the same or worse difficulties later but without the time to fix them.
Which not even a magic stopwatch could help you with.
The ones that if solved or removed, would be a launchpad for the success that would likely follow because all the other fundamentals are strong.
It’s a problem video gamers come up against quite often.
They face a seemingly-impossible end of level boss that no matter what strategy they try, they cannot defeat and get past.
Countless hours have been invested and the familiar but rarely sincere “just one more go” has been invoked more than once but the only certainty has been the same negative result.
In the age of Youtube, Twitch, Discord and even gaming performance coaches - there are more ways to find this assistance - amateur and professional - than ever before so they can proceed towards their final goal.
Which brings us back to businesses in the same situation - where’s their solution and video guide to get them past their immediate insurmountable hurdle and help them to literally level up?
The good news is that it’s far easier to find than asking a bigger kid in an arcade to do it for them.
An administrator can be their extra life and give the company the fresh start it’s been reaching for - preserving jobs and giving the business a power up just when it needs it - but it does come with risks.
To clarify, administration is a formal, legal insolvency process that places an external manager - the administrator - temporarily in charge of a business with the aim of turning its fortunes around and saving the company.
This is a serious decision that can have ultimate consequences for a business so should not be entered into lightly or without getting professional advice first to see if it is the most appropriate course of action.
If this is the case then administration is a proven method of helping otherwise viable businesses restructure and regroup before reemerging stronger than before the administrator takes temporary charge.
Another important point to remember is that the administrator represents the interest of the company’s creditors at all times, not the management.
They’re there to make sure creditors can see the best possible return on their expenditure. If that’s through returning the business to profitable trading then they will pursue that option.
If it’s selling the business under a pre-pack arrangement to new management then that will be their chosen course and if the last recourse to secure their money is through liquidating the business and selling the company’s assets off to generate the best return - then they’ll do it.
Once an administrator is officially appointed they will produce a recovery plan which will always be based on repaying as many debts as possible and looking at ways money can be saved in the immediate and short term to reach the goal of saving the company.
They will be aided by an insolvency moratorium applying immediately which halts all creditor actions, giving the administrator time to put their plans together.
Administration is not an open-ended situation that will be allowed to continue permanently.
A creditors meeting must be held within ten weeks of the administration being entered where they will outline their proposals and their recommendations.
Depending on the unique circumstances surrounding the business - its asset portfolio, cash flow and banking situation - they will inform the creditors what the most realistic outcome will be and what the plan is to achieve it.
This may even involve redundancies or other cutbacks in the short term.
Outcomes
An administration can end in several different outcomes depending on the circumstances and future viability:
The moratorium could give the administrator enough time to solve the immediate financial issues through raising extra funds through asset sales, new investment or informal agreements reached with creditors to settle existing debts.
If this happens then it’s mission accomplished - the administrator hands back the business to the directors who will continue to run the company.
Now free of the financial problems that originally burdened the business.
An administration might not be the only insolvency procedure the administrator needs to employ depending on the circumstances.
If the debt is particularly difficult to restructure and is the main obstacle to the business trading profitably in future then they might decide that a company voluntary arrangement (CVA) is the best option to pursue.
Creditors are approached to see if they will accept a regular, monthly payment from the business in return for writing off a proportion of the overall debt.
This will usually be in their interests as they will stand to gain more from the payments than through any other method including asset sales following liquidation.
If agreed, the directors resume control of the business and it resumes trading with the new CVA payment agreement in place.
The business might be made viable once again but it might fare better under new management or owners bringing fresh ideas, energy and investment.
The administrator will market the business for sale immediately and conclude the deal while the business is still protected by the insolvency moratorium.
The existing directors might even be part of the ownership teams depending on circumstances but once the deal is concluded and the new management is in place then the administrator hands back control to this group and exits.
Sadly the debt and problems of the company might be insurmountable for even the best administrator and the only viable way forward will be to close the business down through a creditors voluntary liquidation (CVL) process.
The business is closed down in an orderly fashion and it’s assets and property are sold off with the returns going to pay off creditors in legal order of precedence.
Because the business will already be in administration before the liquidation process begins, most assets will already have been sold prior to this so once a CVL is entered into, the funds can begin to be distributed to creditors.
In the battlefield of giving business owners and directors the chance to fight another day, it’s our call of duty to give them the best advice and support possible.
We don’t claim to have a halo but if you get in touch and arrange a free initial consultation with one of our expert advisors, we’ll let you know which options and strategies would have the best mass effect on your company’s chances of recovery and renewal.
Business life is strange and unpredictable so we’ll help you go through the gears when it comes to implementing any changes you need to. It’s a far cry from leaving you to manage on your own but an essential part of our service.
If it’s time to reboot your approach, do it with a Business Rescue Expert by your side.
Technically it’s supposed to be the summer holiday season but we’ve seen precious little of that.
The main headlines this month see a few well-known firms in the construction industry entering administration while others look to close efficiently through liquidation.
How bounce back loan repayments can affect sole traders and partnerships too
KEO Films pre pack deal
The TV production company KEO films co-founded by presenter and chef Hugh Fearnley-Whittingstall has been bought out in a pre pack administration deal by Passion Pictures after declaring itself insolvent.
KEO films produced popular and award-winning shows such as “Hugh’s War on Waste '' and “Easy Ways to Live Well” and described itself as having a strong ethical brand reputation. It’s latest acclaimed documentary series to screen was “Once Upon a Time in Iraq” broadcast by the BBC.
The directors declared they were unable to put enough money into the business to maintain it as a going concern with the impact of the coronavirus proving terminal.
The deal has secured 20 jobs in the business and the new owners are voluntarily looking to repay as much of the debts KEO films owed to creditors before it went into administration.
Will Anderson of KEO Films said: “We are trying to do the right thing in a difficult situation and are trying to come to arrangements with people where we can.”
While not all of the old company’s debts could be repaid, the new owners have made offers to repay the majority of freelance employees in full.
Hugh Fearnley-Whittingstall stepped down as a director once the deal had been completed but continued to make programmes with the company under the new ownership.
Formaplex pre pack administration
Formaplex - a major manufacturer with four sites in Hampshire - which supplied lightweight plastic components to the automotive, motorsport, aerospace, medical and defence markets was bought out by new owners this month in a pre-pack administration.
The 20-year-old business was rebranded as Formaplex Technologies by its new owners and 110 posts were lost during the process.
A spokesperson for the ownership group said: “While positive progress had been made, to secure the long-term future of Formaplex, the business needed to take further steps to strengthen its balance sheet.
“As a result, Formaplex Ltd was placed into administration and we agreed to purchase the business and assets of the company from the administrators on the same day through a procedure known as a pre-pack administration.
“There has been a seamless transition of customers and employees to a new business, Formaplex Technologies. We have secured the support of all the major customers and an experienced new CEO has been appointed.”
Minster construction closes
Mansfield-based Minster Building Company went into administration with 26 staff losing their jobs.
First formed in 2007, Minster specialised in constructing supported living facilities for vulnerable citizens but due to delays in planning and construction processes due to the pandemic combined with price increases in building materials meant that most of their current projects became significantly loss-making.
All work ceased on their various work sites from the East Midlands to the North East.
A spokesperson said: “It’s a great shame that a long-established construction business has been laid low by the knock on effects of the Coronavirus crisis.
“Not only have jobs been lost and suppliers left nursing substantial losses, but the vulnerable people who would have been housed in the properties being built by the Company will suffer as a result of the inevitable delays in completing these projects.
“The UK construction sector is facing acute difficulties as a result of the pandemic and the severe disruption it has caused to its operational processes, supply chains and labour resources. Sadly, Minster will not be the last failure in this vital industry.”
Garrandale
Garrandale, an engineering company based in Derby, has gone into administration.
The 45-year-old business began designing equipment to help streamline manufacturing in the automotive, healthcare, oil and gas sectors. In the 1980s they began manufacturing production equipment for railway carriages and continued progress working with companies such as AEA Technology and Bombardier working on a system that prevented train wheels from slipping.
The company’s expertise was also sought to help build the Hadron Collider and work on the Ariane space rocket used by the European Space Agency but has now officially gone into administration with the loss of approx. 70 positions.
AM Griffiths
AMG or AM Griffiths based in Wolverhampton appointed administrators earlier this month.
The business, founded in 1899 by Arthur M Griffiths, was profitable as recently as 2020 and worked on many private and public sector projects including building many schools and hospitals and was responsible for many major landmark buildings across the Black Country.
The company was unable to secure additional work and has ceased trading altogether with the loss of 60 permanent positions.
Six Day Series
Madison Sports Group, which staged the popular Six Day cycling series in London, Manchester and locations abroad went into administration as Covid-19 forced the cancellation of all their planned live events.
A spokesperson said: “Madison Sports Group and Six Day are prime examples of companies with solid business models whose difficulties have been greatly exacerbated by the fallout from Covid-19.
“With the majority of sports events closing down completely over the past year and a half, both companies' revenue generating capabilities have decreased markedly.
"Following the financial year-end and as a result of Covid-19 events have had to be postponed due to the health concerns of athletes, staff and guests and it is not possible to quantify the impact on the business, creating a material uncertainty over its future prospects.”
Six Day launched in London in 2015 with cycling stars such as Sir Chris Hoy and Mark Cavendish and has taken the format to other major cities with other stars but the enforced halt of all activities was too much for the business to survive.
Simtom Foods
The Indian sauces manufacturer first founded in Leicester in 1977 has gone into administration with the loss of almost 100 jobs.
The business produced a range of traditional Indian foods for both supermarkets and the foodservice industry and while they had invested heavily in recent years, growing their operations, the loss of business caused by the Coronavirus pandemic and recent labour shortages placed significant pressure on the company leading to the appointment of administrators.
A spokesperson said: “The pandemic significantly impacted the implementation of Simtom’s strategic plans.
“Our immediate priority is to support employees made redundant so they can make claims via the redundancy payments office and looking for potential buyers for the business.”
Glenburn Hotel
The Glenburn Hotel, built in 1843 on the Isle of Bute and billed as Scotland’s first hydropathic hotel, has closed and gone into administration with all staff being made redundant.
The hotel overlooks Rothesay Bay and was popular with businesses and holiday makers alike due to its location and extensive facilities.
The administration has primarily been caused by significant operating costs, coupled with the fall in revenue due to the Covid pandemic whilst still having to meet significant maintenance and running costs.
A spokesperson said: “Unfortunately, having explored all its options, the hotel was unable to survive the significant fall in revenue caused by the Covid-19 pandemic whilst still having to meet significant maintenance and running costs.
“We will now focus our efforts on assisting employees, many of whom have worked at the hotel for many years, to submit their claims for redundancy and other sums due to them whilst preparing to market and sell the hotel.
“Whilst this is a sad day in the Hotel’s history, this is an outstanding opportunity to acquire an iconic hotel on one of Scotland’s most accessible islands.”
Fruehauf
A Grantham based manufacturer has gone into administration with the potential loss of 100 employees.
Fruehauf was founded in 2010 and produces a range of tipper and rigid trailers, quality control systems and techniques.
Administrators are considering several options including a company voluntary administration (CVA) as well as a potential sale to any interested parties.
Freuhauf produced around half of the tipping trailers sold in the UK and ongoing delays to orders had already led to a major trailer shortage across the entire supply chain.
The business will continue to trade while in administration but this situation might exacerbate delays.
Kapex Construction
Newcastle based Kapex Construction which was involved in a number of high profile schemes in the city has appointed administrators.
The business launched in 2016 to work on various housing schemes throughout the North East of England and employed 62 people directly last year.
The company was recognised by RICS for its work on All Saints Church, an 18th Century Grade 1 listed building which was on Historic England’s Heritage At Risk Register.
The business was in profit in 2020 but the cessation of building work for the majority of the previous 18 months has proven insurmountable.
O’Keefe Construction
O’Keefe Construction based in Greenwich has entered a company voluntary arrangement (CVA) with its creditors after suffering significant losses in the financial year to May 2021.
The business employs 178 has operated in London and the South East for over 50 years but took professional advice following severe cash flow challenges and are pursuing a CVA to continue trading while they restructure their debts.
A spokesperson said: “A CVA will secure the company’s future as a going concern and allow it to continue to service its ongoing clients.
“Crucially, a CVA will also maximise the returns to the company’s creditors, compared to alternative restructuring procedures.
“On a successful approval of the CVA proposal, the company’s shareholders will contribute additional sums to support its short term cash flow and to ensure the business has increased liquidity levels.
“The financial restructuring afforded by the CVA, alongside operational improvements made to the business, will ensure that O’Keefe is well placed to complete its ongoing and profitable work and to fulfil its client needs.”
CEO Patrick O’Keefe said: “The board was tasked with delivering the business out of the current difficulties and after taking specialist advice, has agreed to enter into a CVA to allow this mechanism to secure the long term success and profitability of the business.
“Thanks to our exceptional staff, our current portfolio of jobs is trading very well. The conclusion of the CVA process will immediately put the business on a positive footing.”
“The directors are optimistic regarding the future success of the company in view of the significant forward order book and improving project margins.”
We’re now into the last third of the year and what might be the most crucial month for businesses to get help and make essential decisions to secure their future for the rest of 2021.
September will see bills and debts continue to mount, the furlough scheme finally coming to an end, CBILS and bounce back loan repayments continuing to come due, defaults rising and the ban on creditor actions such as winding up petitions being lifted.
The time to get advice and hear what options your business has to manage its debt obligations including VAT arrears or bounce back loans is short so the best time to get in touch with us is today.
We’ll better understand your situation and be able to give you recommendations you can act on immediately to set plans in motion that will give you and your business the best chance of getting into 2022 and then working towards your medium and longer term goals.
Before any of that can happen though, you need to take action - the sooner the better - because for some companies, the end of this month will be too late.
The report found that although essential, the government’s overall response to the pandemic had exposed the taxpayer to significant financial risk for the foreseeable future and that while departments faced difficulties in responding quickly to the pandemic, these risks did not always achieve good value for money.
The committee singled out the bounce back loan scheme as one of the programmes with a high level of risk reporting an estimated £26 billion of credit and fraud losses uncovered so far.
Dame Meg Hillier MP, Chair of the Committee, said: “With eye-watering sums of money spent on Covid-19 measures so far the government needs to be clear, now, how this will be managed going forward, and over what period.
“The ongoing risk to the taxpayer will run for 20 years on things like recovery loans, let alone the other new risks that departments across government must quickly learn to manage.
“If coronavirus is with us for a long time, the financial hangover could leave future generations with a big headache.”
Among the main conclusions and recommendations in the report are:
The report also highlighted the work of the National Audit Office’s (NAO) Covid-19 cost tracker which tracked expenditure and costs across the whole of government and pulled them together in one place.
The NAO are working on a follow-up to their October 2020 report specifically into the bounce back loan scheme.
It is scheduled to be published in the winter of 2021 and will update their findings on the overall amount of bounce back loan arrears that have been repaid to date and how much remains outstanding.
We’ve been reporting on bounce back loan arrears and repayment scenarios since April including regional and industry differences so know that whatever number they come up with, it’s going to be big and focus will then shift from data collation to debt recovery.
Businesses with bounce back loan arrears are being stopped from closing down
HMRC and the Insolvency Service are going to be very busy for the rest of 2021.
They are already using their existing powers to close down businesses and sole traders who falsely obtained bounce back loans and are turning their attention to companies who took them out legitimately but have built up arrears.
A recent FOI inquiry from BusinessRescueExpert.co.uk revealed that they are being helped by the Department of Business, Energy and Industrial Strategy (BEIS) who are objecting to companies with bounce back loans from being struck off the Companies House register.
And the final piece of the enforcement jigsaw is still to come with the introduction of The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill which is proceeding through parliament at the moment and expected to become law before the end of the year.
Amongst the new powers it will grant The Insolvency Service retrospective powers to investigate the directors of companies that have been struck off to examine the circumstances of the dissolution.
Because the powers are retrospective, they can go back two or three years after the fact and are not limited to bounce back loans but other debts too.
Any director targeted under the new law could reasonably expect sanctions including fines, disqualification of up to 15 years and potentially being made personally liable for repaying any illegally obtained debts and costs incurred.
With the remaining government support measures being withdrawn at the end of September and creditors actions such as statutory demands and winding up petitions being allowed to be issued once again, businesses with outstanding bounce back loans and other debts including VAT arrears or unpaid rent or business rates will be understandably worried.
Instead of wondering when and where the first creditors’ blow will land, directors and business owners can use this time to draw up their own counter strategies starting with some professional insolvency advice.
During a free initial consultation, we will better understand the situation facing a business and give our honest appraisal of the options available, depending on what they would like to do.
Some businesses might want or be able to restructure their debts and eventually trade their way back to profitability with creditors help and forbearance through a company voluntary arrangement (CVA).
An alternative option might be a company voluntary liquidation (CVL) if there is no realistic path to recovery.
This will allow the orderly closure of a business even if it has bounce back loan debt and other outstanding arrears that it can’t reasonably clear.
There are choices and chances that can be taken - but only if the directors or business owners act in time to access them and work with us to act on them.
We’ve all seen multiple examples of it on social media especially, people will gleefully share false news and images that a simple check of the BBC or other reputable news site could tell them is not true.
Received wisdom and advice can be harder to disprove than this so we find it annoying when we hear false and wrong advice passed off as something credible.
One example we’re sadly hearing a lot about recently is the idea that companies with debts, including bounce back loans, business rates and VAT arrears, can simply dissolve themselves and these obligations away into thin air.
Usually sensible people have been taken in by this one in particular - we even had a good client ask us “why should I pay for my company’s liquidation? Can’t I get it for free if it’s struck off?”
Why are businesses with outstanding bounce back loan borrowing being stopped from closing down?
The main reason why you should consider a voluntary liquidation rather than a strike off is because of the directors investigation aspect.
The liquidator has to investigate the conduct of the directors in the lead up to the liquidation as a mandatory part of the process but if you have done everything in your power to keep the business running and have kept your records in good order then you’ll have nothing to worry about.
Even if, in hindsight, you’re worried about how a couple of your decisions and actions might be viewed, you can explain the circumstances and rationale to the liquidator and if you can provide supporting evidence, they will be quite likely to accept your version of events and say so in their report to HMRC.
The same doesn’t apply for directors who try to strike off or dissolve their company with outstanding debts - whether they be bounce back loans, CBILS, VAT arrears or other tax payments they owe.
The rules about striking off are very strict and explicit - no company with debts can be struck off.
But this doesn’t stop some unscrupulous business owners from trying to dissolve the firm to avoid their obligations - or honest directors that have received some bad advice and been told that this is possible.
There’s a new law making its way through parliament at the moment - the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill - that will give dishonest directors some pause for thought.
Right now director disqualifications can be implemented for clear offences such as falsifying records and taking money out of an insolvency business.
Any attempt to defraud HMRC by deliberately avoiding paying bounce back loan debts for example, would also very likely lead to disqualification.
The HMRC have held their fire considerably during the pandemic and subsequent lockdown periods because of the unique situation a lot of otherwise viable and profitable businesses found themselves in.
Things are changing as more industries begin to trade without restrictions, HMRC and The Insolvency Service will also be moving up the gears to begin recouping some of the historic levels of support paid out.
One way they will do this is by using new powers given to them by the bill that allows retrospective investigations and actions to be taken against directors for the first time if they’re found to have dissolved their company with outstanding debts.
Company strike offs and dissolutions will be examined to see if any were carried out with outstanding debts and if discovered could lead to punishments including fines, disqualifications of up to 15 years and personal financial liability to settle the debts placed on the directors.
Business Secretary Kwasi Kwarteng said: “We need to restore business confidence and people’s confidence in business.
“This is why we won’t hesitate to disqualify directors who deliberately leave employees and taxpayers out of pocket. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.”
Chris Horner, Insolvency Director with Businessrescueexpert.co.uk, sets out the likely scenario.
“The new legislation is clearly aimed at those directors who thought they’d be clever and try to dissolve their companies to avoid paying their creditors - including HMRC.
“Directors who’ve done the right thing and liquidated their companies voluntarily through a creditors voluntary liquidation (CVL) or other process don’t have anything to worry about from the bill.
“Dissolution or striking off a company is a cheap and efficient way of closing a dormant or debt free business and thousands of businesses do it every year.
“It’s the small minority of directors who thought it was a great way to dodge their debts that should rightly be dreading a letter, email or increasingly possible from the end of September - a knock at the door.
“An important point to make for businesses that legitimately took out bounce back loans or CBILS borrowing is that they aren’t HMRC’s primary target either.
“ As long as they have kept records and documentation or other evidence that supports their explanations on how the money was used, why they borrowed it, how their business functioned during the pandemic then they can be confident that they can answer any questions fully and convincingly.
There are several other good reasons why you should be happy to liquidate your business voluntarily:
You can take advice and pick the insolvency practitioner choice of your choice to oversee the process and guide you through the issues and requirements.
If a company goes into liquidation any personal guarantees directors have given on debt will crystallise - becoming payable immediately. A liquidator will help you create a plan to deal with this situation. Similarly, a liquidator has a duty to recover any funds owing from overdrawn directors loan accounts and can advise ahead of time the best course of action to deal with this eventuality.
A liquidator can advise on the redundancy procedure for existing staff and/or the transfer of existing staff to a new business (TUPE).
One often overlooked but important detail is that directors who have been paid via PAYE are also eligible for redundancy payments.
The liquidator can advise the best way forward to access what could be some vital income - especially as it may be possible to use it to finance the liquidation process with the proceeds.
There are a lot of things that have to be done correctly in a liquidation and it can be easy to lose track of them, especially if your attention is being pulled in several different directions.
The liquidator will keep you on track of what needs to be done, how and when including the sale of assets, transfer of leases and several other requirements.
Topics such as liquidation and dissolution can be stressful at the best of times but even more so when sanctions such as disqualification and being made personally liable to repay any debts your company was closed down inappropriately or deceitfully.
The vast majority of businesses that have closed down in the past two years have nothing to worry about. They did their duties to the best of their ability and made the difficult but ultimately correct decisions to close their companies down.
Several others might now be in a similar position and are nervous that although the correct decision is to liquidate the business, this wouldn’t be the end of matters for them or the company.
We can reassure them in one conversation.
After a free initial consultation with one of our expert advisors, directors will have a far clearer idea of what options they have to close or restructure their companies, the costs involved and what the likely timescales will be.
Then, for the first time in a while for many, they will finally be able to see an end to their problems and be able to think of new beginnings instead.
This is because they’re more susceptible to immediate fluctuations rather than gradual trends.
The number of company insolvencies declining across the UK in July after rising for two consecutive months was still a slight surprise in the latest official monthly company insolvency statistics released by The Insolvency Service.
For England and Wales, the total number of corporate insolvencies for last month was 1,094 - this was down 112 (9.3%) from the 1,207 recorded in June’s total but still 13.4% higher than the 741 recorded in July 2020.
While both totals are still below the 1,442 recorded in July 2019, a 24% reduction for 2021, it is the third consecutive month that year-on-year figures are higher than 12 months ago - indicating a broader recovery towards pre-pandemic levels.
112 cases is a relatively small number and combined with the residual effect of the summer holiday season and the general upward trend of cases we should expect this to begin to rise by October at the latest.
The reduction in monthly cases is the first since April and with creditor actions such as statutory demands and winding up petitions due to be reintroduced at the end of September along with the widely expected withdrawal of the furlough scheme and other support measures, it’s logical to speculate that insolvency rates will be a lot higher by the end of the year.
Of the 1,094 company insolvencies recorded in July in England and Wales there were 1,007 creditors voluntary liquidations (CVLs); 41 compulsory liquidations; 40 administrations and 6 company voluntary arrangements (CVAs). Once again, there were no receivership appointments in July.
Compulsory liquidations and administrations saw small rises from June - up three and one respectively, while there were 109 fewer CVLs and eight fewer CVAs.
The only category that isn’t lower than its 2019 equivalent are CVLs which are at the same level.
Additionally:-
There were 72 company insolvencies in Scotland last month comprising 14 compulsory liquidations; 54 CVLs and four administrations. Overall these figures were 36% higher than a year ago but 26% lower than in 2019.
Historically, compulsory liquidations have been the most common kind of insolvency registered in Scotland but since April 2020 there have been twice as many CVLs as compulsory liquidations. This has been the situation for 14 out of the preceding 15 months.
There were also 14 company insolvencies registered in Northern Ireland - 40% higher than in July 2020 but 33% lower than for July 2019.
This was made up of one compulsory liquidation, nine CVLs and an administration.
The overall total of UK company insolvencies for July 2021 is 1,180, an overall decrease of 115 from last month’s collective total.
“It will take longer for the worst hit sectors to recover from the pandemic”
Colin Haig, President of R3, the insolvency and restructuring trade body said: “The month on month fall in corporate insolvencies was as a result of a drop in compulsory liquidations, CVLs and CVAs.
“However, this is the third consecutive month in which year-on-year corporate insolvency levels have risen, which reflects the effect the pandemic has had on the business community.
“The 70.4% increase in CVLs this month compared to July 2020 suggests an increasing number of directors have decided to close their business after spending a year trying to survive the pandemic.
“Although government support has continued to provide a lifeline for many businesses which would otherwise have struggled in an economic climate like this, this July was still a challenging month.
“The delay in lifting the final restrictions will have hit trading, footfall and spending, and a huge number of firms have spent 15 months trading in conditions that are wildly different to normal.
“With the opening up of the economy, consumer confidence at pre-pandemic levels, and spending levels higher than they were in 2019 the future does look more optimistic. Having said that, it will take longer for the worst hit sectors to recover from the pandemic.
“SMEs are the backbone of the UK economy, but many have been badly affected by the pandemic. The restructuring community is better placed than ever to help them and other organisations with financial worries, but if directors leave it too late to ask for help, they will have fewer rescue or recovery options open to them.”
We couldn’t agree more.
One of the main advantages of getting in touch with us and arranging a free initial consultation is the earlier a director or business owner does it, the more options they will have available for their company.
Depending on their goals and ambitions for the business, either restructuring the business and its debts are appropriate or if there is no viable way forward in the immediate future then there are several efficient ways to close the business down instead.
No matter what direction you want to go in, there will be an insolvency procedure to achieve it but only if you get in touch.
Creditors will be allowed to begin recovery actions in only a few weeks so you can be sure they will be keen to exercise their options as soon as they can.
Make sure you use this time to exercise yours.
The bounce back loan scheme was a success for many of the businesses who took them out.
They helped them to keep trading or to support themselves and their employees whilst locked down and unable to function normally.
The final official borrowing figures released by the government earlier this year showed that over 1.5 million bounce back loans had been granted for a total of £47 billion - all guaranteed by the government.
Over 44,000 north east businesses took part in the scheme, borrowing an average of £26,751 each or £1.2 billion collectively - an amount equivalent to the cost of building fifty brand new stadiums the size of Sunderland’s Stadium of Light.
27.5% of north east businesses, over one in four, applied for bounce back loan financing, which was the highest demand in the country. The average amount loaned however was the lowest amount - some £7,000 less on average than a London-based business which saves an average borrowing figure of £33,480 per loan - the highest average amount in the country.
Earlier this year, BusinessRescueExpert.co.uk conducted an investigation into the risk of defaults around bounce back loan borrowing done by businesses.
In the North East they found that even under the official best-case scenario, approx. 15% of loans would remain uncollected. That would be 6,729 in our region - with a total of £180 million remaining unpaid.
At around the same time we published our results, the Department of Business, Energy and Industrial Strategy (BEIS) announced that they would begin to enforce bounce back loan debt recovery imminently but carefully.
Business Secretary Kwasi Kwarteng wrote that: “HMRC would adopt a cautious approach to enforcement of debt owed to government that will have accrued” and that HMRC would soon update its enforcement methods so that any outstanding debt could be brought into managed arrangements for businesses affected by the pandemic and subsequent lockdowns.
Specifically he said that using insolvency to enforce payment would remain a last resort and that he recognised that “the path back to full trading will be difficult for many companies, particularly those with accrued debt and low cash reserves.”
If BEIS are playing the good cop in this scenario then the Insolvency Service are playing the bad cop - promoting their recent successful attempts to wind up several limited companies that had been involved in fraudulent activity including dishonestly obtaining bounce back loans.
Dave Elliott, Chief Investigator at the Insolvency Service said: “The bounce back loan scheme was made available to help support businesses during the pandemic.
“It’s outrageous that some directors have been trying to abuse this support, and the action we have taken shows we take this issue extremely seriously.”
Despite the tough talk, just how seriously are the authorities cracking down on bad bounce back loan behaviour by directors and business owners?
One growing trend we’ve noticed recently in the north east and elsewhere is where companies with outstanding bounce back loan arrears are attempting to dissolve their businesses, or have them struck off.
Company dissolution is a perfectly legal method of closing a company but comes with a set of strict conditions.
Dissolution is not an available tool if the company owes any money, including outstanding tax or a bounce back loan.
New legislation, specifically aimed at unscrupulous directors, is due to become law later this year (but will apply retrospectively) and will be a big problem for those who’ve tried to close their company this way and avoid their legal responsibilities.
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill 2021 will allow the Insolvency Service to specifically target and pursue directors who close their companies by dissolving their businesses when they have outstanding debts.
One of the main new measures will see the Insolvency Service given retrospective powers to investigate directors of struck off companies and how they acted in the circumstances leading up to the dissolution.
Being retrospective, directors of north east businesses dissolved not only in 2021 but within the past couple of years can expect to be contacted in the near future if they had bounce back loans or tax debt..
Directors of businesses with outstanding bounce back loan debts trying to dissolve their business from now on can reasonably expect to receive an “Objection to Company Strike Off Notice”.
This prevents the company from being struck off and will also be an invitation for any of their other creditors to register their objections to the striking off as well.
Disqualification and fines
No system is 100% perfect so occasionally a business with outstanding debts slips through the net and is struck off.
What are the likely consequences facing directors who have managed to get their businesses struck off with bounce back loan arrears?
In the first instance the Insolvency Service will be looking to disqualify any directors of companies who have allowed their business to be struck off when it has debt.
The disqualifications will be for up to 15 years depending on the circumstances. The directors will also be personally liable for fines and any costs incurred.
State of play
So now you’ve got a better idea of what could happen - we thought we’d go one step further and find out what’s actually going on with dissolution objections right now.
Businessrescueexpert.co.uk lodged an FOI inquiry with BEIS earlier this month to ask if they are actively filing objections with Companies House against businesses with outstanding bounce back loans that are looking to be struck off.
We also asked on what legal basis these objections were being lodged under.
BEIS confirmed that it is filing objections where “a strike off notice has been issued against a company which has an outstanding bounce back loan”.
Liquidation - a proper alternative to striking off
Now we have official confirmation that dissolutions are being officially objected to - with the consequences we’ve outlined - what can worried north east directors do?
Bounce back loan repayments are falling due, and the last support measures and protections against creditor actions are being removed within weeks.
All of this adds increased pressure to cash flows that are already squeezed to the limit as they try to manage all the outgoings with reduced income - if they’re able to trade without restriction once again.
If a business is genuinely unable to meet all of its obligations and liabilities including bounce back loan arrears then there is still one legal insolvency process they can follow that would allow them to close their company, settle their debts and move on to the next chapter of their career efficiently and effectively.
Company liquidation, or specifically a creditors voluntary liquidation (CVL), is the best route for a business with outstanding debts including unpaid bounce back loans, to follow.
Once they’ve engaged a licensed insolvency practitioner, they will immediately take over all dealings with creditors and work through the rest of a businesses debts to compile a full picture of who is owed and how much.
Chris Horner, insolvency director with Businessrescueexpert.co.uk, said: “Our FOI inquiry has proven that HMRC are treating improperly dissolved and dissolving companies as their highest priority, which should effectively close off this avenue for directors looking to close down their businesses.
“We can expect to see more compensation orders being used to make directors personally liable for the debts of their struck off businesses if the Insolvency Service believe they’ve been done incorrectly or to evade oversight.
“Another common misunderstanding about bounce back loans is that because they are underpinned by government guarantee, they won’t be chased by lenders. They will.
“The lender will try to secure repayment for at least 12 months as standard as a condition of reimbursement because they will have to show the government they tried to recover the funds they lent.
“They probably won’t start insolvency proceedings just for bounce back loan debt but when restrictions are lifted at the end of September they could use debt collectors and bailiffs to enforce repayment.
“If a business chooses to liquidate instead then the bounce back loan will be treated as any other unsecured debt and if the directors have fulfilled their duties to the best of their abilities, then the lender will ultimately be repaid by the government.
“The most important thing any business in the north east or anywhere else that’s having difficulties repaying any debts, including bounce back loans, can do right now is to get professional insolvency advice.
“The rules literally change at the end of September so if they use this time constructively to protect themselves and their business financially and legally, they could already have moved onto their next venture by the time this happens.”
