Essex and London Properties Limited was set up in 2005 as an investment vehicle for property investors. The company purchased properties with the intention of selling them on at a profit or generating rental income for their investors.
More than 800 Investors paid sums between £5,000 and over £100,000 over 18 months hoping to receive the 8% annual return paid quarterly if the money was held over three years or 12% for one year.
Sadly, the company only purchased one property, a house in Harwich for £147,000, less than 1% of the overall investment amount. Despite this, the company claimed to have purchased numerous properties that had increased in value and falsified Land Registry documents showing the company owned more property than it actually did.
Insolvency Service investigators found that existing investors received interest payments, not from any investment returns, but from payments made by new investments - the company was in effect operating a Ponzi scheme.
The company was shut down by the High Court in September 2018 for misusing over £20m of investors money. Essex Police continued to investigate the individuals controlling the fund.
While the investigation was ongoing, The Official Receiver found several false ‘recovery schemes’ were operating, targeting investors in the fund, claiming that they could retrieve invested capital from the liquidation process for them.
Some of these went so far as to pretend to act in cooperation with the Official Receiver or impersonated the Insolvency Service itself.
The Official Receiver will never contact anyone offering to recover their money for a fee or recommend another organisation offering the same service.
Chris Horner, Insolvency Director with Business Rescue Expert said: “One of the best ways to protect yourself from these scams is to learn a bit about the insolvency and administration process.
“Once a company has entered liquidation, any assets realised are used to repay the debts that caused the company to become insolvent.
“Investors can register as creditors with the liquidator so they can have a claim on the company’s assets. Once the liquidation process has been resolved then they’re able to distribute any remaining funds to creditors.
“There’s no other way for assets to be recovered so don’t believe any company that says they can do it for you. You’ll end up losing even more money as a result. ``
The Official Receiver has confirmed it has been appointed to oversee the process which will begin immediately in the hope of finding a new buyer but this is the best case scenario.
What is compulsory liquidation?
They said: “The immediate priority following my appointment at liquidator of British Steel is to continue safe operation of the site.
“I appreciate that this is a difficult time for the company’s employees and I want to thank them for their ongoing cooperation. The company in liquidation is continuing to trade and supply its customers while I consider options for the business.
“Staff have been paid and will continue to be employed.
“The court also appointed Special Managers to assist me with my work and they are engaging with staff and their representatives to keep them informed, as well as contacting British Steel’s customers”.
The Official Receiver has taken the unusual decision to continue trading through the compulsory liquidation, as employee contracts are normally terminated immediately on the making of a winding up order. However as this decision has been made the insolvency will act more like an administration, continuing to trade the business whilst seeking a buyer to maximise the chances of doing so.
Earlier this week we covered the reasons why and how British Steel arrived at this junction in another blog. Today we’re concentrating on suppliers and what happens to them.
Here are the three steps you should take immediately if your company is in the supply chain:
1) Assemble your creditor credentials
The liquidator will contact all creditors to confirm that the company has formally entered liquidation and to set up a creditors meeting which you can attend in person or by using a proxy.
You should take some time now to go through your records and assemble the paperwork regarding your relationship with British Steel - contracts, invoices, sales records etc. This will help provide proof of debt and secure your status as a creditor.
If you hold any British Steel assets then you should also inform the liquidator so they are aware. Conversely you may hold retention of title over goods delivered to British Steel. If this is the case you should provide all the details to the official receiver as soon as possible. If you are able to identify some of your goods they may be recoverable or you may be paid to allow their use.
It’s your decision but you should consider your future relationship with the company and whether you wish to continue to supply goods or services to them as there is a chance you will not be paid for them.
If British Steel emerges from liquidation with a buyer then you’ll have to decide whether you wish to continue trading with the new company and if so, under what terms. You could insist on payment up front or a guarantee from the new management that your business will be paid.
2) Prepare for the worst
Losing your main or one of your main clients will undoubtedly have an impact on your own company and finances
You should consider restructuring your own company debts to make them more manageable in the short term while you secure new work to replace the existing contracts. You could also be in a position to negotiate for more time and better conditions with your own creditors once you explain the situation to them. Some of them may be suppliers
Chris Horner, Insolvency Director with Business Rescue Expert, said: “This is naturally a worrying time for everybody involved with British Steel. Our headquarters is close to Teesside so we saw first hand what happened to businesses supplying the Redcar SSI steelworks when it closed in 2015.
“We’ve worked with many companies in similar situations and can talk you through what you can do but the most important thing is to contact us quickly. The earlier you take action, the more options will be available to you. These situations are fluid and can move quickly so haste is essential.”
3) Contact Us
Call us today for a free consultation where one of our experts can give you advice on how to move forward. The longer you delay, the less options will be available to you so this should be your first step.
You’re naturally worried about facing any financial difficulties and unsure about what could happen.
Company receivership is increasingly in decline. From the most recent high of 1,468 receivership appointments at the peak of the recession in 2009, according to the ONS statistics there was only a single administrative receiver appointed in the whole of 2018. Whilst a company having “gone into receivership” is still a common colloquial term, more often than not the company will have actually gone into voluntary liquidation or administration. There to remain several different forms of receivership and this article will cover off the different types to offer clarity on this term.
Administrative receivership, colloquially known as company receivership, is considered a formal insolvency process, unlike the other forms of receivership. The main reason for the decline in appointments of such a receiver is the Enterprise Act 2002. An administrative receiver can only be appointed by the holder of a floating charge over the company assets. Under the Enterprise Act 2002, this floating charge must have been created before 15 September 2003. As a result under floating charges created in the last 15 years these appointments are no longer possible, hence the massive decline.
One of the reasons for the changes is an administrative receiver is only appointed over the assets of a company and acts purely for the floating charge holder. An administrative receiver must be a licenced insolvency practitioner. After the receiver has completed their work, this still leaves the shell of the company, which will likely need to be liquidated before it can be dissolved. The above changes in legislation also improved the accessibility to the administration proceed, and this is now the more likely action the holder of a floating charge will take, if you business defaults on such a charge.
A fixed charge receiver is appointed by the holder of a fixed charge, properly registered at companies house. Unlike a an administrative receiver, a fixed charge receiver does not need to be a licenced insolvency practitioner, and is more likely to be a chartered surveyor. Where a floating charge covers substantially all the assets of a company, a fixed charge is specific in what it covers, therefore this type of receiver will only be appointed to realise one of more particular assets within the company.
An appointment as a fixed charge receiver can cover:
In the event you have defaulted on a fixed charge and a receiver has been appointed, if you are an SME, this can effectively cripple your business, forcing you to sell the remaining assets to pay off creditors. In order to achieve the maximum value for the assets, you may be able to work with the receiver to arrange a sale of the business as a whole entity. This may at least leave you with sufficient funds to pay your remaining creditors. If however the value of the assets is significantly less that the total value of your creditors, making your company insolvent, it may be necessary to place the company into formal insolvency such as voluntary liquidation or administration, in order to protect your position.
A Law of Property Act receiver, commonly referred to as an LPA receiver, is a type of fixed charge receiver, in that they do not need to be an insolvency practitioner, but will more commonly be a chartered surveyor, generally 2 surveyors who are jointly appointed. There are again less instances of when a LPA receiver can be appointed, being that they can only be appointed over land or buildings.
Once an LPA receiver is appointed, they have specific powers which are set out in the Law of Property Act 1925:
As the legislation is closing on being 100 years old, and yet is still a commonly used recourse, additional powers can be delegated under the charge or mortgage the appointment is made under. These powers generally include:
One of the more unusual rights which is also worth being aware of is the power to cut down any appropriate trees on the property so they can be sold for timber. A LPA receiver being appointed over an orchard therefore could yield serious consequences.
Regardless of whether the charge holder is commencing the process for company receivership, or simply appointing an LPA receiver, the main appeal of the process to them is how quickly the appointment is made. The main warning the action is imminent will be receipt of a default letter, demanding the full balance due under the charge. Once this period has expired, which may be as little as 48 hours, to make the appointment there is a simple passing of correspondence between the charge holder and the receiver confirming acceptance of the appointment.
Due to the speed of this process, the first you will generally be aware a receiver of any kind has been appointed is when they attend the premises to secure the assets in question. Whilst it is possible to liaise with the charge holder, when your business is in financial difficulties, to request they appoint a receiver, may not be the best solution as it will only deal with secured liabilities. You should take your own advice to find a solution that suits your business as a whole, dealing with all of its creditors. Our business rescue experts can be contacted to discuss the best solutions for you, creating a solution to suit your business as a whole, not just a single creditor.
The insolvency legislation dictates that any disposal of property after the presentation of a winding up petition, or indeed the presentation of bankruptcy petition against an individual, is void. This means that any void dispositions (payments post-issue of a winding-up petition) can be reversed once a bankruptcy order, or winding up order, is made by an insolvency practitioner or the official receiver. The legislation is designed to stop the directors of a company from stripping the company’s assets on receipt of a winding up petition. Please note, if payments are made after the issue of a winding-up petition and the company isn’t subsequently wound up, the payments are not void dispositions.
Void dispositions cover all sorts of assets owned by the company. The assets can include plant and machinery and office equipment to cash at bank, debtors and intellectual property. If you receive a winding up petition and are unable to contest or pay, as a director, you must abide by these restrictions in order to avoid liability. If a voidable transaction is made, you may be personally liable to compensate the estate if the asset cannot be recovered from the beneficiary.
The key part of the legislation is that transactions made after a winding up petition has been presented are void dispositions, unless the court orders otherwise. Consequently, it is possible to obtain a validation order to allow some payments to be made. While a winding up petition is outstanding, an application to court can be made to allow access to a frozen bank account. However, this will only be granted in certain circumstances. There will generally be restrictions on how the funds can be used:
In short, the court will not generally grant a validation order that would have a detrimental effect on assets available for creditors after a winding up order has been made.
In order to apply for a validation order, you will likely need the assistance of a solicitor specialising in insolvency. Depending on your exit route from the winding up petition, you will need an insolvency practitioner. Your solicitor will prepare an application on your behalf and a witness statement to set out your evidence as to why the validation order should be granted. This will need to be comprehensive and include:
You’ll also need to provide:
Your solicitor will, generally, liaise with the petitioning creditor prior to issuing the application to find out if they will oppose the validation order application. If they intend to oppose the application, even more evidence may be required to support your application. This will often be subject to additional scrutiny from HMRC winding up petitions.
In terms of costs of a validation order application, they are, unfortunately, significant. An uncontested application will, generally, cost at least £5,000, including court costs and barrister’s costs. This is attributable to the urgent nature of a validation order, with most applications having to be dealt with within a week. Court hearings are usually scheduled 6-8 weeks in advance, so urgent hearings of this nature bear additional costs to ensure they are reserved only for urgent matters.
If the court grants the validation order, you will either be able to regain access to your previously frozen bank account, or you will be permitted to make specific transfers of assets of funds as designated by the order.
Historically, a number of parties have sought to obtain a validation order retrospectively when the liquidator or official receiver has sought to recover voidable transactions. Previously, transactions carried out in the normal course of business would be validated by the court retrospectively. However, recent case law has set a much higher standard.
Validation orders for potential void payments should be sought ahead of the payments being made. If not, there is a serious risk of liabilities on the recipient as well as personal liability on the director.
It is worth bearing in mind that a validation order is often a patch for a larger problem. Unless you are able to pay the petition debt, and continue to run your business as a going concern, you may wish to consider alternative insolvency procedures. You should do so ahead of the winding up order being made to take control of the situation. If you are having difficulties with a winding up petition and a frozen bank account, our business rescue experts can help you take the urgent action needed to resolve your situation.
Administration’s primary goal is to help the company pay off their debts, thus avoiding entering liquidation - at least in the first instance. Receivership works to realise the assets of a company, to maximise the benefit for the secured creditors.
Receivership will usually result in the company also entering liquidation at the same time.
In modern insolvency, receivership shows such a heavy bias to the secured creditor, that they are now only permitted to appoint administrative receivers in relation to floating charges created and registered before 15 September 2003.
For charges created after this date, only the administration process may be used with the administrator owing a duty to all creditors, rather than just the secured creditor.
Administration is a favourable alternative to liquidation. A licensed insolvency practitioner is appointed as Administrator for a company facing threats from creditors.
The Administrator takes control of the business operations, to act in the best interest of creditors. In entering Administration, a moratorium is also placed around the company to freeze all legal actions.
An Administrator can be appointed by the company directors, the secured creditor or even the company itself. Where receivership will often be terminal for the business, administration is widely viewed as the preferred rescue procedure.
Administration typically delivers higher returns to creditors from company assets, and saves jobs where possible. You can find out more about the administration process with our seven key stages infographic.
Receivership differs from Administration, as the latter works to protect companies from their creditors. Whereas, Receivership is initiated by those creditors or banks that believe the business cannot pay its debts. Unlike in administration, directors cannot place their own company into receivership.
The direction the company will eventually follow is, ultimately, decided by the receiver. The receiver will also not often take advice from directors, and will investigate their conduct.
However, receivership does not terminate the powers of the directors in relation to the company, but only the charged assets. This means that the directors still can, and usually will, need to place the company into liquidation to deal with any shell of a company.
From a company point of view, there are few benefits to receivership.
The business will likely not be rescued as it is, and the assets may be sold on at a reduced price to recoup as much as possible for the creditor, or bank, that appointed the Receiver.
The directors may also lose employment, be investigated and unsecured creditors will, most likely, not receive their money back. However, the Receiver can act fast and, if the directors are not found guilty of misconduct, receivership can solve their difficult position and allow them to walk away.
On the other hand, there are still options for the company with administration. The appointed Administrator takes control of business operations and details a recovery plan, including paying off the debts (as much as is possible) and looking for opportunities that could save the company. These opportunities could include reviewing whether a company voluntary arrangement is a viable alternative to resolve the situation.
Although it is now seldom available as a remedy, it is important to be aware whether a secured creditor is able to appoint a receiver over your company.
Due to the public image of administrative receivership, banks now prefer to appoint Administrators, even if they are able to appoint Receivers. This way, it appears they are still trying to help the business save jobs, rather than taking the company apart to ensure their debt is paid.
In truth, it is far more common for a company to enter creditors voluntary liquidation than either of the above processes.