How To Help Your Client In Financial Difficulty

Vincent Simmons FIPA, FABRP, Bennett VerbyVickie Nijjar LLP, Freeths Solicitors

Client In FinancialDifficulty?

www.freeths.co.ukwww.bennettverby.com

• Over 30 years’ experience

• Established Bennett Verby’s Corporate Recovery & Insolvency in 2001

• Focused on resolutions, working with efficiency and empathy

Who we are – Vickie Nijjar

• 11 years’ experience in Commercial Dispute Resolution & Insolvency

• Advises on variety of contentious insolvency claims from pre-action negotiations to trial

• Where possible, strives to settle claims without need for litigation www.freeths.co.uk

www.bennettverby.com

• To highlight steps directors can take to save all or part of their business

• To outline strategies for directors who have overdrawn directors loan accounts when an insolvency event occurs

• To provide a broad outline of the proposed legislation changes, focusing on “pre pack” sales by administrators

• To summarise the tax advantages that can be gleaned in a solvent Members Voluntary Liquidation

The 7 steps which could help yourclients achieve a happier ending

1. New funder

2. Time to pay arrangements with HMRC

3. Informal arrangements

4. Company Voluntary Arrangements (CVAs)

5. Individual Voluntary Arrangements (IVAs)

6. Partnership Voluntary Arrangements (PVAs)

7. Administration

• Invoice factoring

• Invoice discounting

• Outside investor

• Peer-to-peer lending

• Secured lending by directors

• Above assumes future viability

• May be possible to negotiate with HMRC

• Reduces pressure on cash-flow

• Credibility increased having taken formal insolvency advice

• May suit some situations where formal protection is not required

• Usually short-term

• Need to monitor the financial situation throughout

• Disadvantage – if too many creditors, unwieldy as ALL creditors need to “buy-in”

• Company (with assistance from IP) puts the proposal to creditors – creditors may modify

• Moratorium available to protect the company if required

• Creditors’ meeting – more than 75% required

• Shareholders’ meeting – simple majority

• Must be a better option than liquidation

• More commitment – usually lasts up to 5years

• Rejected – either administration or/and liquidation most likely

• Debtor (with IP assistance) drafts proposal

• Can apply for Interim Order (IO) for protection – lasts 8 weeks

• Creditors’ meeting – more than 75% required

• Creditors may put forward modifications to the original proposal

• Accepted – IVA implemented and will be monitored by the Supervisor

• Must be a better outcome than bankruptcy

• Rejected – bankruptcy likely after IO expires

• Partners have to agree to propose a PVA

• Similar procedure to that in a CVA

• Partnership assets and partnership liabilities only

• PVA will protect the partners’ individual estates

• But partners will have no protection from their individual creditors and may need an IVA (which is linked to the PVA)

• Interlocking IVAs may be an option if all partners intend proposing an IVA

• Company, directors or creditor (usually secured) applies to the court or can simply file appointment

• Out Of Court application may be made

• Moratorium protects the company, whilst Administrator being appointed

• Pre-pack sale of the business may be best way forward

• Administrator takes custody/control and manages company’s affairs

• Teresa Graham report

• Administrator must now comply with a comprehensive criteria re: pre-pack sales (...more later)

Outlining the strategies available

• A major asset in an insolvency is an overdrawn DLA.

• Can it be ‘written-off’?

• If overdrawn, it MUST be repaid even if same director obliged to settle (say) a bank overdraft secured by a Personal Guarantee UNLESS settled before the relevant date

• Steps to reduce the director’s liability?

• Usually, a commercial settlement can be reached based on director’s financial position

• Tax implications – HMRC gross up • Mutuality

• The Small Business, Enterprise and Employment Act 2015

• Insolvency (Amendment) Rules 2015

• SIP 16 and pre-pack legislationwww.freeths.co.uk

• Changes from May 2015

• Changes from October 2015

Changes from 26 May 2015

• Officeholders NO LONGER require sanction to issue certain types of proceedings (e.g. s 213, 214, 238, 239)

• An administrator can extend by further 6 months without court’s approval but MUST have creditor approval

• Creditors of less than £1,000 not required to formally prove debts

• Sales to connected persons now has to be subject to a fairly exhaustive marketing campaign and offered to a “pre pack pool”. If NOT Administrator must explain why not (...more later)

Changes from 1 October 2015

• Conduct report on directors

• Assignment of insolvency claims

• Period to apply for disqualification – 3 years

• Fraudulent or wrongful trading claims by administrators

• Compensation orders against disqualified directors

Outlining the changes to insolvency fees

Insolvency fees

•Estimate of fees at outset if time charges

•What work the IP is likely to undertake

•Can ask for increase but MUST say why

•Approval by Creditors’ Committee or secured creditor/creditors - with economic interest

Teresa Graham gave the thumbs up to pre-packs but maderecommendations which were incorporated into the new SIP16effective from 1 November 2015.

• A Pre-Pack Pool. A voluntary panel comprised of individuals with experience in insolvency matters to review and comment on pre-pack proposals to connected parties

• Viability Review. A voluntary review by the connected party on the new company about the viability of the pre-pack

• Marketing. Marketing surrounding the pre-pack – assumption is “broadband” not “narrowband”, deviations being reported to creditors

• Valuations. Valuations must be carried out by a valuer who holds professional indemnity insurance

• Monitoring. Monitoring SIP16 statements be passed to recognised professional bodies

Members’ Voluntary Liquidation

• Solvent Liquidations – Advantage is that Shareholder can take advantage of Entrepreneur’s relief provisions in certain circumstances:– Must have held shares in trading company for 12 months– Be an employee of the company too– Available for 12 months– 10% tax on exit (20% limit in some cases)

• Companies with £25,000 assets cannot be simply “struck-off” for £10 as in the past-CTA 2010 (wef 1 March 2012)

• Not an expensive process but tax consequences/planning important feature

• ALL creditors MUST be fully repaid together with statutory interest within 12 months. If not, converts to a Creditors’ Voluntary Liquidation and a meeting of creditors is convened by liquidator

Every effort has been made to provide you with a practical and comprehensive overview of this subject. Please remember that this presentation is not intended to be a substitute for comprehensive legal or accountancy advice. No liability for actions, errors or omissions will be accepted by Vincent Simmons, Vickie Nijjar, Bennett Verby Corporate Recovery & Insolvency Services Limited or Freeths LLP. www.freeths.co.uk

• To highlight steps that directors can take to save all or part of their business

• To outline strategies for directors who have overdrawn DLAs when an insolvency event occurs

• To provide a broad outline of the proposed legislation changes, focusing on “pre pack” sales by administrators

• To summarise the tax advantages that can be gleaned in a solvent MVL

Vincent Simmons

E: v.simmons@bvllp.comM: 07940 580 560

@BennettVerby Bennett Verby

Vickie Nijjar

E: vickie.nijjar@freeths.co.ukT: 0845 274 6841

@Freeths Freeths LLP

How To Help Your Client In Financial Difficulty

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