There has been a great deal of commentary recently on the proposed reform to the procedures governing pre-pack administrations. One of the main objections to pre-packs that the proposed reform is intended to address is the perception that the directors of a failed business are able to “dump” the business’s debt and then to start the same business all over again, debt-free, under a new company.

In reality, it will not always be this simple for directors. Quite apart from any personal guarantees and other personal liabilities that they may have in relation to the failed business, directors are now receiving Personal Liability Notices from HM Revenue & Customs (HMRC) on an increasingly regular basis.

what is a Personal Liability Notice (PLN)?

A PLN, when sent to a director, makes him or her personally liable for the company’s unpaid PAYE deductions and National Insurance contributions. However, HMRC may only issue a PLN if it appears to them that the failure of the company to pay its tax liabilities is “attributable to fraud or neglect on the part of one or more individuals who, at the time of the fraud or neglect, were officers” of the company.

Directors may appeal a PLN on the basis that:

1.     the sum claimed in the PLN is not covered by a relevant provision (see below)

2.     the failure to pay the tax liability was not attributable to any fraud or neglect on the part of the director in question

3.     the director was not an officer of the company at the time of the alleged fraud or neglect, or

4.     the opinion formed by HMRC when deciding to issue the PLN was unreasonable.

The power to issue PLNs has been available to HMRC since 1992 (the power derives from Section 121C of the Social Security Administration Act 1992) but we understand that PLNs are now being used more widely than before. Accordingly, directors who are accused of acting fraudulently or negligently by a liquidator, an administrator or creditors generally should be aware of their possible liability to HMRC, as well as any liability he or she may have to the company itself (or its liquidator or administrator).  This may well mean that directors may become unwilling to settle claims threatened against them by liquidators or administrators unless they can also be sure that they will not subsequently be issued with a PLN.

Myth No1

Insolvency will hurt my credit rating for ten years.

With liquidation or an administration order this will not affect your personal credit in any way. Although with a personal bankruptcy your information will stay on your credit report for six years, assuming you begin rebuilding your credit immediately and keep your credit clean, you can usually obtain a mortgage within eighteen to twenty-four months after discharge.

Myth No 2

Everyone will know about my insolvency.

Liquidations are advertised in the London Gazette. When was the last time you looked in the London Gazette? Previously insolvencies were advertised in the local press, this was stopped a few years ago and now is not a requirement.

Myth No 3

I am a bad person for filing insolvency or bankruptcy.

There is a stigma associated with filing for any insolvency; a stigma that the lobbyists for the credit card companies and the banks broadcast.

The truth is that bad things happen to good people. There is a reason that one company petitions for any insolvency every four minutes in the UK and it is not because they are bad people. On the contrary, they are good people looking for a solution to their financial problems.

Myth No 4

I can never be a director of a company if I liquidate my current company.

You can start a new company up before or after you liquidate your current company and you can remain a director unless such time as you are disqualified from being a director.

Myth No 5

The banks will never lend me money ever again after a liquidation.

Immediately after (or even before) the liquidation you can get a bank account without any problems. Banks generally will assess each application on its merits before lending any finances.

Myth No 6

I will lose everything I own.

Liquidation of your company will not affect your personal wealth or assets that you and your family own, unless, of course, you gave any form of security or personal guarantees.

Have you heard anything else about insolvency and are curious as to how true it is? Leave a question in the comments box and we’ll happily answer any questions.

Location: BIRMINGHAM, WEST MIDLANDS

The Company

• A Petrol station which had been running for many years had endured a spate of burglaries in a very short space of time. As a result the insurance company refused to pay out on the claims submitted.
  The company therefore was unable to pay any of its liabilities as the station was unable to reopen for business. 
• Previous VAT and PAYE bills were due and the company were not in a position to pay the Bills
• The company had petrol tanks underneath which needed to be safeguarded
  The landlord was threatening legal action for non payment of rent. 

The Issues

• Business closure due to burglaries
• Landlord putting pressure on company to pay outstanding rents.

Steps we took

• Assisted the directors through the required process to pass resolutions to wind up the company.
• Appointed agents to provide a valuation of the assets of the company – in particular the costs of safeguarding the petrol tank
• Convened meetings of members and creditors to place the Company in Liquidation.
• Instructed agents to sell remaining assets, on a break up basis.
• Disclaimed lease and allowed landlord to take possession of the property and take ownership.

The outcome

• Company dissolved immediately after calling final meeting.
• No adverse effect on Directors’ future business dealings
• Health and Safety issues around Petrol Tanks avoided through disclaimer of Lease

Kingsland Business Recovery can help you with all aspects of Liquidation of the Company, convening the creditors’, meetings, dealing with customers and employees and will ensure an efficient and practical outcome for stakeholders. Please call us now on 0800 955 3595.

Location:                  SOUTH YORKSHIRE

The Company

• Due to an increase in competition and the price of raw materials, the business had seen a huge reduction in orders and an increase in costs.
• The Company continued to trade but was trading at a huge loss.
• The company started missing payments to creditors and suppliers stopped providing the necessary stock to fulfil orders, bringing the business to a standstill.
• The Company employed over 10 Staff
• The company had numerous large machinery, assets and stock remaining.
• The company had a number of debtors still outstanding however.
• There was a personal guarantee with the bank for the company overdraft

Steps we took

• Assisted the directors through the required process to pass resolutions to wind up the company.
• Appointed an Debt Collection Agency to collect debts on the companies behalf
• Convened meetings of members and creditors to place the Company in Liquidation.
• Obtained Professional valuation of assets in business.
• Sold assets to third party for valuation price
• Provided the Employees with all the relevant information to submit redundancy claims.
• Assisted Directors in negotiating a settlement with the personal guarantees

The outcome

• Company dissolved immediately after calling final meeting.
• Employees received redundancy payments from The Redundancy payments office
• No adverse effect on Directors’ future business dealings.

Kingsland Financial Solutions can help you with all aspects of Liquidation of the Company, convening the creditors’, meetings, dealing with customers and employees and will ensure an efficient and practical outcome for stakeholders.  Please call us now on 0800 955 3595.

Lending to business has improved during this year as confidence has lifted, according to the Asset Based Finance Association (ABFA).

http://www.insolvencynews.com/article/show/Connaught-headed-for-administration

Get in touch with us using our contact page or simply ask us to call you back.

Feel free to make comments about the website.