Business Recovery and Insolvency Practitioners

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Poppleton & Appleby :: FAQ

Business Recovery and Insolvency Practitioners

LIQUIDATIONS

What happens to employees wages that are unpaid at the time of the liquidation?

There is a Government scheme which ensures that certain payments, based on statutory maximum figures, can be paid out to employees by the Department of Trade and Industry. These include unpaid wages in the four months prior to the commencement of the liquidation, statutory notice, redundancy pay and unpaid holiday pay. Currently the basis of calculations is on a statutory maximum of £260 gross per week.

Directors are entitled to claim these sums, if they were employees of the Company. In some instances, where a director is also the controlling shareholder, his claims may be challenged by the Department of Trade and Industry.

Can the Company continue to trade up until the date of the meeting of creditors?

In most cases, once the decision has been made to put the Company into liquidation, the directors should cease trading. There are exceptions. In some instances, where there are contracts to finish off, or it will aid the collection of book debts, the business may continue. However, directors have to be very careful to make sure that no further credit is taken. They should seek advice from a licensed Insolvency Practitioner.

Who is in control of the Company once a meeting of creditors has been called?

The directors retain control of the business until a Liquidator is appointed.

Are the directors liable for the debts of the Company?

No. The Company is a separate legal entity and contracts with people or companies in its own right. Unless a director has acted outside of his authority, or has given personal guarantees, that director will not as a rule be liable for the debts of the Company.

Will I still be allowed to be a Company director?

Even if a company goes into liquidation you can continue to be a company director unless you are subsequently disqualified or are made bankrupt.

Is there any way in which I can become personally liable for monies to the Company or its Liquidator?

Yes. If you as a director have acted outside your powers or contrary to the Insolvency Act or the Companies Act. Directors can become personally liable for the increase in the amount of debts owed by the Company from the time a court decides they should have ceased trading, to the time when they actually did cease to trade. This is called “Wrongful Trading.” It is for this reason that we always stress to directors that once a Company is insolvent, with little or no prospect of recovery, it should stop taking any further credit immediately.

The Company owes the Inland Revenue substantial sums. Can they come after me for that?

The Inland Revenue have the power under the 1998 Social Security Act to issue a Personal Liability Notice against any officer of the Company for any unpaid NIC. There must be neglect to pay or fraud on the part of the Company’s officers. The Inland Revenue can pursue individual employees for unpaid PAYE where the employee concerned knew that the employer had not deducted tax.

An overdrawn directors loan account can be regarded as remuneration and made subject to tax.

Directors and their advisors need to be very careful to ensure adequate wage records are kept.

Who can put a Company into liquidation?

The most common form of liquidation is a creditors’ voluntary liquidation, which applies when a company is insolvent. This is instigated by the directors calling a meeting of the Company’s shareholders and its creditors. Lines Henry will assist you in the calling of these meetings.

What happens if the directors/shareholders cannot agree to put the Company into liquidation?

As far as the directors are concerned, once they are aware that the Company is insolvent, they are obliged to act in the best interests of the creditors. If they cannot agree as to whether or not the Company should be placed into liquidation, they run the risk of incurring personal liability for the increase in the level of debts. This liability will run from the time when a court decides they ought to have taken steps to put the Company into liquidation, to the date they actually put the Company into liquidation.

As far as the shareholders are concerned, there must be more than 75% of those shareholders present [in person or by proxy] at the general meeting who resolve to place the Company into liquidation. If this cannot be agreed, it is possible for the Company to go into compulsory liquidation, by a creditor presenting a winding-up petition against the Company.

Who is Chairman at the meeting of creditors?

One of the directors is nominated as the Chairman and must attend the meeting. It is customary for the Chairman to allow a Liquidator to deal with the running of the meeting.

What happens at the meeting of creditors?

A directors’ report will be prepared, which is presented to the creditors at the meeting. This contains details of the background to the Company, the reasons for its failure and statutory and financial information. Creditors will then have the opportunity of asking the director questions about the running of the Company.

What happens after a Liquidator is appointed?

The directors’ powers to control the Company cease. The Liquidator is now in charge of the Company and its assets.

What are the Liquidator’s functions?

The Liquidator’s primary functions are to protect and realise the assets of the Company for the benefit of the creditors. The Liquidator is also obliged to submit a ‘D Report’ on the conduct of the directors, to the Department of Trade and Industry [“DTI”].

What is a D Report?

Under insolvency legislation, all Liquidators are obliged to prepare a report on anyone who has been a director, or shadow director, of the Company within the three years prior to its liquidation. The DTI can prosecute directors, seeking a disqualification order from the courts, for up to 15 years, for those directors whose conduct warrants it.

My company is in financial difficulties, what are my obligations?

Where a company cannot meet its debts as and when they fall due [for example, when it can’t pay its bills on time, or it is having County Court Judgments entered against it], it is regarded as insolvent. The directors need to take action. It may be possible to re-finance the Company or put forward an informal or formal arrangement [a “CVA” or Company Voluntary Arrangement] to its creditors. If however none of these are feasible, then the directors must take steps to cease trading and stop incurring any further credit. All directors have an obligation to make sure that the position does not deteriorate further. Once a Company is insolvent, the directors’ primary duty is to protect the interest of creditors - not the directors or shareholders.

Who does the Liquidator act for once appointed?

The Liquidator acts for the creditors as a whole and has certain statutory obligations which he must fulfil.

What are the directors responsibilities to the Liquidator?

The directors must co-operate with the Liquidator and hand over the assets of the Company and provide him with information. They must also attend the Liquidator’s offices, as and when reasonably required.

MISCELLANEOUS

I would rather certain creditors were not informed of the proposal and kept out of the arrangement.

The nominee must send a copy of the proposal to all known creditors. You cannot pick and choose who you pay. If a creditor is to be excluded details must be given in the proposal and the creditor must agree.

Will my credit rating be affected?

Yes. All the major credit agencies get a monthly update of all IVA’s. They keep a record of the IVA for at least six years from when it commenced.

I have a car on finance. What will happen to it? Will the finance company repossess it?

In most cases, your creditors will allow you to keep a car where it is essential, for example, to get you to and from your place of work. We will include in the proposal a provision that you will continue to pay the finance company their normal monthly instalments. In most cases the finance company will not re-possess the car and will continue to collect the outstanding monthly payments.

Can creditors pursue me for the balance of the debts after the Individual Voluntary Arrangement has finished?

No. The purpose of the Individual Voluntary Arrangement is to ensure all known creditors are bound by a full and final settlement.

What if I lose my job or there is a dramatic change in my circumstances?

There is a provision in the Voluntary Arrangement to call a further meeting of creditors if this proves necessary. In previous cases, where somebody has been made redundant or has become seriously ill, we have managed to persuade creditors to either extend the period of the Voluntary Arrangement or, in exceptional circumstances, consider the Voluntary arrangement complete. The important think is that you tell us as soon as possible when there is a change of circumstances in order that we can do something about it quickly.

What happens if my monthly bills increase, or there is a change in my financial circumstances?

The supervisors will monitor the level of your income and expenditure throughout the duration of the Voluntary Arrangement. Such reviews are usually made every six or twelve months.

When will the meeting of creditors take place?

The meeting will be called for a date approximately six weeks from when you return the duly signed proposal and sworn affidavit to us. This allows for us to forward the paperwork to court, who then return it to us. We are then required to give creditors not less fourteen days notice of the meeting.

How long does it take for a proposal to be prepared?

We expect to have a proposal prepared and returned to you within ten working days of receiving complete answers to the questionnaire we will send you and information we have requested, i.e. bank statements. Delays can occur if the information requested is not forwarded to us, or is not complete.

What will happen to my pension?

It depends on the type of pension that you have. Usually, where you are an employee contributing to your employer’s pension scheme, the creditors will allow you to continue to make contributions to the scheme. If you have a personal pension, then the creditors may insist that all further contributions are frozen for the duration Voluntary Arrangement.

Will my employer be informed?

No. The supervisors of your Voluntary Arrangement will not contact your employer unless required to do so under the terms of the arrangement. If your employers are amongst your creditors, they will of course be notified.

Will the Individual Voluntary Arrangement be advertised?

No. Although a bankruptcy order must be advertised, this is not required in an Individual Voluntary Arrangement.

Will I lose my home?

Usually in an Individual Voluntary Arrangement the debtor is allowed to keep his house and continue to pay the mortgage. In some instances the creditors may require you to sell or re-mortgage the property and contribute all or some of the funds into the Individual Voluntary arrangement.

FAQ About Current Consumer Debt Problems

Our Practice has continued to monitor with great interest this particular problem which will clearly affect many individuals. It has been observed within the majority of the National newspapers that this is clearly a major problem not only for the individuals who find themselves with considerable debt but also the reactions triggered by this situation with the Chancellor and indeed the Bank of England.

Early publication began to materialise during the course of 2003 highlighting this particular problem. For nearly a decade taxes have been relatively low and incomes reasonably high and this in turn has led to the consumer boom. In addition to this there has been little difficulty for most individuals in obtaining significant lines of credit.

There has recently been clear indications that the Chancellor has now become extremely concerned with the significant problem and in turn a number of small interest rate rises have occurred in order to put pressure on consumer spending.

In addition to this individuals filing for bankruptcy for 2003 had reached the highest figure for some 10 years.

How are the Nominee’s and Supervisors fees paid?

The nominee’s and the supervisors fees are paid out of contributions you make Into the Individual Voluntary Arrangement. Generally you do not have to pay any of these fees in advance. We will ask you to provide, once you have sworn the affidavit and signed the proposal, a cheque for court fees of £120.

We hope that this section is helpful in answering some general queries. If you would like to discuss any issue with a partner please call us on 0161 834 7025.

For details on terms used pleased see our glossary.

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