Fact Sheet 3: What you NEED to know when your debtor is Insolvent

Fact Sheet 3 – What can you do when you hear that a debtor is insolvent? What does this mean for you as creditor?

More frequently, we are approached by clients who have “heard” that their debtor is insolvent. It might be that the business has heard this on the grapevine, or that they have heard informally from the debtor. Alternatively, a business might have received formal notification from an appointed insolvency practitioner.

Insolvency Jargon

There are a number of different types of corporate insolvency and a great deal of “jargon” which sometimes causes confusion for creditors. The most common phrases you will hear are “administration” and “liquidation”. This fact sheet focuses on these two areas of corporate insolvency.

Administration

If a business is in administration, it means that an administrator has been appointed to replace the directors for the purpose of “assessing” whether the Company can be rescued; whether the company or its assets should be sold; or whether the company should be wound up.

Whilst a Company is in administration, a moratorium exists which prevents creditors from pursuing a claim against the Company, without the authority of the Court or the administrator. The purpose of the moratorium is to protect the assets of the Company whilst the administrator is deciding whether the Company can be rescued or not. The moratorium lasts for the duration of the administration. The administration will come to an automatic end after 12 months unless the creditors, or Court, agree to a further extension of up to 6 months.

The administrator is an officer of the Court and as such, must act in the best interest of all creditors generally. Within 8 weeks of appointment, the administrator will make proposals to creditors, for achieving the purpose of administration. In the majority of cases, within 10 weeks of appointment, the administrator will also hold a meeting of the creditors. The purpose of the meeting is to enable the creditors the opportunity to vote in favour, or against, the administrator’s proposals.

What should you do if a debtor is placed in to administration?

Upon discovering that a debtor is in administration, you should ensure that the administrator is aware of the debt! It sounds obvious, but it is dangerous to assume that your debtor has recorded all unpaid invoices on its accounts package. Therefore, you should inform the administrator of the debt to ensure that you receive the administrator’s proposals and details of the creditors meeting.

If an administrator has been appointed, the appointment should be registered with Companies House. Therefore, if the debtor will not disclose details of the appointed administrator, you can find details of the administrator at Companies House.

Once you have proved your debt to the administrator, there is little else you can do pending conclusion of the administration. In reality, it is highly unlikely that unsecured creditors will receive any payment during the period of administration. If at the end of the administration, the administrator places the company in to liquidation, you might receive something towards the debt following the liquidator’s appointment. Whether you will receive a payment, and how much you receive, will however depend on whether there is any money “left in the pot” following payment to secured and preferential creditors.

You should of course take advice from your accountant regarding the impact on your accounting obligations, following the debtor’s administration.

Liquidation

A business may be wound up / placed in to liquidation, in one of three ways;

1. By a shareholder resolution (this should only happen where a Company is solvent); Members Voluntary Liquidation;
2. By creditors application to wind up a Company due to the Company’s inability to pay its debts; Creditors Voluntary Liquidation;
3. By Order of the Court; Compulsory Liquidation

The liquidator will take control of the Company’s assets and his / her primary duty is to realise assets and distribute to the creditors according to a specific order of priority.

In the case of a Compulsory Liquidation, the Official Receiver will be appointed to investigate the causes of the Company’s failure. The Official Receiver will call a Meeting of Creditors within 4 months from the date of the winding up order. At least 21 days notice of the meeting must be given to the Court and to all Creditors. The notices issued will inform the creditors of the date by which a proof of debt and proxy must be lodged, in order for the creditor to vote at the meeting.

Once the distribution to creditors has been completed, the Company will be dissolved.

What should you do if a debtor is placed in to liquidation?

Upon discovering that a debtor is in liquidation, you should ensure that the liquidator is aware of the debt! It sounds obvious, but it is dangerous to presume that your debtor has recorded all unpaid invoices on its accounts package. You will need to lodge a formal proof of debt with the Liquidator if you are to be able to vote at the creditors meeting and / or receive any distribution throughout the liquidation process.

If a liquidator has been appointed, the appointment should be registered with Companies House. Therefore, if the debtor will not disclose details of the liquidator, you can find details of the liquidator at Companies House.

Whether you will receive a payment, and how much you will receive, will depend on how much is left once the liquidator has paid out debts in accordance with the statutory order of priority.

You should of course take advice from your accountant regarding the impact on your accounting obligations, following the debtor’s administration.

Avoiding Insolvency

Whilst you will not completely avoid the risk of an insolvent debtor, you substantially increase the likelihood of your debtor becoming insolvent with every day that passes following non-payment of an invoice. The key is to be proactive in your credit control process and to ensure that there is no unnecessary delay in appointing a Solicitor following exhaustion of your credit control process.

I would recommend that our low cost debt recovery service, which enables you to send a letter to a debtor threatening Court action for £2.00 plus VAT, be seen as an automatic extension of your debt recovery process. In other words, the moment your letter cycle has been exhausted, I would recommend that you instruct us to send a letter to your debtor, so that continued pressure is applied.

Many companies are juggling debts and paying those creditors that “shout the loudest”. Your debtor may however, get to the point where it can no longer juggle debts and therefore, insolvency is unavoidable. To limit the risk of you being heavily exposed to one of your major customers when their insolvency is a risk, I would recommend sending a letter before action / issuing Court proceedings, through our service, in order to add volume to encourage your debtor to prioritise your debt before it is too late.

Maria Koureas-Jones

© Breeze & Wyles LLP 2011

This blog content does not represent legal advice. Every situation is different and you should seek legal advice if any of the content applies to you.

Get your head out of the clouds and protect electronic assets

Online assets could end up in a black hole or in the hands of fraudsters, if individuals do not find a secure route to pass on to their family confidential passwords and account information in their wills

Billions of pounds worth of online assets could end up in a black hole or in the hands of fraudsters.

Research has shown that nearly half of adults in Britain now own internet-hosted assets, but many are failing to protect confidential information or finding out how to pass these assets on when they make their will.

A recently-published survey by London University’s Centre for Creative and Social Technology reveals that 44% of adults in Britain have internet banking accounts, eBay accounts or personal records such as digital photograph albums. The total value of these assets is valued at £2.3 billion.

Many of those surveyed had not drawn up a will that would protect these assets and ensure they passed on to their family. Since the assets are intangible and often not evidenced by paper files of monthly statements, there is a danger that they will be forgotten, or that the family are aware of their existence but cannot access the personal belongings because they do not know the password.

The other problem highlighted by the London University survey was that 11% of those questioned either had mentioned, or intended to mention, each account number and password explicitly in their wills, and this can give rise to a danger of fraud.
Breeze & Wyles explains: “After a person dies, the executors named in the will must apply for confirmation of their appointment. Once the Courts issue this confirmation, known as a Grant of Probate, the will is a public document; anyone can request a copy of the will and if it sets out account numbers and passwords, a fraudster could potentially gain access to those internet accounts or private documents.”

They went on to advise that any personal information that should not be published should be kept with the will in a separate envelope; that way it will remain secret but will not be overlooked.

They added: “The plain fact is that there are many unregulated will writers who don’t have the specialist knowledge. The best thing is to go to a specialist solicitor, particularly if they are a member of the Society of Trust and Estate Practitioners, then you know they will be properly qualified, regulated and insured, and will give knowledgeable advice so you achieve the outcome you want.”

This week is National Write a Will Week and current figures suggest that around 70% of the population have not made a will, leaving their dependents to deal with the intestacy rules.

ENDS

Web site content note:

This is not legal advice; it is intended to provide information of general interest about current legal issues.


Property; New Homes CQS Update

Potential pitfalls await unprepared buyers of newly built homes warns CQS accredited Breeze & Wyles Solicitors LLP

Home buyers choosing to purchase newly built properties face pitfalls with yet further complications when buying a property before it is even built or where it is only partly built, says Breeze & Wyles Solicitors LLP in Enfield.

Breeze & Wyles Solicitors LLP, which earlier this year secured the Law Society’s Conveyancing Quality Scheme status, says that the legalities of buying newly built property differs from buying a second hand property and there are different factors to consider such as whether the property will be approved as suitable for occupation and whether the new roads and drains will be built properly.

The warning comes as recent research by Which? shows that more than half of those homeowners surveyed who had bought a newly built property in the last five years experienced problems, including delays and unexpected additional costs.

John Appleton said: “Buying a new home requires some additional preparation in advance with your solicitor. Establishing whether the plans reflect what is registered at the Land Registry and finding out whether the property complies with all of the planning and building regulation requirements are particularly important for newly built properties.

"In addition, making sure the contract sets out everything the builder has agreed to do, such as laying a lawn, installing additional sockets and laying carpets is important.

“At Breeze & Wyles Solicitors LLP we are familiar with the tighter deadlines, pre-exchange contract issues, as well as the special procedures including the need for an additional valuation involved in obtaining a mortgage for a newly built home.”

Breeze & Wyles Solicitors LLP says that a raft of legal issues need to be checked, such as planning permission, rights of drainage and water supply, as well as rights to use all pipes and cables to the property. Your solicitor will also ensure that building regulations have been adhered to, a special insurance for new homes is obtained and issues relations to roads on the estate where the property is being built comply with the Highways Act.

John Appleton adds: “Buying a newly built house comes with many benefits – no chain, a brand new home and often appealing finance packages on buying. However, the downside is that there is more to it than signing on the dotted line. Getting help from a CQS accredited solicitor such as Breeze & Wyles Solicitors LLP should be the first port of call when a newly built house.”

Breeze & Wyles Solicitors LLP underwent a rigorous application and assessment by the national Law Society to become part of CQS initiative, which recognises high quality in residential conveyancing. CQS has the support of the Council of Mortgage Lenders, the Building Societies Association, Legal Ombudsman and the Association of British Insurers.

Ends

Breeze & Wyles Solicitors LLP
Contact by e mail: john.appleton@breezeandwyles.co.uk


Employment Law Newsletter October 2011

Dear Employer

You may have seen in the press news that, to many employers, will seem like a sign that the Government is finally doing something for employers: the current qualifying period for the right to claim unfair dismissal will be extended from next April from 1 to 2 years. This was the length until just over a decade ago, when it was reduced for the protection of employees who had been dismissed after that length of time for no proper reason and without any recourse to justice. In an attempt to ease matters for struggling businesses (or perhaps to gain votes), the present Government has proposed this change. The Government claims that increasing the period to 2 years, combined with other proposals, should see the number of unfair dismissals claims drop by around 2000 per year but watch this space. On paper it sounds good but of course it may give rise to more discrimination claims, for which there is no qualifying period.

In the meantime, remember prevention is generally better – and cheaper – than cure. If you have any problems, take advice before they fester. If in doubt, shout – we are here to help, at our brand new modern offices in the centre of Hertford.

If you have any comments or suggestions on this newsletter, please email newsletter@breezeandwyles.co.uk

Kind regards

The Employment Law Team

Some Recent Changes and Cases in Employment Law

1. The cost of disability adjustments

A recent case has reaffirmed the principles which govern the employer’s liability to make reasonable adjustments for a person who is disabled, whether under the previous Disability Discrimination Act or the current Employment Equality Act. In this case the Foreign and Commonwealth Office (FCO) refused to provide a team of “lip speakers” to support a deaf employee’s proposed role in Kazakhstan. The Employment Appeal Tribunal noted that, while cost is not decisive in deciding whether an adjustment is reasonable, this does not mean it is not relevant: not even the Government’s resources are infinite.

The EAT upheld the decision of the Employment Tribunal that the support the employee had requested was not a reasonable adjustment. The EAT said that tribunals are required to make a judgment on how much it is reasonable to expect employers to spend based on what the tribunal considers right and just in its capacity as an industrial jury. This may include a number of considerations such as the size of any budget, what the employer has spent in comparable situations, what other employers are prepared to spend and the policies set out in any applicable collective agreements. However, such considerations, even where they have been identified, can be of no more than suggestive or supportive value: there is no objective measure for assessing one kind of expenditure against another. Cordell v Foreign and Commonwealth Office CEAT

2. Employee status

In a new case on employee status an Employment Tribunal has found that an independent financial advisor who was purportedly self-employed was in fact an employee. In the Tribunal’s view, a key element pointing to employee status was the need to comply with Financial Services Authority (FSA) requirements. The Tribunal considered that the training and supervision obligations that this entailed contributed to a sufficient element of control, always a necessary element in the employer/employee relationship, over the claimant’s work. The employee’s status came to light when he was told that his self employment had ceased and he lodged several claims, including unfair dismissal.

Whilst the tribunal’s decision does not set a precedent, it suggests that compliance with FSA standards mean the “control” aspect of employment status is more likely to be satisfied. The same reasoning could be applied in other highly regulated sectors, e.g. where there is a need to comply with Health and Safety Regulations. (Johnson-Caswell v M J B Partnership Ltd)

3. Agency Workers

As advised in our last newsletter, the Temporary Agency Workers Regulations came into force on 1st October 2011. In order to allay any fears about the burden that the Regulations may place on employers, it is worth noting that:

• The regulations are not retrospective, i.e. the 12 week qualifying period for employee rights for existing agency workers will start only from the 1st October 2011;

• Regulations do not give agency workers employment status as such. The right to claim unfair dismissal is much more limited than for the “usual” employee. The Regulations provide narrower entitlement, for example the following:

o From day 1: same entitlement as comparable employees to, for example, provision of staff canteens, staff rooms, car parking etc. Hirers must also ensure that agency workers have the same information about the company’s job vacancies that would be available to comparable staff;

o After 12 weeks: the worker is entitled to receive the same treatment in respect of certain pay and other basic working conditions as if they had been employed directly by the hirer. This includes pay and bonuses, working hours, annual leave etc. There does not need to be an actual comparator for this entitlement.

The above is very much a summary of the situation.

What’s in the pipeline

1. From 6th April 2012 the qualifying period for the right to claim unfair dismissal will be extended from 1 year to 2 years.
The Employer Traps and Other Tips

1. Selection for Redundancy
Remember that the criteria that you use for redundancy needs to be transparent to avoid complaints and possibly claims.
2. Notice of Termination
We regularly see contracts of employment in which the period of notice to be given by the employer to the employee is unlawful, as it does not constitute the statutory minimum. This is one week for every complete year the employee has worked. The contract can provide for more than this but it cannot provide for less.


Debt Recovery Proposal

Following significant interest in the previous blog I have been asked to publish on the web our debt recovery proposal.

Here it is

http://www.breezeandwyles.com/DebtRecovery/pricing.html


How to avoid holding the Debt Parcel when the music stops playing!

Brendan O'Brien, Director and Head of Business Services at Breeze & Wyles Solicitors LLP says:

'This recession is unlike any other. At a time when it is difficult to do business due to lack of funding or risk taking an histoically low number of businesses are taking formal insolvency procedures.'

He asks: 'Why is this?. Traditionally in previous recessions there has been very little support from lenders and HMRC alike. This time around with lenders applying flexibility to their financially distressed customers and the HMRC's "Time to Pay" solution businesses are able to stay afloat when in the past they would not.'

'So what does this mean? This situation cannot and will not continue. When the change occurs no-one can really foresee. However, inter business debt, short term debt often in significant amounts has been increasing both in terms of amount per business and also perhaps more pertinently in the time it takes to pay that debt. Without knowing it good businesses are prejudicing their continued existence by tying there long term survival to weaker businesses.'

'You have delivered the goods or services and are awaiting payment. You have probably increased your credit terms to some of your key clients. However, there is a point where you must consider whether the business risk is too great. Yes, the sales force will argue that a customer is a key account and maybe they are right but there comes a point where you must decide whether your exposure is reaching a point of no-return. If they are not paying you then they are probably not paying a lot of other people and this is when the "Pass the Parcel" game begins. The debtor will try to pay those who shout the loudest to ensure the continued existence of the business. However, survival is not inevitable. When the debtor is no longer able to delay the formal insolvency procedure "ARE YOU ONE OF THOSE CREDITORS HOLDING THE PARCEL"?. An insolvency event is likely to give very little by way of return, say single pennies in the pound of what you are owed.'

'The only way to avoid this situation arising is to ensure that you have a good end to end credit control/debt recovery solution in place that is constantly working for you and that you are not afraid to upset a long standing customer relationship to ensure your own survival. A good customer will explain their problems and keep the channel of communication open to you. A poor one will ignore you. Another option is to review your credit terms and align them to your clients but stick to them and apply limited or no flexibility in their operation.'

'Finally, look at the debt recovery market and ensure that you are working with lawyers who understand the debt recovery market and have other 'non-legal' weaponry at their touch. Debt Recovery should not be expensive. The days of hourly charges in debt recovery ended many years ago as debt recovery became commoditised. Those lawyers proactively operating in the debt recovery space should be able to provide you with a section by section pricing to ensure that your invoices get paid. Those prices should make you ask why you hadn't thought of this before.'

'Our system is a great example of what is on offer. We will send a letter before action for £2.00 (yes TWO POUNDS!!) to your debtor. the remainder of the costs of the debt recovery cycle are equally surprising. Why dont you try it out?'

If you are interested in working with the Breeze & Wyles Solicitors LLP Debt Recovery team to ensure your survival contact brendan.obrien@breezeandwyles.co.uk for a copy of the full debt recovery proposal and pricing structure. If you debt recovery needs are different to the standard we have worked with other clients to create a niche product for them and we will be able to do so for you.

Business needs to look inside the latest gift horse on employment rights

The latest changes to unfair dismissal rights are not a clear cut route to fewer tribunals as discrimination claims are likely to fill the gap and employers must also deal with the challenge of managing social media in the workplace
Following the announcement of a new two-year qualification period for unfair dismissal by the Government last week, experts are warning employers that it may just mean a shift in the type of claims made.

Under current rules, a claim for unfair dismissal can be made after being with an employer for a qualifying period of one year. That will increase to two years from April 2012, and the Government is also looking at a proposal to charge the employee a tribunal fee of up to £1250 to bring any such claim.

The announcement has come following consultation on routes to resolve workplace disputes and encourage business to stimulate employment prospects, but experts are saying it’s unlikely to bring the benefits promised.

Said Jane Dismore, employment expert with Breeze & Wyles Solicitors LLP : “The Department for Business has suggested this change could save employers £6m a year in tribunal costs, and see unfair dismissal claims fall by around 3000 a year, but it’s very likely that we will simply see an increase in other types of claim which are potentially more costly and time-consuming to defend.”

Claims are increasingly being linked to discrimination and to whistle blowing, which can be made from day one of employment. It is being predicted that these will rise, as workers who believe they have been dismissed unfairly before the two year qualifying period could claim they were discriminated against, or harassed for speaking out about company practice. Discrimination claims currently have no upper limit at tribunal, whereas unfair dismissal is capped at £68,400.
Recently published figures from the Ministry of Justice show there was also a sharp rise in the number of claims for age discrimination last year, and with the recent removal of the default retirement age at 65, these look set to increase.

And now the latest area to come under the spotlight for employment practice is managing social media in the workplace. Cases are on the up, with two recent examples highlighting the need for companies to have clear policies in place to avoid this new minefield. Earlier this year, pub chain Wetherspoons successfully defended an unfair dismissal case after an employee posted rude comments about customers on her Facebook account during working hours, with judgement going in their favour because they had a clear policy which set out grounds for disciplinary action, and which they had properly implemented.

But in the most recent tribunal decision, Whitham v Club 24, an employee who let off steam on Facebook was found to be unfairly dismissed. Here the case hinged on the lack of clear social media policy combined with a failure to follow the processes that were in place for misconduct.

Jane added: “Of course employees need protection against bad employers, but more often than not, cases will succeed because due process has not been followed by an employer, rather than because of any planned intent. The moral is that employers must make sure they keep up to date with the law and that both policy and practice are robust - that is the surest way to reduce this risk and minimise tribunal costs.”

The proposal to introduce a tribunal fee on employees is intended to tackle weak and groundless claims, and this will go to consultation next month to look at the amounts involved, and what reduced rates may apply to those who are unemployed or on low incomes. It is unlikely any such fee would be introduced before 2013.

ENDS

Web site content note:

This is not legal advice; it is intended to provide information of general interest about current legal issues.

http://www.direct.gov.uk/en/Nl1/Newsroom/DG_199636
Whitham v Club 24 Ltd t/a Ventura
Preece v JD Wetherspoons Plc

Breeze & Wyles Solicitors LLP exhibiting at the Watford Business Expo

Modern Marketing Methods

Breeze & Wyles Solicitors LLP shall be exhibiting at the bestbusinessexpo on Wednesday 12 October 2011. To see us at the exhibition the details are as follows:

Starts: Wednesday October 12, 2011, 10:00AM BST
Ends: Wednesday October 12, 2011, 04:00PM BST
Event Type: Other
Location: Ramada Hotel
Watford, HERTFORDSHIRE GB
Price:
Website: http://www.bestbusinessexpo.co.uk
Industry:
Keywords: Business Expo Exhibition Event Seminars Workshops Networking Watford Hertfordshire Marketing
Intended For: Business Owners, Decision Makers
Organization:

Business 2 Business Expo theme "Modern Marketing Methods" Free to attend Seminars from Steve Clark and Dexter Moscow well known Marketing Personalities. Networking, Workshops and approx. 50 Exhibitors. Visitors must Register to get Free Entry. peter@bbexpo.co.uk


Murphy’s Law threatens premiership football revenues

European ruling in the case of publican Karen Murphy opens the way for Premier League football to be shown using cheaper foreign decoders. European ruling opens the way for Premier League football to be shown using cheaper foreign decoders

A ruling by the European Court of Justice has opened the door for millions of households and pubs across the UK to receive cheap screening of live Premier League matches via other EU television companies.

In its judgment delivered on Tuesday morning (4th October) the ECJ has declared that the Premier League’s business model - whereby the rights to broadcast premier league matches are sold to different companies on a country by country basis - is contrary to the principle of the single European market.

The case was brought by Karen Murphy, a publican in Portsmouth, who was fed up with paying over £8,000 a year to Sky for a commercial licence to screen Premier League games at the Red White and Blue pub in Southsea. Instead she bought a satellite dish and decoder from NOVA, a Greek company at a cost of £800 per year.

NOVA had a licence to broadcast Premier League games in Greece, but the broadcasting footprint covered by NOVA extends far beyond their national borders, meaning anyone with the right equipment is able to receive the NOVA broadcast within the footprint.

Mrs Murphy screened Premier League matches at her pub and was prosecuted by Media Protection Services for an offence under the Copyright Designs and Patents Act 1988. She was found guilty and fined but she appealed and the Court of Appeal referred the question of the legality of the Premier League’s arrangements to the ECJ.

“The ruling is highly controversial. It’s still being interpreted, and we also need to see how the High Court responds,” explained Brendan O'Brien.

“The copyright industry works largely on a territorial basis and to have ruled that this approach is illegal within the European Union would have caused chaos. The ECJ ruling stopped short of this and said that a football match is not an artistic work that can be copyrighted.

“But although the ruling went in favour of Karen Murphy, there is still a problem, as all the graphics, video and music in the opening titles are still subject to copyright, and cannot be screened in commercial premises. There may be ways around that, but the Premier League is likely to move to take action where they can, for example through encoding, or it may pose problems if the sponsor’s logo is painted on the pitch.”

Any venue showing TV broadcasts must still ensure they have a commercial premises licence from a broadcaster, even if now the licence may possibly be from a broadcaster in a different EU country.

Sky has paid £1.6 billion for the exclusive right to broadcast Premier League matches in the UK and it provides all the cameras, equipment and operators at Premier League games. If that exclusivity is unenforceable, it not only loses the asset it paid for, but also is providing its equipment and skills for the benefit of competitors.

The Premier League is likely to have to radically rethink the sale of licences if this judgment stands. Sky is unlikely to want to pay £1.6bn when it renews its licence in 2013 if the British public have deserted it for cheaper European providers.

And according to sports pundits, it could turn out to be a hollow victory if the Premier League loses its vast television revenues, as it is likely that English football will suffer from top to bottom; the Premier League clubs will lose income for youth development and buying the best players and the lower leagues and grassroots football clubs will lose out too.

But in the meantime, the ruling also looks to be a victory for sports fans at home, as they may be able to buy a cheaper service from elsewhere in the EU. However, English fans are unlikely to give the Greek economy the much-needed boost it needs, as although the NOVA commercial service is considerably less, the consumer service currently costs more than Sky.

He added: “It’s undoubtedly the start of more, rather than less, discussion on the topic of what constitutes copyright, not least from the fans themselves who could well argue that the beautiful game is indeed a work of art!”
ENDS

Web site content note:

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Reference:
European Court of Justice, plus related cases: Murphy v Media Protection Services (case C-429/08) and Premier League v QC Leisure and others (case C-403/08).

For High Court decision: http://www.bailii.org/ew/cases/EWHC/Admin/2007/3091.html