The latest Insolvency statistics
The latest insolvency stats have just been released by the Insolvency Service and it comes as no surprise to see the figures for the past nine months have been historically low- about 40% lower than normal- as companies continue to benefit from the Government support measures and the temporary restrictions on the ability to issue statutory demands and winding up petitions.
The rise in corporate (but not personal) insolvencies in the month of December 2020 did come as a bit of a surprise. There were a total of 1,228 registered company insolvencies, which comprised of:
L-R Martin March, Phil Farrelly and James Whittaker
As we head into 2021 and the inevitable restructure of the economy as we (hopefully) return to some sort of normality, we thought it would be useful to share details about the depth of experience in our Insolvency team and to share some of their experiences during the lockdown.
Partner and Head of Insolvency, Phil Farrelly, will be known to many of you and has been with Bermans since 2005. He is a familiar face on the North West legal scene and has extensive experience of acting for insolvency practitioners, ABL and other lenders and directors in all aspects of corporate insolvency.
The team has recently been strengthened with the arrival of two experienced insolvency solicitors.
The moratorium on evictions for tenants who are behind on their rent has been extended until the end of 2020. The restriction was set to be lifted on 30th September 2020 but the secretary of state for housing, Robert Jenrick, announced an extension to give struggling retailers and other businesses a chance to “focus on rebuilding their business over the autumn and Christmas period”.
The June quarter day saw less than 20% rental payments made and with the next rent quarter day having just passed (29th September 2020) landlords will be bracing themselves for more of the same.
The Corporate Insolvency and Governance Act 2020 (CIGA) became law on 26 June 2020. It contains some temporary provisions required as a result of COVID-19 and some permanent provisions that have been in the offing for a while which will make sweeping changes to the current insolvency rules.
The Temporary Provisions
The temporary provisions are aimed at providing businesses with some relief from problems created by the current COVID-19 pandemic including the temporary suspension of wrongful trading laws and the prohibition of the use of statutory demands and winding up petitions.
Is this the calm before the storm for business?
At the start of the COVID 19 pandemic many were predicting that this could be the busiest time ever for insolvency professionals. Early indications seemed to indicate this with many insolvency practitioners and lawyers experiencing an initial manic period of providing (often free) telephone advice, but most companies now appear to be hunkered down waiting for the lockdown to finish and surviving by utilising the rescue packages created by the Treasury.
L-R Martin March, Phil Farrelly and James Whittaker
North West commercial law firm Bermans, which is celebrating its 50th year in business, has made two key appointments to its busy restructuring team. The team, led by Phil Farrelly, welcomed Martin March as a partner and James Whittaker as a Senior Associate.
Martin has more than 20 years’ experience working in the insolvency and restructuring arena and joins the firm from Knights Plc. A well know face across the North West, Martin focuses on transactional and advisory work, acting for business owners, insolvency practitioners and other professionals in relation to business restructuring. He has been involved in a number of high-profile property related insolvencies involving distressed “investor funded developments”. His focus at Bermans will be on corporate transactions particularly property related insolvencies.
Kate joined Bermans in October 2019 and is currently a trainee solicitor in the Insolvency and Financial Rescue department.
Before joining Bermans, she studied law and French law at Sheffield university, before going on to work as a paralegal at a large national firm and then at an international firm for two years. During this time, she worked in the corporate department where she spent time drafting and negotiating non-disclosure agreements for large debt equity firms.
During her time in the litigation team, Kate will be working with a number of medium to large companies and will have involvement with mediations, hearings, breach of contract disputes, partnership disputes, shareholder disputes, professional negligence claims and drafting court documents.
Outside of work, Kate enjoys working out, skiing, cooking, going out for drinks with friends and binge-watching Netflix.
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The Manchester insolvency team at Bermans advised Andy Hosking, Sean Bucknell and Michael Kiely of Quantuma LLP as Administrators of Bolton Whites Hotel Limited.
The Hotel was a subsidiary of Bolton Wanderers Football Club and operated a 125 bed, 4- star hotel, from premises in the South Stand of Bolton’s Stadium. It provided conference, banqueting and leisure facilities and match day hospitality for the football club from a number of function suites and hospitality areas around the stadium.
A company voluntary arrangement (CVA) is a process that allows a distressed company to pay back its creditors over a fixed period of time. The company may negotiate to pay a proportion of the debt owed to the creditors as opposed to the whole amount thereby reducing its debts.
In order for a company to enter a CVA, 75% of the company’s creditors who vote at the creditors’ meeting must approve the CVA. Once in place, all unsecured creditors are bound by the terms of the CVA.
Is a CVA right for my business?
As with all insolvency processes there are advantages and disadvantages to a CVA.
A successful CVA can allow a company to restructure its cost bases or make any other necessary changes to improve its financial position while continuing to trade.
It is important to note that CVAs are not binding on secured or preferential creditors (such as employee wages or banks with security). There is also no automatic moratorium preventing creditors from taking action during the application process (unlike with Administration), so a CVA proposal may prompt creditors to consider a more formal insolvency process.
It is important to seek advice to see if a CVA is right for your business.
There are strict procedural requirements and time scales that must be complied with when applying to enter into a CVA. The CVA must be supervised by an insolvency practitioner (IP). The IP plays a key role in the application process.
For a proposed CVA to stand a chance of success it is essential that you seek early professional advice.
Get in touch if your business is experiencing financial difficulties and you would like to explore whether a CVA could assist. We regularly advise companies and IPs in relation to CVAs including, drafting documentation, attending creditors’ meetings , advising on any modifications put forward by creditors or any objections. We also assist clients where a CVA proposal has been unsuccessful or where a CVA has failed.
Company directors can be disqualified if they do not meet their legal responsibilities. When a company is unable to pay its debts the law sets out a number of specific duties that a director must comply with. However, this is likely to be a highly stressful situation and it is not uncommon for directors to be in breach of one or more of their duties for example, by continuing to trade the business when they know it cannot pay its debts.
If this happens they may be disqualified from being a director. Disqualification is for a specified period, between two years and 15 years. During that time the director is prohibited from being a director of a company, or directly or indirectly being concerned or taking part in the promotion, formation or management of a company without the court’s permission. The term ‘director’ is widely defined in the law and can include individuals who do not have the title ‘director’.
The court also has powers to order a disqualified director to pay compensation to the Company for the benefit of its creditors.
The Insolvency Service
When a company enters into a formal insolvency process a director’s behaviour will come under scrutiny. The liquidators or administrators are required to make a confidential report on the directors’ conduct to the Insolvency Service which may investigate you if there has been a report complaint of unfit conduct.
Unfit conduct covers the following:
- Allowing a company to continue trading when it can’t pay its debts
- Not keeping proper company accounting records
- Not sending accounts and returns to Companies House
- Not paying tax owed by the company
- Using company money or assets for personal benefit
For many directors the first knowledge they may have that there is a threat of disqualification will be the receipt of a letter from the Insolvency Service.
When operating a distressed business you will be making difficult decisions. Having a clear understanding of what is legally required of you is essential.
If you are concerned that you could face disqualification proceedings or if you receive correspondence from the Insolvency Service regarding your conduct as a director, you should seek professional advice as soon as possible.
We have acted for directors facing disqualification proceedings. We have also advised Insolvency Practitioners (IPs) on whether the actions of company directors amount to a breach of their duties. In addition, we have advised individuals who have been disqualified on their roles post disqualification and we have applied for leave of the court for them to hold office during a period of disqualification.