This is often a question for faced by office-holders of insolvent companies when investigating a company’s affairs, and more of a concern for former directors and shareholders when potentially facing a claim for the return of unlawful dividends or misfeasance.
When creditors are demanding payment and money is tight the easiest thing to do is pay those who are shouting the loudest. Often HMRC debts, including Winding Up Petitions, are ignored in favour of paying suppliers so that a business can keep going. However, ignoring HMRC can lead to unavoidable failure of a company.
In the case of Newwatch Ltd v Bennett, the court ruled that After The Event insurance (ATE) policies could not be used as adequate security for costs by the claimant companies who were based in Denmark and Jersey.
The Financial Accounting Standards Board (FASB) issued proposed amendments on June 26, 2013, to provide guidance about management's responsibilities in evaluating a company's going concern uncertainties in addition to the timing and content of related footnote disclosures. Even before a company’s liquidation is imminent, there may be uncertainties about a company’s ability to continue as a going concern and, therefore, about its going concern presumption (going concern uncertainties). Currently, there is no guidance in the U.S.
The majority of businesses have periods of stress and distress during their life cycle. The keys to managing these periods to achieve a successful profitable business are recognition, decision and implementation.
In most cases, management are aware (from available internal management information) of issues arising before they do in terms of a potential reduction in revenue or increase in cost. Once these periods are recognised management can move to address them by taking decisions to manage the situation to a positive outcome.
The issues concerning validity of appointment, which arose following the decision in Minmar Limited v Khalastchi have been considered in a number of recent cases, most recently BXL Services Limited [2012] EWHC 1877 (Ch).
In these parlous economic times, more businesses are facing increased financial pressure, resulting in periods of stressful trading. In such cases, consideration needs to be given to the development of a sound strategy that allows the company to successfully continue to trade and pay its creditors.
The purpose of this article is to address some of the “tools” available to assist directors in the restructuring of a company.
The recent case of F Options Ltd v Prestwood Properties Ltd concerned the setting aside of a transaction as a preference under section 239 of the Insolvency Act 1986.
A preference arises when a company's creditor is put in a better position than they would otherwise have been in the event of the company's insolvency. Transactions may be a preference whether or not the parties are connected, but where it can be shown that there is a connection within section 249 of the Insolvency Act 1986, two important advantages are gained:
The law allows any person to be treated as a director even though that person has not been formally appointed as a director. Such directors are known as de-facto directors. By contrast, a de jure director is a person who has been validly appointed as a director.
The recent case of Re Snelling House Ltd (In Liquidation) [2012] EWHC 440 (Ch) serves as a useful reminder to consider possible claims against de-facto directors who may be acting under the wrong impression that they are beyond reprehension.
The facts
It is looking increasingly likely that 2012 will be another difficult year for the automotive sector, leading to a decline, not only in vehicle sales, but also in goods and services supplied to the sector. As a result, businesses may experience cash flow problems and increased creditor pressure to pay invoices.