In an effort to think about something other than Brexit, the Business Support & Insolvency team at Boyes Turner have put together a snap-shot of some of the significant updates which have happened in the world of insolvency (as well as in the team) in the last quarter.
What have we been up to?
The Court of Appeal has considered whether interim dividends paid to a shareholder at a time when the company did not have sufficient distributable reserves, making the payments unlawful, could later be reclassified as salary payments.
Facts
The Court of Appeal has given guidance on when the duty of directors to have regard to the interest of creditors arises. This is an important point, as the general statutory duty of a director to promote the success of the company for the benefit of the company's members is expressly subject to the rules on creditors' interests. The court's decision also considers whether a dividend payment can be challenged as a transaction at an undervalue under section 423 of the Insolvency Act 1986.
Facts
Delivering on the announcement in the Autumn Budget, HMRC issued its consultation "Protecting your taxes in insolvency" on 26 February 2019. The consultation proposes legislation that will give HMRC the elevated status to secondary preferential creditor in a company's insolvency. If this is implemented, HMRC will have priority to recover certain taxes from insolvent businesses ahead of other creditors from 6 April 2020.
Receivables financiers, lenders taking security assignments over contractual rights, participants in the secondary loan market and others have an interest in:
In a decision to be welcomed by ratepayers, the Court of Appeal in Rossendale Borough Council and others v. Hurstwood Properties (A) Limited and others [2019] EWCA Civ 364 has confirmed that certain types of mitigation schemes are not sufficient to pierce the corporate veil and transfer liability for business rates to the beneficiaries of those schemes.
Liability for business rates
A year after its collapse, Carillion's insolvency continues to haunt both its supply chain and the wider UK construction industry. Many of those left unpaid had spent months chasing Carillion for payment, all the while staving off payment demands from others. Overnight, their debts became unsecured. The flow of cash from Carillion that would have paid its supply chain dried up. A cascade of consequential insolvencies was inevitable.
What is a Statutory Demand?
A Statutory Demand is a formal 21-day demand for payment issued by a creditor to a debtor.
When can a Statutory Demand be issued?
You can issue a Statutory Demand if your debt is owed from a limited company or an LLP and is a liquidated sum of more than £750 or when a creditor is owed a debt from an individual, a sole trader or a partnership as long as the debt is for a liquidated sum of more than £5000 and is unsecured.
In the recent High Court judgment in VTB Bank (Public Joint Stock Company) v Anan Group (Singapore) Pte Ltd,(1) the plaintiff successfully obtained a winding-up order on a debtor company six weeks after the service of a statutory demand for an underlying debt of $250 million.
In 2018 the Insolvency Service recorded that Company insolvencies were at their highest level since 2014, with a slight increase of 0.7% on 2017. Individual insolvencies were also at their highest level since 2011 with an increase of 16.2% on2017. There was a 19.9% increase on Individual Voluntary Arrangements (“IVAs”) which is the highest level ever recorded. With this in mind, businesses need to focus on tight cash flow across all areas and understand the importance of putting a credit policy in place.