Introduction
Welcome
to the first issue of Insolvency Update in 2004: the publication
which raises current insolvency topics and keeps you in
touch with developments. Meston Reid & Co have been
operating in the local insolvency market for the last fourteen
years and it seems that like income tax, corporation tax
and VAT legislation (all of which have had a significant
head start), insolvency legislation becomes ever more complex
without creating any clear and logical structure. Perhaps
this is one reason why so many people consult us on a regular
basis.
The
choices available for an individual facing debt problems
are bewildering and include: time to pay order, time to
pay direction, unprotected trust deed, protected trust deed
and sequestration. The Scottish Executive are about to introduce
a new debt administration scheme and are seeking feedback
on a proposed new bankruptcy bill. With poindings being
replaced by attachment orders in 2003 and the Debtors (
Scotland ) Act 1987 being watered down in terms of its effectiveness,
it is a significant challenge for an insolvency practitioner
to keep abreast of the interaction of all these mechanisms
and provide practical advice. As with corporate matters,
where a corporate voluntary arrangement, administration,
liquidation, receivership, or debt moratorium are all valid
options, the advice given rather depends upon who one is
acting for and the basis of such advice.
Confused?
Fear not, the experienced and dedicated team at Meston Reid
& Co are skilled in providing a path through the jungle
of options available and are proud of the quality reputation
enjoyed by users and referrers of the service. In thanking
you for your support, the Meston Reid & Co insolvency
team will continue to work hard in order to stay at the
top of the tree.
Be
careful what you Sign
In
a judgement issued last year a court in England held that,
where a married couple had signed a standard bank mandate
for a joint current account, which allowed either spouse
to sign cheques and made both liable for any overdraft,
and the husband ran up a large overdraft which he could
not pay, the bank was entitled to recover money from the
wife, despite the fact that she had not authorised the borrowing
or indeed, even been told about it. A salutory lesson for
either spouse and, without encouraging marital discord,
any document that looks official should be read/reviewed/understood
before it is signed.
Any
solicitor or accountant providing advice to a client should
ensure that a client is made fully aware of the impact and
effect of signing any bank documentation .. or risk a visit
to the professional indemnity insurer's office!
Proceeds
of Crime Act 2003
The
above act came into force in Scotland in 2003 and continues
a confiscation and restraint regime created by earlier legislation.
The act establishes an Asset Recovery Agency whose functions
include recovery of assets created as a result of criminal
activity. This is relevant for insolvency practitioners,
because a restraint order may have been placed on an individual's
or company's assets prior to the onset of formal insolvency
proceedings, which could well thwart efforts to recover
such assets for the benefit of a general body of creditors.
Not everybody in life is as pleasant, decent and honest
as one would like them to be, and if a creditor is trying
to recover monies from a recalcitrant payor, delay in commencing
proceedings may result in assets which would otherwise be
available being ring-fenced for crown purposes.
Fortunately
for an insolvency practitioner, if he seizes or disposes
of property which is subject to a restraining order, he
will not be liable for loss of damage caused by such action,
other than of negligence, if he had reasonable grounds for
believing that he was entitled to seize or sell them. He
may have to pay the majority of proceeds to the crown in
any event, but at least he avoids a more sinister penalty.
I
Didn't Vote for Him!
There
has been much comment, mostly favourable, about the new
rules for an administration: as introduced by The Enterprise
Act 2002. The new rules allow the directors of a company
in financial difficulty to appoint an insolvency practitioner
on an out-of-court basis to act as administrator, one of
his tasks being to table proposals at a meeting of creditors.
There
is concern that, included at the end of a long list of proposals,
will be a paragraph allowing the administrator to continue
as liquidator if there is likely to be a distribution to
unsecured creditors and hence, unlike any other liquidation
when creditors have an opportunity to appoint someone to
look after their interests, this option is lost. Some commentators
have referred to "disenfranchisement of creditors" because
the directors can select an insolvency practitioner who
might be sympathetic to their position e.g. an insolvency
practitioner whose main place of business is outwith the
local area and hence, may not be fully conversant with local
knowledge/events/feelings, with no mechanism to disrupt
such arrangement when the administration becomes a liquidation.
This
seems a curious situation given the fact that the current
government has sought to try and involve creditors in the
insolvency process as a result of several other provisions
of The Enterprise Act 2002 e.g. ring-fencing monies for
distribution to unsecured creditors, where such monies would
have been retained by the floating charge holder under the
previous system. Certainly, as far as creditors are concerned,
it is important that the administrator's proposals are studied
in detail and voted upon, in whole or in part, at the meeting
which tables such proposals.
If
you do not act, or instruct someone to act for you, do not
complain when your dividend prospects disappear down the
drain.
Another
Stealth Tax?
When
a company ceases trading and has more than sufficient assets
to settle all known creditors, extra statutory concession
C16 has become a popular route of distributing monies to
shareholders under the capital gains tax regime. This route
is adopted because it is normally perceived to be less expensive
than a members voluntary liquidation but beware, any monies
distributed other than by a liquidator and which are in
excess of the level of distributable profits at date of
liquidation can be challenged by the Treasury. The risk,
however faint, is that the Treasury could seek to reinstate
a company once it has been struck off and claim that monies
were paid out incorrectly under extra statutory concession
C16 and ask a court to award the excess over the level of
distributable profits by way of "bona vacantia".
The
larger the amount of money in question, the higher the likelihood
of a Treasury challenge because, as we keep hearing in the
media, the government is continually searching for methods
of raising money. Thus, whilst the capital gains tax regime
is often the most beneficial as far as shareholders are
concerned, final company distributions must be approached
with caution otherwise Gordon Brown might be knocking at
your door.
Conclusion
This
insolvency update is provided for general information purposes
and does not purport to provide definitive advice on the
topics covered.
Further
information can be obtained by contacting either Michael
Reid (Insolvency Practitioner) e-mail reidm@mestonreid.com
or Michelle Byrne (Insolvency Manager) e-mail byrnem@mestonreid.com
who will be pleased to meet with you for a no obligation
consultation.
Thank
you for taking the time to read this update.
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