Stock market wobbles, debate about
the timing of the change of occupant at No. 10, forthcoming
local and national elections this May, growing uncertainty
about interest rates and inflation, and continuing confidence
in the domestic property market, all serve to create uncertainty.
Many of the high street stores that report increased sales
acknowledge that it is at the expense of gross margin and
many businesses begin to wonder how to position themselves
in order to insulate against a retreat in the economy, and
to take advantage of opportunities which will arise when
the economy gets tougher.
It could be argued that the North East economy is lucky
because it is sheltered by the oil price and related activity,
but this can create its own challenges. For example, there
is evidence that some companies are becoming somewhat lax
in collecting cash because profits are high with good cash
flow: but it might be suggested that a dangerous situation
will develop when cashflow tightens, and the debtor book
suddenly appears old and difficult to recover. Whether there
is national uncertainty or local buoyancy one must always
be in a position to exercise careful stewardship over one’s
financial affairs.
The
Bankruptcy and Diligence etc. (Scotland) Bill: update
It is anticipated that the majority of the new bill will
come into force in December 2007. A major change is that
the automatic period of sequestration will be reduced from
three years to one, with the addition of new procedures
known as a Bankruptcy Restriction Order and a Bankruptcy
Restriction Undertaking. This will allow the imposition
of restrictions on an individual after automatic discharge
and, based upon the experience in England where these have
been in use since April 2004, they tend to arise where there
has been wilful negligence in an attempt to avoid paying
creditors. Income Payment Orders and Income Payment Agreements
are to be introduced and will result in a debtor paying
a contribution from income for a period of up to three years
i.e. after the one year sequestration process has concluded.
The traditional trust deed will continue to run alongside
the new sequestration regime and this remains an area where
the Scottish Executive are exercising their minds about
the benefits of a trust deed within the debt relief framework.
Various articles have been written which forecast substantial
increases in personal insolvency. For example, there were
approximately 7,500 trust deed equivalents in England in
2003, the year before the one year sequestration regime
was introduced whereas, now that the one year period has
become part of insolvency life, there were more than 40,000
trust deed equivalents in 2006 and this has been forecast
to exceed 100,000 in the current year. A staggering increase
and one which credit card providers and personal loan companies
will be watching with interest.
Another significant issue to note is that a trustee must
take positive action regarding a debtor’s home within
the first year of appointment, which is seen as a good thing
in terms of dealing with heritable property at an early
stage rather than prolonging the asset realisation process.
The accountant in bankruptcy will become an officer of court
and be able to award sequestration upon a debtor application.
Further, a sequestration petition presented by a creditor
must use a sheriff court i.e. the court of session is excluded,
and a creditor can only petition for a person’s sequestration
once he shows that he has provided a full debt advice and
information pack to the person being pursued.
We will keep you advised as the process unfolds but clearly,
there are some major changes to the sequestration process
which will require careful management/introduction.
Salutary tale of caution: No
1
Accountants always sound pedantic when they advise clients
to commit everything to writing, but such action can be
vital. We dealt with a situation recently where an individual
had incorporated his sole trader business several years
ago. There were sensible tax reasons for incorporation but
the proprietor, who became the sole director, did not ensure
that all documentation reflected the company name. He should
have written to all suppliers indicating the change of legal
status and ensured that only documentation with the company
name was processed e.g. bills paid. After a few years of
profitable trading the company experienced financial difficulty
and ceased trading. One of the larger creditors pursued
the director as an individual because invoices had always
been issued in that person’s name and paid. The creditor
brushed aside claims that unpaid invoices were company debts
on the basis that it was not his problem if the individual
wished to use a company as a payment device. The result
was that the director was unable to benefit from limited
liability and was sequestrated. He is considering his position
with respect to the advice provided by his previous accountant.
Thus, however pedantic: invoices; government returns; orders;
bank statements etc. should always be returned to the issuer
in order to be re-styled in the company name before being
processed.
Salutary tale of caution: No
2
We were appointed liquidator of a company a few months ago
much to the director’s dismay. The director maintains
that he spoke to his advisor when he received formal documentation
from a creditor. He also said that he had spoken to the
creditor and that his advisor had liaised at length with
the creditor. Regrettably, all such communication was verbal,
nobody had kept a written record to prove who had said/agreed/promised
what to who. Worse, the director had drawn substantial sums
from the company and the appointment of a liquidator meant
that he was unable to account for the monies withdrawn in
an effective manner, thus creating additional cost and stress
when he was pursued for recovery of these monies.
Thus, one should always keep accounting records up to date
and record transactions correctly, particularly when they
relate to director dealings, and commit to writing all creditor
correspondence where there is a need to demonstrate date(s),
dialogue and agreement(s).
www.scotdebt.net
Since the launch of our dedicated insolvency website the
number of visitors has continued to increase, as have the
business referrals arising therefrom. The website is updated
at regular intervals and it is pleasing to receive many
positive comments that have been made by website visitors.
That said, we are committed to ongoing improvements and
all suggestions for new sections, ideas and layout are most
welcome.
If you have not yet visited the website why not do so now.
Conclusion
This update is provided for general information purposes
and does not purport to offer definitive advice. If any
further information is required or specific advice sought,
please contact either Michael
Reid or Michelle
Byrne at this office.
Thank you for taking the time to read this update and please
feel free to pass a copy to a colleague or anyone else who
you think might be interested.
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