Financial challenges are faced by most of us at some point
in our lives and, as current insolvency statistics show,
there seems an increasing and widespread willingness to
use insolvency procedures in order to alleviate the position
when the debt burden becomes too onerous. From a corporate
viewpoint it seems that the number of administrations are
increasing as the number of receiverships decrease, whilst
there will always remain a hard core of liquidations.
Individual insolvency numbers continue to increase although
the much vaunted Debt Administration Scheme which was launched
in December 2004 has failed to capture the public imagination.
Indeed, it is understood that in the whole of Scotland the
total number of Debt Administration Schemes in operation
is less than ten: compared with nearly 1,300 awards of sequestration
in the first six months of 2005 and 1,500 trust deeds.
Whether one blames the ease of obtaining consumer debt,
low interest rates, retail persuasion or poor personal financial
management, the signs are that personal insolvency will
become a more popular means of dealing with debt and one
which causes less pain than visiting the dentist and less
embarrassment than visiting the doctor.
Insolvency
website
Following the successful launch of the Meston Reid &
Co insolvency website in July, the weekly website counter
shows that there have been many visits and re-visits. Thank
you for supporting the website initiative and please remember
that it will be updated as legislative and practice developments
arise. Once again, feedback is welcome on any aspect of
the website because the intention is to continue to offer
a high quality and informative service.
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Selling
a business? Be careful of employee liabilities
The Transfer of Undertakings (Protection of Employment)
Regulations “TUPE” date back to 1981 and apply
where there is a transfer of economic entity which retains
its identity. Typically, TUPE applies where a business,
or part of a business, is being sold and employees transfer
from one employer to the other with their contract of employment
being protected. New TUPE rules were scheduled to come into
force in October 2005 but the DTI have announced that there
will be a further period of review as a result of the large
number of responses received to the initial consultation
document.
For example, the draft rules appear to suggest that accountants
would be required to change from one firm to another if
a significant client on whose affairs such accountants worked,
changed auditing firms. This can’t be what the rules
are intended to cover.
Also, the rules are designed to stop a transferor increasing
a potential transferring employee’s salary, or moving
a poorly performing member of staff to a part of the business
being transferred, with little advance warning being given
to the acquiring business.
It is proposed that a penalty of up to £75,000 can
be imposed against the transferor if a transferee raises
a successful claim for being advised incorrectly or insufficiently
of employees being transferred. The costs of selling a business
are likely to increase as sellers (including liquidators,
administrators and receivers) are required to undertake
a higher degree of due diligence than might normally occur
and, of course, if a business is large enough, trade union
involvement/consultation will be necessary. The government’s
pledge to reduce red tape isn’t working!
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Refused
credit? Just ask
There are many reasons why an individual may be refused
credit and, whilst one cannot force a lender to provide
credit against their wishes, reasons for refusal will normally
be provided. A prospective lender tends to undertake a search
with credit reference agencies when finance is being requested
and many individuals are unaware that, for a fee, a credit
reference agency will provide a copy of their credit file.
This can be useful because there may be errors on a person’s
credit file which denies them access to future credit, but
which can be corrected in terms to help secure the success
of future applications. UK credit reference agencies include:
Experian Limited, PO Box 8000, Nottingham, NG80 7WF. Tel
0870 241 6212, www.experian.co.uk
Equifax plc, PO Box 1140, Bradford, BD1 5US. Tel: 0870 010
0583, www.equifax.co.uk
Callcredit plc, PO Box 491, Leeds, LS3 1WZ. Tel: 0870 060
1414, www.callcredit.plc.uk
Other sources of advice if you or your clients are refused
credit include the local Trading Standards Office, Citizens
Advice Bureau or Consumer Advice Centre.
Remember, a bad credit record means that a loan application
is likely to be refused and it is important that proper
research is undertaken in order to ascertain why.
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Oh
no, not another group of insolvency professionals!
Many of you may be unaware of the existence of the Society
of Turnaround Professionals “STP”: an organisation
which has been in existence for the last four years. STP
is likely to become better known to you as it seeks to raise
the profile of the “turnaround culture” and
how STP feels it can offer distressed and under-performing
businesses support. Of course, many insolvency practitioners
are also members of STP and the general thrust is that turnaround
will be seen as a practical option before formal insolvency
is required. Whilst nobody wants to admit to, or be seen
to fail, it is recognised that the turnaround experience
can be helpful when directors call for such assistance at
an early stage in a downward business cycle. No board wishes
to see the destruction of value for any stakeholder group
and STP hopes that its skills and experience will prove
popular.
Today’s turnaround professionals tend to be drawn
from experienced, enthusiastic and energetic individuals
who are prepared to challenge conventional wisdom and create
solutions which recognise the legal and operational environment
in which a business operates. Interesting times.
Conclusion
This
insolvency update is provided for general information purposes
and does not purport to offer 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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