INTRODUCTION
As we move towards the end of 2008 one looks back over the
last twelve months and surveys a host of market/economic
events which have caused considerable dilution of wealth for
a vast majority of people and indeed, the 2009 landscape is
likely to be fraught with concern.
Media commentators are divided about some of the key causes
of our current economic woes but there is no doubt that we
can all see the effects of falling house prices, rising
unemployment, retailer problems, State intervention and
general uncertainty. The insolvency industry is experiencing
an upturn in demand for its services, both in terms of
formal and informal procedures, with a particular
manifestation of personal financial difficulty being in the
buy-to-let sector where securing mortgage finance for newly
constructed flats/houses is proving a stern challenge.
With consumer spending anticipated to maintain a reasonable
momentum for the first three weeks of December, it may not
be until January 2009 that formal insolvencies begin to
increase dramatically: both corporate and personal.
HMRC : IT’S GOOD TO TALK
On 24 November HMRC introduced a Business Payments Support
Service which is designed to help businesses that are
struggling through no fault of their own to pay tax
liabilities: PAYE, NIC, VAT, income tax etc.
The support line is open every day and the HMRC website
encourages anyone who has payment difficulty, or can
forecast this in the near future to call the support line as
soon as possible.
Clearly, there is no guarantee that every caller will be
allowed to delay all, or any, tax indefinitely but the
initiative is most welcome and anecdotal evidence suggests
that the scheme is already in use with positive results.
HMRC say that most callers will be given a decision within
10 minutes. The number to call is 0845 3021435 or visit
www.hmrc.gov.uk/pbr2008/business-payment.htm.
One wonders how HMRC will react if every self employed
person in Scotland calls on 31 January trying to delay the
huge amount of income tax that is due that day!
WHERE HAVE ALL THE ASSETS GONE?
The usual scenario unfolds of the creditor wishing to
liquidate a company for an unpaid debt and seeking the
appointment of a provisional liquidator to assist in such
process. Assuming that a court is suitably persuaded to
allow a provisional liquidator to take office the first
visit to a company can prove disappointing. Despite the fact
that the most recent balance sheet records various assets in
accordance with accounting convention, a reality check can
show:
1. the property from which the company operates is leased :
no cash
2. the main book debts are factored with the factor
struggling to collect the balance of book debts and, in any
event, the factor has a floating charge: limited cash value.
3. non-factored debts relate to overseas accounts or other
non-routine sales. All have all been either outstanding for
a considerable period of time and/or are in dispute: limited
cash
4. vehicles are subject to finance with the settlement
figure well in excess of net realisable amount: no cash
5. stock consists primarily of supplies not yet turned into
finished product and subject to valid retention of title
claims by suppliers: no cash
6. finished stock is either out of date or has low residual
value due to competitor products : limited cash
7. Patent rights and IPR exist but there are numerous
competitor products and no obvious market for such
intangible assets without ongoing outlays to maintain
protection : limited cash
Thus, whilst a company might appear to be sound and have the
attributes of a successful trading entity, the lack of cash
may stop its ability to trade. When the money stops and
trading ceases, the value of assets diminishes rapidly.
The provisional liquidator is then faced with the task of
advising the creditor that there is little point in pursuing
with the liquidation process and the court will be invited
to approve withdrawal of the provisional liquidator.
Sometimes a company, or its directors, will find sufficient
cash to pay the creditor in order to hasten the withdrawal
of the provisional liquidator but that is an increasingly
unusual occurrence.
As suppliers realise that liquidation may not produce the
desired result, pressure is brought to bear on all customers
to pay accounts earlier, even to the point of insisting on
payment on delivery. This in turn reduces cash resources in
the business, increases the overdraft requirement and
stifles trade.
There is no doubt that in a modern business climate,
efficient operating systems are vital…….and cash is king.
PERSONAL DEBT: NINE GOLDEN RULES
UK consumer credit card spending seems to increase
exponentially. It is far too easy to spend beyond one’s
means and be faced with embarrassing and challenging
circumstances. Here are nine golden rules for any adviser to
help guide a client:
1. Never ignore debt problems. They do not go away and the
longer you leave them the worse they tend to become.
2. Think carefully before borrowing money to settle existing
debts. It is seldom the right answer.
3. Check that you are claiming all the benefits and tax
credits to which you are entitled. Do not be afraid to ask
for assistance.
4. Prepare a personal budget showing all your income and
outgoings. Be honest when doing this and be prepared to
reduce non-essential expenditure, if only for a specific
period.
5. Contact all your creditors and explain your difficulties.
Open, honest and prompt communication will be welcomed and
generate understanding with a willingness to help because
you are considering their position as well as your own.
6. Always tackle your important debts first. For example be
sure that your mortgage is paid and utilities continue to be
settled.
7. When the situation arises, table a reasonable offer to
repay the money that you owe based on what you can afford. A
cheeky offer is likely to be rejected and lose credibility.
8. Do not give up trying to reach an agreement with
creditors even when they are being difficult and/or rude.
9. If a creditor is pursuing you in court, complete all
court documentation and ensure that the court has all the
facts in front of it. Keep copies of all such correspondence
and consider appearing in court on your own behalf if the
situation becomes crucial.
PLENTY CASH: CLAIM IT OR LOSE IT
The annual report issued recently by the accountant in
bankruptcy shows that the Scottish Government is holding in
excess of £11.1 million of unclaimed dividends. This figure
increased by £4.1 million in the year ended 31 March 2008
and, if the monies are not claimed within a seven year
period, the cash is sent to the Treasury.
When a trustee cannot find a creditor, a consignation
receipt is submitted to the accountant in bankruptcy
together with a cheque intimating the name of the
insolvency, details of the creditor and amount of dividend.
If a business has moved, all that is required is to give a
name and past address(es) to the accountant in bankruptcy
with a request to check the database.
Remember: if you don’t ask you don’t get.
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 your colleague or anyone else
who you think might be interested.
Meston Reid & Co December 2008
Return to Top
