Should I be worried about getting banned as a director?

This is a question I’m often asked.  In the vast majority of cases, it really isn’t a worry, but for you while it isn’t the biggest concern you might have over your company’s failure, it’s pretty high on your list.  There are several reasons for this…

First off, let’s explore why you are worrying…

You have probably not recognised that we live in a country that encourages entrepreneurialism, that encourages people like you to have a set up in business.  Without that encouragement our economy would be in tatters, we’d all be working for someone else, not taking any risks.  And being in any business is quite risky, in fact more businesses have always failed than succeed, nowadays with technology moving as fast as it is even more so .  A level of failure is expected by the authorities.  It’s just how you fail…

You probably feel at least some level of personal responsibility for creditor losses.  You have looked back at every decision you did and didn’t make, and assume that if, with hindsight, if you now consider some of those decisions to have been the wrong ones, you are liable to be banned.

For you, the company’s failure is personal, it’s a massive event in your life, one which probably hasn’t happened to you before and thus of which you have no prior experience.  as you are going into uncharted territory, you feel vulnerable.

The figures involved, at least for you, might appear be big, but in the grand scheme of things are often relatively small.  If you don’t have £40,000 to pay your debts, it’s a huge figure for you.  In your mind it might as well be £400,000.  To the outside world there is a huge difference between £40,000 and £400,000.   The level of the problem in your mind could be out of proportion to the actual figures, to the problem in others’ eyes.

Now, let’s look at who the authorities are looking to ban …

Those who are prone to be banned include directors who:

  1. Abuse the principle of limited liability.  Let me explain.  If your company goes into say insolvent liquidation, a good many of its debts are written off, unless you have given a personal guarantee, you’re not liable to pay them.  This is a privilege, and with privileges, there has to be some accountability.  Abuse that privilege, abuse the fact creditors have put their confidence in you by effectively lending money to your company in one way or another and you pay the penalty.
  2. Break the law.  Break any law, for example if you breach health and safety laws, fail to supply merchandisable goods, or commit a fraud on creditors generally or a specific creditor, and you could be banned.  Ignorance of the law is no excuse, you’re expected to know and abide by all the laws that apply to your business.  The reasons for being banned do not have to be financial, operational ones matter too.
  3. ‘Take’ money off HMRC or the general public.  The nature of your creditors matters.  For example HMRC have no choice but to extend credit to your company, so there’s an obligation on you to treat them fairly, especially as regards VAT where you are effectively deemed to have held on to their money.  Get involved in any fraud on HMRC, eg MTIC/carousel fraud, and you will be banned.  If you accept deposits from the Public in advance of supplying them with goods / services but do not protect their money, you’re at risk.
  4. Are involved in certain sectors which are considered rife for fraud or wrongdoing. The sectors continually change as new scams are invented by miscreants.
  5. The size of the failure and regularity of failures with which you are involved.  Directors of bigger businesses and companies going into liquidation with £1m+ debts attract more attention by the authorities and a higher level of skill is expected than say if you are a director of a small corner shop that fails with £50,000 of debts.  If you have a string of insolvent liquidations behind you, whatever the size, the government might form the view that creditors need to be protected from you.
  6. Fail to take, or take but choose to ignore, professional advice, who fail to take advise from a licensed insolvency practitioner in the lead up to insolvency.  The authorities expect you, someone who probably has no prior experience of such difficulties to go and get help, not somehow muddle through, trust to luck or take advice and do what they want to anyway (especially if doing so profits them).

Here’s a link to some government guidance you might like to read – Gov.UK

And here’s a link to a page that’s continually updated where the government publish details of the directors who have been banned in the previous 3 months… Link.  Clicking on the individual bans will give you an idea of where the government’s focus lies.

Here are a few questions for you…

  1. Have you or have you caused the company to break any laws?
  2. Do you owe a lot of money to HMRC?  Have you caused the company to retain and use that money for other purposes?
  3. Should you have ceased trading earlier?  If so, in doing so, have you caused creditors to suffer a larger levels of losses?
  4. Have you somehow taken money or assets out of the company for your own personal gain or that of people you are close with?
  5. Have you treated everyone fairly?
  6. Have you been involved with multiple failures?

If your answer is no to all of these, you’re probably not at risk of being banned, especially if you’ve personally sunk and lost a lot of your own money in the company.  If your answer is possibly, it might be worth you taking some advice, or if I’m to be appointed as your insolvency practitioner, we need to talk early.  If your answer is yes, you might be at risk of being banned, take advice, there are legal firms who specialise in helping directors like you – a Google search on director disqualification solicitors will produce a long list.

We hope that you find this article of help, if all it does is enable you to sleep a bit better at night…

 

 

 

 

 

 

The ten reasons businesses fail

  1.  The business was started and run for the wrong reasons.Some companies are set up and then run more like a hobby than a business.  Lifestyle businesses tend to merely exist, not doing spectacularly, until something bad happens to cause the wheels to come off;
  2. I can do it all myself!In his book, the E-myth, Michael Gerber spoke of the 3 skill-sets needed by business owners today – entrepreneurial, managerial and technical.  No one I know has all three, in the right degrees, not in today’s fast pacing business environment.  Seeking support from outside the business to plug skills gaps is a show of real strength, not weakness.
  3. Inadequate working capital.It always costs more than you’d expect to set up a business and survive the inevitable troughs later on.  It’s incredibly dangerous to rely on credit lines over which you don’t have full control.  Either way, the business owner didn’t properly assess how much money would be needed, where it’s best to get it from or what might happen;
  4. Weak financial skillsEvery business owner needs to understand how the business clicks financially.  If you don’t, you haven’t a business, you’ve got a hobby.  If you’ve got weak financial skills, there’s a good chance you probably also lack the profit motive, you love what you do and will return to stereotype ‘manager’ or technician’ roles when things get bad, digging an even bigger hole for yourself.  ask us to explain this;
  5. The location is wrongQuite simply, the business opportunity was not fully explored;
  6. Lack of planningThere’s a lot of truth in the saying ‘to fail to plan is to plan to fail’.   The unexpected does happen, particularly in our increasingly complicated world!;
  7. Over-trading (and what I call under trading)Over-trading / over-confidence can cause terminal cash problems in fast moving businesses.

    There is also something I call ‘under-trading’, where the business owner adopts a strategy of merely cutting costs to deal with their financial, operational and strategic problems – they do this because doing so can be the easiest decision and produces short term cash benefits.  However, we find that if this is all you do, you store up much more severe problems in the medium term.  It’s simply not possible to cut yourself to greatness!;

  8. Poor marketingThe Company waits for business to come to it, as ‘it always has done’.  The business could be ‘invisible’, there’s no route to the changing market, no sales force;
  9. Failing to follow a clear strategic directionOver time the business develops haphazardly.  It is slowly strangled by ‘unfair’ relationships with major customers, suppliers or employee groups;
  10. Inflexible business modelAn inflexible business model and high fixed cost base while they may work in boom times cause significant problems in the inevitable times of bust.

If your business demonstrates and of these, we can help… just call us on 01902 672323 now.

Want to pay just 10% tax on exiting your business?

Yes?

I don’t blame you – well after all you’ve paid tax on all your profits over the years, haven’t you? Wouldn’t it be great if you could reduce that ‘tax on tax’ payment when you exit your business?

Well you can… and it’s completely legal… and it’s just a process!

Follow this link…

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Many owners of small businesses are using Entrepreneurs’ Relief to reduce the tax they pay on exiting their business to just 10%.

Call me for more information… 01902 672323

Don’t judge each day by the harvest you reap…

Hello

It’s been a good while since I last put my thoughts into a newsletter… sorry, I’ve been incredibly busy.

And do you know why that is?

… I’ve been taking some new technologies by the scruff of the neck and integrating them into my business – and it is that, rather than a glut of insolvencies (I wish!), which has been taking up my time.

The title of this newsletter is the start of a quotation by Robert Louis Stephenson, it ends with …. ‘but by the seeds you plant’.

I’ve been planting a lot of seeds.

You see so much is happening out there on the new technology front, great stuff that could be integrated into my business, that I’m going to be making it the subject of several of my next few newsletters – you see there’s a chance that you, or the people you know, could benefit from my triumphs and my pain (some of my seeds fell on barren ground).  My newsletters will be in the nature of both observations and tips.

So why, when there are a lot of other important things that I could be doing, did I decide to focus on new technologies and for so long?  These are the first of the observations – my why.  Because you might just share some of them.

The first reason is

… the pace of change in technology – and thus in me maintaining my competitive edge (just how important is that for a small businesses?) – has accelerated massively in recent years.  And it’s only going to get faster.  I simply had to invest my money and time here if I wanted to maintain my lifestyle and retain the control I, and not others, have over my life.

The second reason is

… by bringing me into regular contact with people outside of my profession and normal sphere of operations who are great at technology, some of what they know and do rubs off on me such that by doing different things and the same differently I get to create my own opportunities to win some fantastic new ‘quality’ business that would otherwise be invisible to me.  Unless I do this unpaid r&d type work exploring the new technologies there would be no high margin work – I’d be scrabbling around doing the low margin work my competitors do.

The third reason is

… in the past if a business were not to embrace new ways of working or new markets, most of the time it would only hurt them slowly, over time.  Nowadays, I don’t think that it is always the case, the pain caused by ignoring new technologies and ways of working is acute, sharper and quicker to come on, it’s not chronic.

The fourth reason is…

… Having low overheads means I have both the time and resources to make it my focus.  This is the first instance of being in the right place at the right time, it’s luck, and most others do not have this luxury.  It would be negligent of me if I didn’t take advantage of this massive commercial advantage.

The fifth reason…

… my nature and a lack of accountability.  This is where I’m lucky again.  As a member of Generation X, I didn’t grow up with a mobile phone in one hand and a rattle in the other so technology isn’t something that comes easy to me.  But unlike most others in my peer group who have targets to meet, are accountable to someone else, or need to maintain an aura of invincibility, I am prepared to make mistakes, Lots of them!

Here are a few questions for you…

  • How important to you is getting a good grasp of new and emerging technologies either in your business maintaining or gaining a competitive edge or in you maintaining your lifestyle?
  • Do you share any of my 5 own personal reasons for this focus? Or do you have your own compelling reasons?
  • Are you and your business where you need to be in order to attract in the sort of opportunities you really want?
  • Should you be spending your time with a different set of people/organisations to gain a different mindset?
  • What new, high margin, products or services could you create by adopting technologies borrowed from outside of your sector?
  • What’s your attitude to spending, even potentially wasting, money or time on this sort of thing?

I have a request… quite an important one…

It’s partly to do with GDPR, it’s partly to do with me measuring how effective my newsletters really are.  I’m having a massive clear out of my circulation list.  I shall be deleting all the contacts my system is telling me aren’t regularly reading my stuff.  So if this is you, or if you read from mobile (my systems don’t always recognise you’re opening things), but you still want to receive stuff from me, please email me separately asking to remain.  If you’re a new reader and aren’t yet receiving my newsletters direct, but would like to, click on the following link to subscribe.  Click here

Finally, because sometimes life is just too serious, do you remember this classic comedy sketch about new technology? Ronnie Corbett and Harry Enfield in the greengrocers.

Fantastic!

Hope you continue reading, and if you have any insolvency business, I’m still here!

All the best

Paul Brindley
Midlands Business Recovery
T 01902 672323
M 07813 102014
paul@midlandsbusinessrecovery.co.uk