Have you been asked to personally pay the costs of liquidating your company?

A day doesn’t go by without me seeing at least one instance of a director being asked by an insolvency practitioner to personally pay the costs of putting their company into creditors’ voluntary, ie insolvent, liquidation.

If this is you, here’s a few questions for you…

What’s the insolvency practitioner said about your responsibility for paying those costs?

Were all of your options explained to you?

The answer to these questions is typically ‘not a lot’ and ‘I don’t know’, all that was said is ‘a CVL is quicker and more convenient way for you to close down the company’.

It might be, it might not be, but let me ask you another question, and this is the knub…

Can you do something better with your money – typically £2,500, £3,000 or £5,000 – like finance your new business, pay down personal debt, or even take a well earned break – than pay an insolvency practitioner’s fees?

Of course you can, because whatever way you look at it, spending your hard earned money – and I’m even seeing directors who go into personal debt on credit card to pay such fees, even after losing their sole source of income – on dealing with a historic issue isn’t great value for money.  Yes, there are low cost alternatives to a formal insolvency process.

So why is this happening?  Why am I being told that CVL is the best option?

Well, there are 2 reasons.

Firstly, insolvency is a incredibly complicated and grey legal area, it’s ever so easy for an insolvency practitioner to say ‘a CVL is the right route for you’ without that statement really being put to the test.

Secondly, many insolvency firms depend on selling directors what I would argue are bad solutions to survive themselves – unless they pile small CVLs high and sell them cheap, the insolvency firm would itself be bust!

It is time for some uncomfortable truth...

There is nothing in the law that says any director has to use his/her own money to personally pay for the liquidation of their company.

Let’s repeat that so it hits home…

There is nothing in the law that says any director has to use his/her own money to personally pay for the liquidation of their company.

Find any such reference either in statute or case law and I’ll pay you £500.

You see the law only says you have to stop making the creditors’ position any worse.  In most instances you can do that by simply ceasing to trade.

But there’s a problem…

You still you need closure.  You need to close down the business and the company.

The secret that many IPs would like to keep from you is that can be achieved without you throwing your money down the drain.

Co-Op Bank problems?

Have you been told by the Co-Op Bank that you should be looking to re-bank elsewhere, to find another lender because you no longer fit the bank’s criteria going forward?

If this is you, please contact us straight away so, together, we can explore your options – the short time you have been given will quickly pass.

Paul can be contacted on 07813 102014 or by email through paul@midlandsbusinessrecovery.co.uk

Have you received an APN – an Accelerated Payment Notice – from HMRC?

If you have, you’ll know just how truly horrible they are because the tax has to be paid within 90 days of the date of the notice, there’s no right of appeal and all you can do is make ‘representations’ to HMRC to challenge the APNs on limited grounds – you cannot challenge it because you think it’s either unjust or inappropriate.  If you’ cannot pay the APN, you might need my help.  We’ve also put together a team of very experienced lawyers and tax experts who can help with claims against the professionals who advised you to go into and set up the scheme for which you’re falling foul.

So how many people are effected and how much tax is involved?

HMRC have recently reported that in the year and a half since their introduction in 2014, they have issued 44,000 APNs and collected in £2 billion of tax.  They have also said they expect to issue another 20,000 APNs in 2016, bringing in another £3.5 billion in tax, so the numbers are huge and the size of the individual payments are expected to rise, heaping more pressure on people to pay.

Do HMRC always get it right? Well no… they recently withdrew 2,000 notices that frankly they should never have issued.  They didn’t withdraw them until after a good number of the recipients paid up, even selling their homes to raise the cash.

If you receive an APN and can’t pay, please call me, Paul Brindley, licensed insolvency practitioner, on 01902 672323. 

Other useful links for you to read:

Pinsent’s summary of APNs – probably the shortest and best summary there is on the web.  Choose the download pdf option on that page.

DOTA – a link to the list of schemes for which HMRC has, or will soon, issue APNs.  If you are a member of a scheme that’s on the list, you’re in trouble!  Updated about every 3 months – you need to put it in your diary to look at the updated list every 3 months.  Last list issued January 2016.

 

Where the FCA Figures for the Credit Union Sector reveal what's really going on

Every three months the Financial Conduct Authority summarise the returns they have received from UK credit unions.

As the figures come in excel form, with a little time and care it is possible to draw a few conclusions as to what is really going on in the sector, all the hype from ABCUL about how well the sector is doing put to one side.

Here are some important figures that can be drawn from the return summary…

1. The sector as a whole seems in pretty good shape in terms of the overall numbers – there are just over 500 credit unions in the UK with 1.6 million adult members and a quarter of a million juvenile members;
2. UK’s credit unions total assets are £2.7 billion, largely £1.25 billion of money loaned out to members and £1 billion in cash and other liquid assets;
3. Total assets in UK credit unions are growing on average by £55 million per quarter – ie members’ savings are increasing by this sum – giving some credence to claims that the sector is growing at a healthy annual rate of just under 7 cent.
4. Quarterly profits across the sector are running at about 1 per cent of total loan debtors.

Sounds good, doesn’t it?

Well no, at least not in my mind, because there are several alternative other ways of interpreting the figures…

The first thing that I find interesting is how the ‘growth’ impacts on the sector’s balance sheets and income statements…

You see, loans to members – probably the prime reason for why credit unions exist – went up on average by just £15 million per quarter. That’s to say just one quarter of the increase in credit union assets finds its way into what credit unions should probably be doing more of than anything else, that’s lending to their members.

So what are credit unions doing with the rest of the cash, the £40m per quarter, they are getting from their savers?

The figures suggest that a good proportion of that extra cash is simply being hoarded.

This is worrying. You see credit unions have for a good while now been holding onto a disturbingly high level of cash – the amount of money being held on to (£1 billion) isn’t far off the figure (£1.25 billion) being loaned out. I say this is worrying because with interest rates so low, that money is doing nothing.

My interpretation of the sector’s figures therefore is that the increased money from savers is not finding its way into assets that return any significant profit and for this reason there’s no improvement in the profits.

And if profits are not growing, the sector, which by others’ standards is already not very profitable, isn’t getting any stronger, it’s just getting bigger. And if that is so, I have to ask just how the sector is going to be stabilised as the powers that be intend? Are we just going to see bigger CU failures?

Let’s look again at the income statements … but firstly let’s remind ourselves about the level of quarterly profits across the sector – they are running at 1 per cent of total loan debtors.

This figure, because it’s so low, suggests another thing to me…because of the low level of profits, hundreds of credit unions simply cannot work through any major recoverability problems that might arise in their loan books – they would rather sit on their ‘surplus’ cash, earning little or no interest than lend it out and potentially suffer a bad debt.

The government have done their level best to make it easier for Joe and Joanne Public, especially if they have few or no assets and minimal income, to avoid paying back their debts. The flip side is that it has become far more difficult for lenders such as credit unions to collect in their debts. With this in mind, I suspect there are a good many credit unions who simply will not lend to the people they were set up to service because they fear the effect the inevitable increase in bad debts will have on their own balance sheet. And with no withdrawal of the restriction on the interest rates they can charge expected soon, who can blame credit unions for choosing to sit on their cash?

Let’s look at another of the figures and from another angle…

These figures come from the Money Charity, thanks.

UK banks wrote off £550m in credit card debt in the last reported quarter.

Yes, you read that right – half a billion pounds – in just credit card debt – and in just one quarter.

At that rate in a little over 6 months the banks write off as much in irrecoverable credit card debt as the credit unions are holding onto in cash; in 9 months the banks write off as much as the entire credit union sector loans out!

I don’t know about you but I am not hearing the banks complain about how much they are being writing off – quite clearly the profits they are making are of such a magnitude that they can afford the losses. And I’m certainly not seeing an reduction in their willingness to lend. And you know what? The banks make those profits partly because they can charge what they like. Meanwhile credit unions’ charges are restricted by the law despite the fact that credit unions typically lend to people the banks wouldn’t touch! There’s no level playing field, and that’s why credit unions’ profits are poor.

I think this also explains why credit unions are sitting on so much money.

In summary, I don’t think the credit union sector is doing anything like as well as some within it would have us believe. Maybe they sit at the top of the big credit unions, for which life is far more comfortable than smaller geographically based credit unions. The figures point to there being major structural weaknesses in the sector. I don’t buy the arguments of some so called experts who have said the problems in the sector are all internal and centre around poor governance – I’ve seen some really experienced, driven boards, management and operational teams who are struggling to hold things together. What is needed is more help from the government, but given the sector’s insignificance in the grand scheme of things, I can’t see that coming. And until and unless it does come, there will be more hardship ahead and more, and bigger, credit union liquidations.

Paul Brindley

The Insolvency Expert in Credit Unions

Where the FCA Figures for the Credit Union Sector reveal what’s really going on

Every three months the Financial Conduct Authority summarise the returns they have received from UK credit unions.

As the figures come in excel form, with a little time and care it is possible to draw a few conclusions as to what is really going on in the sector, all the hype from ABCUL about how well the sector is doing put to one side.

Here are some important figures that can be drawn from the return summary…

1. The sector as a whole seems in pretty good shape in terms of the overall numbers – there are just over 500 credit unions in the UK with 1.6 million adult members and a quarter of a million juvenile members;
2. UK’s credit unions total assets are £2.7 billion, largely £1.25 billion of money loaned out to members and £1 billion in cash and other liquid assets;
3. Total assets in UK credit unions are growing on average by £55 million per quarter – ie members’ savings are increasing by this sum – giving some credence to claims that the sector is growing at a healthy annual rate of just under 7 cent.
4. Quarterly profits across the sector are running at about 1 per cent of total loan debtors.

Sounds good, doesn’t it?

Well no, at least not in my mind, because there are several alternative other ways of interpreting the figures…

The first thing that I find interesting is how the ‘growth’ impacts on the sector’s balance sheets and income statements…

You see, loans to members – probably the prime reason for why credit unions exist – went up on average by just £15 million per quarter. That’s to say just one quarter of the increase in credit union assets finds its way into what credit unions should probably be doing more of than anything else, that’s lending to their members.

So what are credit unions doing with the rest of the cash, the £40m per quarter, they are getting from their savers?

The figures suggest that a good proportion of that extra cash is simply being hoarded.

This is worrying. You see credit unions have for a good while now been holding onto a disturbingly high level of cash – the amount of money being held on to (£1 billion) isn’t far off the figure (£1.25 billion) being loaned out. I say this is worrying because with interest rates so low, that money is doing nothing.

My interpretation of the sector’s figures therefore is that the increased money from savers is not finding its way into assets that return any significant profit and for this reason there’s no improvement in the profits.

And if profits are not growing, the sector, which by others’ standards is already not very profitable, isn’t getting any stronger, it’s just getting bigger. And if that is so, I have to ask just how the sector is going to be stabilised as the powers that be intend? Are we just going to see bigger CU failures?

Let’s look again at the income statements … but firstly let’s remind ourselves about the level of quarterly profits across the sector – they are running at 1 per cent of total loan debtors.

This figure, because it’s so low, suggests another thing to me…because of the low level of profits, hundreds of credit unions simply cannot work through any major recoverability problems that might arise in their loan books – they would rather sit on their ‘surplus’ cash, earning little or no interest than lend it out and potentially suffer a bad debt.

The government have done their level best to make it easier for Joe and Joanne Public, especially if they have few or no assets and minimal income, to avoid paying back their debts. The flip side is that it has become far more difficult for lenders such as credit unions to collect in their debts. With this in mind, I suspect there are a good many credit unions who simply will not lend to the people they were set up to service because they fear the effect the inevitable increase in bad debts will have on their own balance sheet. And with no withdrawal of the restriction on the interest rates they can charge expected soon, who can blame credit unions for choosing to sit on their cash?

Let’s look at another of the figures and from another angle…

These figures come from the Money Charity, thanks.

UK banks wrote off £550m in credit card debt in the last reported quarter.

Yes, you read that right – half a billion pounds – in just credit card debt – and in just one quarter.

At that rate in a little over 6 months the banks write off as much in irrecoverable credit card debt as the credit unions are holding onto in cash; in 9 months the banks write off as much as the entire credit union sector loans out!

I don’t know about you but I am not hearing the banks complain about how much they are being writing off – quite clearly the profits they are making are of such a magnitude that they can afford the losses. And I’m certainly not seeing an reduction in their willingness to lend. And you know what? The banks make those profits partly because they can charge what they like. Meanwhile credit unions’ charges are restricted by the law despite the fact that credit unions typically lend to people the banks wouldn’t touch! There’s no level playing field, and that’s why credit unions’ profits are poor.

I think this also explains why credit unions are sitting on so much money.

In summary, I don’t think the credit union sector is doing anything like as well as some within it would have us believe. Maybe they sit at the top of the big credit unions, for which life is far more comfortable than smaller geographically based credit unions. The figures point to there being major structural weaknesses in the sector. I don’t buy the arguments of some so called experts who have said the problems in the sector are all internal and centre around poor governance – I’ve seen some really experienced, driven boards, management and operational teams who are struggling to hold things together. What is needed is more help from the government, but given the sector’s insignificance in the grand scheme of things, I can’t see that coming. And until and unless it does come, there will be more hardship ahead and more, and bigger, credit union liquidations.

Paul Brindley

The Insolvency Expert in Credit Unions