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.
You see the law only says you have to stop making the creditors’ position any worse. Sometimes 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 own money down the drain. Ask us how you can do that.
If the Bank of Ireland increased the rate on your standard variable mortgage back in 2012, I guess that by now you’ve gone past the anger stage to one of bewilderment as to why the UK regulatory bodies and our wonderful MPs haven’t intervened.
What can you do about it, after all it seems to be a David v Goliath battle?
Let me tell you something…
I helped a client of mine avoid the increase… the Bank of Ireland stopped their efforts to repossess his home, I believe because of the weight of evidence I put before the court…and even now my client is continuing to pay the old, pre-increase, rate.
Might I be able to help you?
Why not join together with other aggrieved Bank of Ireland borrowers, so that if I can secure the same result as previously – and why shouldn’t I? – you’ll get full benefit but pay only part of the costs.
Licensed Insolvency Practitioner and Fellow of the Institute of Chartered Accountants in England & Wales
Telephone: 01902 672323
Firstly let me say, what I’m going to be telling you is 100% factual, it is not a rant. And it is very, very important you know about it.
It wasn’t all that long ago when the banks could do little wrong… no one minded they were making big profits because they were supporting us through the money they loaned out and advice they gave. But in the last few years we’ve had a glimpse of how much things have changed. I’m going to show you how the banks are now thinking …. and as we all know, thoughts drive actions.
Have you heard of the legal case Crestsign v NatWest that was decided just last month? Not many have but it’s a decision that demonstrates perfectly why the banks have surrendered their ‘trusted adviser status’. If you have trouble sleeping, follow THIS LINK to download the 46 page judgement. If you want a shorter summary, go HERE. Here’s my summary…
This was a case about a complicated product sold by a bank to a family business, which cost it a lot of money. The customer argued the bank had given them negligent advice. The bank argued they had given no advice nor made any recommendations but had merely presented options…and in any event their terms contained an exclusion clause which said that no advisory relationship existed. The judge decided that the bank had indeed made a recommendation… but the outcome of the case hinged on the written terms, which said the customer was on their own, they weren’t being given advice. The customer did not win his argument that those terms were unfair so he lost his case, the bank wasn’t liable.
What do we learn from this?
… What anyone outside of a bank considers to be advice from a bank isn’t really advice. You’d be a fool to rely on anything they tell you.
So where does that leave the banks?
… With all the credibility of a used car salesman.
Where does that leave banks’ customers?
… In need of reliable, top quality, independent professional advice from someone they can trust.
This gives accountants, financial advisers, even lawyers a great opportunity to step into the space of ‘trusted adviser’ to potential new clients and to get much closer to existing clients who up to now have been ‘a little distant’, who previously relied on their friendly local bank manager.
So how do you do it?
Advisers are already under huge financial and time pressure. I believe the only way they will ever be able to step into the breach will be by collaborating closely with others in complementary fields – otherwise how can any individual or firm ever hope to match the banks’ resources?
This is a vision that I have had for a good while now within the professions, I woke up to this possibility a good while ago after reading a book on collaboration in IT ‘Wikinomics, how mass collaboration changes everything”. I asked myself why when collaboration in IT can have such a massive impact, can’t it be done in other areas like finance or general business support?
Look at it in this way…huge international businesses like Microsoft still have a big influence on technology, but most of the real technological innovation and results in terms of the impact on people’s lives comes from the efforts of much smaller firms using free/open source software given to them by highly principled, skilled members of the gnu hack community. Just look on your computer or mobile right now, you will find numerous examples of what I am talking about – and these are not inconsequential things, it is they which make your life the way it is today.
My Business Resuscitation work is my own personal effort to inhabit the collaborative, highly principled trusted adviser space. So what are you going to do to inhabit that space? And if you choose not to inhabit it, who will do so for your distanced clients, how are you going to attract quality, appreciative, new clients to you in what may be a reducing market?
You see the world is changing – or I should say it’s changed – and it’s now time for the professions – accountants and others involved in finance, and yes even you lawyers – to step into the breach for all of their actual clients, not just the few paying higher fees, and also for potential new clients.
But here’s a word of warning…I’m seeing a growing number of accountants and lawyers telling people they walk the journey with their clients as ‘business advisers’. But they do nothing to back it up – it’s just sales hype. In fact get some of my better leads from the clients of such firms, they come to me direct with two things: major problems and a willingness to pay my bill. You see they were attracted to that particular firm because they needed more than a stereotypical reactive service, yet when they asked for it they found it had never existed. And because aggrieved clients tell on average 10 other people, it gives the competition an opportunity to differentiate themselves and attract appreciative, ‘adviser fee friendly’ clients.
So what’s your plan for taking advantage of the banks’ and your over-hyped competitors’ own goals?
Licensed insolvency practitioner, chartered accountant and trusted adviser
(and if you want evidence, read our testimonials – click here)
Tel: 01902 672323
This is the second in what is likely to be a series of articles over the poor advice that my fellow insolvency practitioners are giving out.
In my last article – click here to read it – I talked about how owners of small companies that had no, or very few assets, were being talked into paying for liquidations they neither needed nor were obliged to carry out. Today, I’m going to be talking about personal insolvencies, specifically a process called an ‘individual voluntary arrangement’ or IVA.
Take a look on the web and you’ll see numerous references to how easy IVAs are to both get into and live through; how they’re great because they’ll write off most of your unsecured debts; how you’ll protect your home; how they will leave you with money in your pocket every month; how they are somehow better and softer than bankruptcy. It all sounds too good to be true…
And it often is.
You see, what they don’t tell you is that one third of all IVAs fail. This is not anecdotal evidence, it’s hard evidence gathered by the government – click here to see the figures. Look at figure 2.
OK, so one third of IVAs fail. Big deal, that’s not so bad, is it?
Well yes, it is. You see not all IVAs are the same – some are income based, some are ‘one-off’ settlements. Under a ‘one-off’ settlement type of IVA, money from an inheritance, windfall, gift from family or friends, or the sale of assets is paid into the IVA in a lump and then paid out to the unsecured creditors in full and final settlement of their debts. The point is this money is certain – it’s probably already sitting there in a solicitor’s or the Insolvency Practitioner’s bank account held on trust pending the creditors’ agreement to the IVA – the success of the IVA is assured. So if we knock out of the equation the one-off settlement IVAs, the true failure rate for income based IVAs must be higher than a third… let’s be conservative and say it’s 40%-45%.
Do you hear IPs telling people coming to them looking for an income based IVA that the process they are about to go into is about as likely to fail as it is to succeed? No, I don’t. Do they warn people of the impact on them of the IVA failing? If you’re lucky, it’s skated over, after all it’s never going to happen is it? – you have every intention of fulfilling your part of the bargain.
So now we know the IVA has about 50-50 chance of failing as succeeding, but what is the impact of it doing so?
Let’s go back to some basics. Back in 1986, IVAs were invented as a softer alternative to bankruptcy for sole traders, i.e. business owners. They weren’t invented to deal with what they have turned out to be used mainly for – hundreds of thousands of consumers who have unsecured credit card and loan debts they could never pay. So with something like 50,000 a year IVAs being put in place, rather than the handful expected, the insolvency governing bodies got together with the banks and agreed a standard form of IVA for such consumer debtors.
It’s called the ‘IVA Protocol’ – here’s a link to the government’s website linking to its various versions over time – and in a number of ways every version of it is truly horrible. It’s clear the banks had the whip hand in the negotiations as it’s very much written in the banks’ favour.
So what does it say about failure? Well, if you miss just 3 income contributions into the IVA over the 5 year period of the IVA – 5 years is the standard duration – the Insolvency Practitioner can petition for your bankruptcy. It’s at his discretion, you cannot stop him. With many IVAs failing in years 2,3, even 4 or 5 of the IVA, all you’ve done while you’ve been paying into the IVA is throw good money after bad. And what’s worse, the longer you stay in the IVA, the bigger a chance you’re giving a trustee in bankruptcy of taking your home off you! (house prices tend to go up, your mortgage will have either stayed the same or gone down, so after a time you’ve probably got equity you didn’t have previously that the trustee can get his hands on).
I have a good number of other issues with the IVA Protocol, but what really concerns me is that not once have I ever had someone who’s subject to one of these things come to me ever fully understand what they had got themselves into. They simply got sold a story that it was the panacea to all their financial woes. Not once has any Insolvency Practitioner fully explain the ‘what ifs’ satisfactorily so the person fully understood everything they needed to know before taking the plunge. And that’s inexcusable.
I recognise that no one has a crystal ball that tells them what’s going to happen over the 5 year period of an IVA covered by the IVA Protocol … that people tend to be optimistic as to the future and hate taking a pessimistic view of what might happen … that people who are desperate will cling to any lifeline… but there is never any excuse from any insolvency practitioner for not being entirely honest with the facts and open as to the implications of a 50-50 gamble going the wrong way. And that’s why I have a problem with my fellow IP’s advice.