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Company Insolvency FAQs, Phoenix Company Questions - Phoenix Companies, Pre-Pack Administration, Liquidations, CVAs, Personal Guarantees and Company Recovery

Company Insolvency

Phoenix Companies

 

What is a Phoenix Company?

A Phoenix Company is formed when the directors of an insolvent company buy back the company's assets and put these into a new company. The procedures relating to the valuation and disclosure of a deal to the creditors are very strict. The liquidator is obliged to ensure that a fair value is paid for the assets, reflecting the best price that could be realised from the assets.

 

 What is a Pre-Pack Administration?

A Pre-Pack is an arrangement whereby a deal for the Sale of an Insolvent Company’s Assets is arranged before the Company goes into a formal Insolvency Process (usually Administration).

 

Are VAT, PAYE, NIC & CT debts written off?

Yes, these are classified as unsecured creditors of the old company and would not be transferred to the phoenix company.

 

Can I continue to pay & employ staff?

The Transfer of Undertaking & Protection of Employment (TUPE) may require that employment rights are protected

 

Can I keep my phone number & website?

Yes, these will be transferred into the new company as part of the sale of assets and goodwill.

 

Can I keep my existing bank?

This depends on your bank, some banks do not allow the starting of bank accounts for phoenix companies.

 

Will the Bank be made aware of the Phoenix Company?

If the company has granted a debenture over its assets, the debenture holder must be given 5 working days notice of the intention to appoint Administrators. If it is the intention to start a Phoenix Company, debenture holders will be made aware of it, as it will affect how they will be repaid.

 

Is a Phoenix Company Advertised?

Generally not, the use of insolvency valuers is important to ensure any charge over assets held by a Creditor is dealt with appropriately and that negotiations are made in such a way that a Creditor is unlikely to create any negative PR relating to the new company.

 

Is a premium paid for a Pre-Pack Administration?

Generally the assets of the business will be sold at a premium to allow the business to trade. This premium is considered to be a contribution towards the goodwill of the business.

 

Is funding available for a Pre-Pack purchaser?

Yes, there are specialist finance organisations who will invest in Phoenix Companies, provided there is a solid business plan in place. We can help you come up with a strategy for your new business and formalise this in a business plan that you can present to potential investors.

 

How will employees be affected by Pre-Pack Administration?

There are issues surrounding Redundancy Payments when forming a Phoenix Company, care should be taken as the date of any redundancy will have an effect on whether the new company or the Redundancy Payments Service is liable for a payout.

 

 

 

Director Protection

 

How do I get to be disqualified from being a director?

Both the civil and criminal courts have powers to disqualify directors if they consider a person is unfit to be involved in the management of a company.  You are automatically disqualified from being a director of a company if you are declared bankrupt. If you are a director of an insolvent company, the Insolvency Practitioner will submit a D1 report to The Insolvency Service summarising your conduct.

 

If I am disqualified can I carry on other activities for the company?

No.  It is not as simple as that.  A Disqualification Order does not simply prohibit you from being a director of a company, it also prohibits you from being involved in the management, promotion or formation of a company.  What that amounts to is a grey area but in R v Campbell it was held to include works such as a management consultant.

 

Is that not a bit harsh?

Yes.  The legislation is designed to protect all concerned from a delinquent director and it is deliberately designed to be tough.  These consequences are simply those which directly arise from the legislation and do not take into account implications for professionals such as accountants or lawyers.

 

I am an accountant. How could the legislation affect me?

Many finance directors of companies are also trained accountants.  Many accountancy firms also act as the company secretary for their clients.  There are precedents for accountancy institutes to take the view that disqualification is an indication of professional misconduct which justifies striking off.  An accountant could therefore not only lose his job but also his professional qualification resulting serious damage to his reputation and earning capacity.  

 

What happens if I breach a Disqualification Order?

You will get prosecuted.  One of the leading cases set by the Court of Appeal in a case called R v Attenbury where a former director (not facing allegations of dishonesty) was sentenced to 6 months immediate imprisonment.  The Crown Court also has powers to confiscate Defendant’s property if the offence is deemed to justify this.

 

Can I get somebody else to run my company for me?

In short, no.  If you get someone else (for example your wife) to front your directorship while you are disqualified but you still maintain control of the company behind the scenes then both of you risk not merely being prosecuted but also being made personally liable for all the company’s debts under Section 15 Company Director Disqualification Act 1986.  

 

What has caused the DTI to pursue me in the first place?

When a company goes into liquidation, the liquidator has to file a Report commenting on the conduct of the directors and explaining the reasons for the insolvency of the company.

 

What is the most common reason for disqualification?

The most common reason for an application for disqualification without any doubt has to be causing the company to trade whilst insolvent and without any reasonable prospects of being able to meet the creditors claim.  To do this, the DTI need to show both that director knew the company was insolvent and that the director knew there was no reasonable prospects of meeting the creditors claim.  

The second most common reason for directors disqualification is failing to pay the tax man (usually) in order to finance the continued trading of the company.

 

Do I have a defence to the allegations made against me?

Where allegations are not that the director breached to his duty of care or acted negligently, the director ought probably be relieved of liability where he acted honestly and reasonably.  Reliance on an accountant that the company’s statutory obligations were complied with may amount to a defence.  Other matters that the Court will have regard to be whether the director has sought professional advice promptly.

 

And if I do not have a defence, what do I do then?

Even where the case is obviously hopeless, all is not lost and there is plenty that we can do on your behalf to limit the consequences of the disqualification upon you.  For example, we can in some situations negotiate with the DTI’s lawyers on your behalf in order to agree a statement of fact and agree the appropriate penalty.  Alternatively, we can also negotiate the appropriate penalty against you (which is usually lower than tariff sought by the DTI’s lawyers) and agree a disqualification undertaking rather than submitting to an order of the Court.

 

What happens after I am disqualified?

Well clearly disqualification prohibits you from being involved in the formation promotion or management of a limited company.  Importantly however if asked, the Court can give permission to a Defendant to remain as a director of a company providing he can assure the Court that there are adequate safeguards in place.  You will recall that we said there was a considerable amount of uncertainty over what is and what is not defined as “involved in the management of a company”.  Given the uncertainty it is a prudent precaution for an application for permission to be made for any Defendant who is likely to hold a senior or decision making role in a company.

 

What can I do to avoid a threat of directors disqualification?

The most important thing to remember is to take all of the responsibilities of a director seriously.  If in doubt consult a professional for independent advice on the problem and be aware that things can go wrong.  If and when things do go wrong remember that there is much that can be done to assist a director in difficulty, so all is not lost.

 

 

 

Personal Guarantees

 

When should I seek advice with Personal Guarantee issues?

You should seek advice as soon as possible. The sooner we can start taking action on your behalf, the more we can do to protect your assets.

 

Should my partner be worried about the implications of my Personal Guarantee?

Your partner may well be worried about the consequences of your personal guarantee, they may be distant from the operations of your company and have little knowledge surrounding insolvency. We are happy to discuss the situation with your partner to fill them in on the picture and what is likely to happen from this point onwards.

 

How will the bank behave?

A Bank has to follow correct procedures in setting up and dealing with Personal Guarantees. We will analyse the Bank's conduct and how the Personal Guarantee was put in place, if the Bank's conduct has been improper this may prejudice their position and have implications on the exercising of any personal guarantee.

 

Should I just ignore letters and demands from the Bank?

While it may be tempting to ignore the calls and letters, this will not work in your favour, in fact it is likely to just accelerate the actions which the Bank are taking. By not communicating with them, their only option is to go through the courts. This damages any opportunity you have for negotiation.

 

What is a Personal Guarantee?

When a new company, with few assets and little credit history, tries to take out borrowing often the Bank will ask for a Personal Guarantee from a company director to ensure they receive their money back should the company become unable to pay it's commitments. In the event of the company being unable to make it's repayments, the Bank will seek to recover the capital from the director. This will put the director's assets at risk, if their assets do not cover the capital owed, then the Bank may file for their Bankruptcy.

 

What should I avoid when giving a personal guarantee?

You should negotiate the amount that the guarantee covers, and the duration of that guarantee. When taking out joint guarantees, you should avoid being in a position where you will be held liable for the whole guarantee should others be unable to pay.

While you should always try to negotiate the best terms, some lenders have standard terms which they will not negotiate on.

 

What is the Enterprise Finance Guarantee Scheme?

This is a scheme offering companies with a promising business plan a government guarantee of up to 75% of the debt.

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If there is too much information there then you can browse the menu at the top where all the pages are organised into the relevant categories, hover of the main subject and you will see a drop down menu with all the relevant articles.

We do advise our clientS to read through all the pages in our blog as much of the information is relevant to any situation or may help you decide on how you wish to deal with your insolvency before you talk to us.

If there are any subjects that you would like to see in our blog, please contact us with a request and we will update the section with a new article. This website i as much of an information tool as a site to promote our services, so any recommendations would be greatly appreciated.

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