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The financial limit for the small claims track is currently £5000. In February 2012, the Government suggested that the financial limit on the value of small claims should be increased from £5000 to £10,000.

As of April 2013, the small claims track is due to increase to £10,000. The effect is that costs cannot be recovered from either party on small claims litigation (same in limited circumstance and the aim, as such, of this change is to make it easier for creditors to make claims in the Court for unpaid debts and low level damages. The downside is that any costs incurred in dealing with a claim which is defended will be mainly irrecoverable from other party.

Both Fast Track and Multi Track limits will remain unchanged at £25,000 for Fast Track and Multi Track claims over £25,000.

For further information, please contact Pitmans Debt Recovery Team.

Donna Goddard
Director
T: 0118 957 0507
E: dgoddard@pitmans.com

New calendar year, new resolutions.  Now is an optimum time to review your aged debtors, credit control process and enhance your cashflow.

If you have any debt which needs collecting, our Effective Debt Recovery team can assist you.

We provide a comprehensive, efficient and cost effective debt recovery service where standard fixed charges apply, we tailor our service to your needs. We put your recoveries first.

The services we offer include:

• Letters before action and follow up calls
• Issue and service of court proceedings
• Entering judgment
• Enforcement of judgments
• Bankruptcy and insolvency proceedings

If you have any outstanding debts or are interested in our service, please contact Pitmans’ Effective Debt Recovery team.

Donna Goddard
Director
T: 0118 957 0507
E: dgoddard@pitmans.com

Security

Ensuring that you get paid can be a lengthy and costly process for any business, especially in the current economic climate. If you have agreed to provide goods or services to a customer on a credit basis then it may be sensible to secure that debt. This gives you priority over other creditors in an insolvent situation. If other debt collection processes have failed then you may be faced with having to enforce action to obtain payment. This article discusses some of the ways you may obtain security and some of the enforcement options available.

Valid and Binding Security

To ensure that your security is valid and binding it is necessary to consider the following:-

• Undertake a search of the Charges Register at Companies House and at the Land Registry to see what, if any, existing security is registered.

• Ensure your security is registered within the requisite time period – charges 21 days.

• Ensure that your security is in order namely that it has been executed by the right people with the requisite authority.  Documents executed by companies can now be executed by a signature of the director of the Company witnessed by a third party in accordance with Section 44 of the Companies Act 2006.

• Consider what your security is intended to secure and whether the Company’s Memorandum and Articles of Association give the Company the requisite powers to borrow, guarantee and raise money. You should also consider the articles of association to see whether there is any restriction on the powers of the director.  You should also make sure that the business of the Company is one of the stated objects in its Articles of Association.

• When taking a debenture ensure that it is a “qualifying floating charge” for the purposes of appointing an administrator. It is useful to have within the body of the debenture a clause which states that it “is a qualifying floating charge for the purposes of paragraph 14.2(a) Schedule B (1) to the Insolvency Act” and that “Paragraphs 14 and Schedule B (1) to the Insolvency Act 1986 (as amended) shall apply”.  With this clause in the debenture you have the power to appoint any one or more persons to be an administrator of the Company pursuant to paragraph 14 of Schedule B (1) to the Insolvency Act 1986 should the debenture become enforceable.

• Consider when the debenture becomes enforceable. Generally speaking a debenture will have enforcement events set out in the debenture which could include non-payment of monies by the Company on demand; non-remedy or a breach of the debenture obligations by the Company; the Company being unable to pay debts as they fall due and the passing of any resolution or the taking of any action for the administration of a Company or appointment of administrator.

Demand

When making a demand you should ensure that it is prepared in accordance with the security. The security will also specify how the demand is to be served. In the case of making a demand and before the appointment of administrators the security holder should ensure that a reasonable period of time has expired. In the case of Cripps (Pharmaceuticals) Limited – v- Wickenden & another; R A Cripps Limited – v- Wickenden & another [1973] 2 ALL ER 606 where money was repayable on demand, all the creditor had to do was to give the company time to get the money from some convenient place; he was not obliged to give the debtor time to negotiate a deal which might produce the money. In this case it was clear that the debtor had neither the money nor a convenient place to which they might go to get it and so could not object on the grounds that they were not given time to find the money or that the 1 hour interval between making the demand and when the receiver was appointed was too short.

In the case of Sheppard & Cooper Limited – v- TSB Bank plc & Others [1996] 2 ALL ER 654 where money was repayable on demand the debtor was entitled to a reasonable opportunity of implementing other reasonable mechanics of payment he might need to employ to discharge the debt. The requirement that sufficient time be permitted to elapse to enable the debtor to make the necessary arrangement of payments, assumed that was the period needed if the debtor had the funds available. If the debtor had made it clear to the creditors that the required funds were not available, there was no need for the creditor to allow any time to elapse before treating the debtor as in default.

Underlying Debt

It is also important to note that all of the documentation relating to the underlying debt should be in order as a creditor will only be entitled to recover (as secured creditor) monies which have been validly lent to the Company. You also need to check there is no binding agreement between the Company and the creditor restricting the creditor’s ability to exercise powers under the debenture or legal mortgage.

Insolvency

In the case of insolvency you need to consider those circumstances which may give rise to the avoidance of the debenture or legal mortgage or the variation of any obligations secured in the circumstances which are set out in Sections 238, 239, 245 and 423 of the Insolvency Act 1986; undervalue, preference and transaction to defraud creditors. Before taking security ensure that sufficient due diligence is undertaken and that the requisite board minutes etc are in place to justify the commercial benefit to the debtor to minimise the security being challenged at a later point.

Legal Charge

A legal charge can be either fixed or floating. The lender has a right to resort to the asset to realise it towards the payment of the debt.

Typically, a document under which a lender takes a fixed charge will give the lender the right to:

• Prevent the charger from disposing of the asset without the lender’s consent
• Sell the asset if the charger defaults under the loan
• Require the charger to maintain the asset
• Claim the proceeds of sale of the charged asset in priority to other creditors and thereby satisfy the purpose of taking security
• Take possession of the secured assets
• Seek a court order appointing an Administrator
• Appoint a Law of Property Act receiver over land

Guarantees

If you have a personal guarantee from a director of a company it is important to ensure that the guarantee is enforceable and that it complies with the Statutes of Fraud. Again, you should ensure that the letter of demand is in accordance with the terms of the personal guarantee. If the guarantor is unable to make payment proceedings may have to be issued. Once judgment is obtained there are various ways in which a creditor could look to enforce judgment.

A guarantee is a promise to ensure that a third party fulfils its obligations and/or promise to fulfil those obligations if that third party fails to do so.  It is a contractual agreement that creates a secondary obligation to support a primary obligation of one party to another. The primary obligation may be, for instance, to repay a loan made by a lender to a borrower. If the lender has doubts about the borrower’s ability to perform its primary obligations, it might seek a guarantee. The guarantor promises the lender that the borrower will perform its obligations and, if he does not do so for any reason, the guarantor will perform them on its behalf. The guarantor’s obligation is contingent on the borrower’s primary obligation. It will therefore never be greater than that of the borrower under the primary agreement. The obligation is usually a payment obligation, but it can also be a performance obligation (such as a guarantee to take over building works under a construction contract).

Judgments made against the guaranteed or indemnified party are not always enforceable against the guarantor or indemnifier.  For example, the High Court refused to enforce an adjudicator’s decision against the guarantor of one of the parties to the adjudication, where the guarantor was not itself a party to the adjudication.

Law of Property Act Receiver

Often within security documents there will also be the ability to appoint a law or Property Act Receiver which may be relevant when the assets of the Company are property related. A Law of Property Act Receiver will be brought in to realise the assets for the benefit of the creditors.

Enforcement

There are many different enforcement options including:

• By Bailiff or High Court Enforcement Officer
  The bailiff/officer visits the premises of the Debtor to levy execution on any assets at the premises to sell to repay the debt.

• Order for questioning
  The court will produce an Order for the debtor/company director or shareholders or any of them to attend court to disclose the financial affairs of the Company.  The first order to attend for questioning will contain a penal notice and must be served personally.

• Charging Order
  If the Company is the owner of freehold or leasehold property a charge could be placed against the property.  However, you will only receive your money if the property is sold with sufficient equity available to settle the debt.  The effect of a final charging order is to convert you from an unsecured creditor to a secured creditor. Provided the final order is made before any insolvency proceedings are commenced you will be unaffected by any subsequent insolvency.

• Third Party Debt Order
  If you have reason to believe the Company has a Bank or Building Society account which is in credit or you know or reasonably believe that a sum is to be credited in such account(s) and you have the details, you can apply to the court for monies to be deducted from these accounts to settle the debt due.

• Statutory Demand
  If you are owed more than £750 you may serve a Statutory Demand.  The Company or debtor has 21 days from the date of personal service to settle the total amount due.  If the Company or debtor fails to respond you will then be in a position to proceed with a bankruptcy or Winding Up Petition.  The Statutory Demand is valid for only 4 months and can only be issued on undisputed debts.

• Winding Up and Bankruptcy Petitions
  If you have served a Statutory Demand or have a judgment you can petition to wind the company up or make the individual bankrupt. This may put pressure on the Company or individual to pay its debts but should not be used as “an abuse of process”. If the debt is to be paid it should be settled from third party funds otherwise the repayment may be a preferred payment.  In addition, it is possible that the petition could be supported by other creditors or that the debtor does not dispute the petition and merely succumbs to it and consequently a creditor will have incurred further costs but will rank alongside all other unsecured creditors.

• Attachment of Earnings
  The court will produce an order for the employer of the debtor individual to pay a percentage of their wages into court.  This will depend on their income and expenditure and will be reviewed by the court.  The court will then decide the amount of money paid into court.

• Mortgage in Possession
  Where a mortgage or charge is by deed the mortgagee will have a power of sale.  A mortgagee lawfully in possession has, generally speaking, the rights of any owner of land for the purposes of the management and preservation of the property.

• Injunctions
  In some cases a judgment creditor may be concerned that the judgment debtor is likely to dissipate its assets within the jurisdiction or remove assets from the jurisdiction, so as to defeat the judgment of the court and leave no assets within the jurisdiction for the creditor to satisfy the judgment debt. In cases such as these, the Court has the power to make a freezing order over the assets of the judgment debtor on the application of the judgment creditor.  The applicant for this form of interim relief must show that there is a real risk that a judgment or award in favour of the claimants would go unsatisfied.

Before certain enforcement methods can be used the judgment debtor must have been given an opportunity to pay the judgment debt. He must have failed to pay the judgment debt when due, or failed to pay an instalment due under the terms of the judgment. You should therefore consider carefully whether payment is overdue before you start to enforce.

Pitmans LLP is a leading law firm in the Thames Valley and London. We have a dedicated Hospitality sector who understands the needs of our clients in this sector. If you would like any specific advice on any of the issues raised in the article, please do not hesitate to contact:

Nicola Kirk
Partner
T: 0118 957 0226
E: nkirk@pitmans.com

Pursuing debts can be a lengthy and costly process for any business, however it is very important that debt collection is made a priority, especially in the current economic climate. For small and medium sized businesses even a small amount of debt can have a major effect on cash flow. The late payment of debts can be a difficult issue for businesses to overcome; it can affect the business’s capability of repaying its own debts as they fall due and it can affect the ability of the business to expand by preventing the employment of staff and prohibiting any refurbishment or improvements that may be required to allow the business to remain competitive.

This article provides some ways in which you may realise your debts in a more efficient and timely manner.

Credit checks

Before entering into a transaction it is important to establish that the other party has the ability to repay any debt which is owed to your business.  This can be done by undertaking a few simple preliminary checks. When undertaking a transaction, whether it is with an individual or another business, it is very quick and easy to carry out a credit check through a company such as Experian. This will help establish whether you may face future debt collection problems.  This will also help you determine whether you wish to go ahead with the transaction at all.

It may also be sensible to adopt a process of undertaking credit checks periodically throughout any ongoing business relationships. When dealing with another company it is also possible to check at Companies House in order to see whether a company has been declared insolvent and whether that company’s accounts are up to date.

New business

With new customers or new business it is worth considering whether tighter credit controls ought to be imposed. If you are unsure about the ability of the individual or business to pay their debts, or you are uncertain as to whether they will pay them on time, it may be worth limiting the payment terms so that they have fewer days in which to provide payment. Consideration may also be given to the amount of credit that is to be allowed before demanding payment; it is advisable to maintain a tighter rein on the credit that is afforded to a new business. Once an ongoing working relationship has developed and trust regarding payment has built up, you may then wish to extend the payment period and credit allowed to those individuals or businesses.

Payment in advance

Getting money on account is particularly worth considering if you are dealing with a new client or customer or if your business cannot afford to undertake the work on a credit basis. If the customer or client does not pay in advance and is unable to pay for the goods or services once they have been provided then you may wish to consider whether you are able to do business with that client. Asking for payment up front is a means by which to protect your business against the risk of your customers defaulting on their payments. It provides protection to the business from having to write off bad debts and, most importantly, it generates immediate income which will help with cashflow and ensure that your business is able to pay its own bills as they fall due. In this way, businesses are able to minimise losses and they are better able to forecast their earnings.

Payment up front provides the customer with certainty and control over their spending; they know from the outset what it is they are being charged for and there is less chance of the customer being dissatisfied and querying their invoices, thereby taking up the supplier’s valuable time, effort and money that could be put to better use in other areas of the business. As a result, both the customer and supplier will be able to enjoy greater financial security.

How to ask for payment in advance

While buyers will generally be seeking to make payments over the longest possible period, suppliers of goods or services are aiming to receive payment at the earliest opportunity. In order to be willing to provide payment in advance the customer needs to be certain that the goods or services will be supplied and that they will be satisfied with what they have paid for. This requires an element of trust and this trust has to be earned by your business by consistently fulfilling obligations and providing goods or services of the standard expected. For this reason, your business will have to ensure that it supplies goods or services competitively because otherwise prospective buyers and clients will take their business elsewhere to a business that may offer them more favourable payment terms.

In order to make the idea of pre-payment more palatable to the customer it may be worth offering an incentive such as a 10% discount. Although this may not appear to be a particularly favourable option for the supplier, on balance you may consider that it is a small price to pay for certainty when compared with the alternative option of having to chase for payment over a period of time, following the initial outlay already involved in providing the goods or services. A worthwhile incentive may help your business gain the competitive edge it needs over other businesses that are readily willing to provide goods or services on credit.

You may be concerned that not allowing a customer to pay for the goods or services after they have been provided will cause you to lose customers but you must assess the loss of that customer against the risk of not being paid once your goods or services have already been provided.

Customers who have paid for goods and services in advance are in a precarious position if their supplier becomes insolvent. Unless the supplier has placed the pre-payment into a separate trust account, the customer will be an ordinary, unsecured creditor and they are unlikely to be repaid. For this reason, before agreeing to pre-payment of their supplier customers are likely to need reassurance that they are dealing with a business that is reputable and solvent.

Deposits

A good way of securing payment and commitment to an order is to ask for a deposit from your customer. This is also a useful way to protect your assets if you hire out goods, to ensure that you can cover the cost of replacement if necessary and continue trading. If a deposit is paid and the commitment is not followed through or the full payment is not later received then your business has at least realised some money in return for their services.

Terms and conditions

You should make it clear from the outset in the terms and conditions by which the customer is bound when payment is due and how it should be paid, particularly for ongoing work during which payment may be staggered. This will ensure that there is no confusion on the customer’s part and will help prevent delays in payment. Key clauses such as retention of title clauses can prove crucial if a key customer becomes insolvent or is in a distressed situation.

Invoices

It is vital that businesses establish a system to ensure that invoices are issued promptly and that they contain the correct information – including the person or address to send it to. If invoices are rejected because they need to be amended this could waste time and cause delay in getting paid. Ensure that invoices state the payment terms very clearly so that there is no ambiguity as to when the amount is due, who it is payable to or how it should be paid. For ongoing transactions ensure that invoices are sent regularly in order to maintain good cash flow and so that the debtor is regularly informed about the amount they owe. This will enable them to plan their payments and help to ensure that they are able to pay their debts without delay.

Securing a debt

If you have agreed to provide goods or services to a customer on a credit basis then it may be sensible to secure that debt. When the goods or services are supplied to the customer on a credit basis, it is possible to use the goods or an asset as collateral to secure the debt so that, should the creditor default on the payment, the creditor may take possession of that asset and sell it to recoup the sum that is owed. If the sale of the asset does not realise the sum owed then the supplier may pursue the customer for the difference.

If a customer becomes insolvent insolvency law sets out the priority with which creditors are to be paid. Secured creditors are first in line to receive what they are owed. Therefore, when a supplier agrees to deal with a customer on a credit basis, they should consider securing that debt so that, should the client or customer default on the payment or become insolvent, they will be the first to be paid.

Maintain a good relationship

Maintain a good affiliation with your debtor in order to promote a good working relationship and dialogue. By doing so it is more likely that your debtor will warn you of any financial difficulties it is facing and this may make it easier for your business to plan ahead. It is important to establish the occasions in which a more understanding approach is all that is required in order to achieve your desired result and the circumstances in which a more aggressive stance is called for. The ability to negotiate payment with debtors may produce a quicker result that will be better for your business than holding out for the full amount which could take significantly longer. Adopting an unnecessarily tough stance too early on in the debt collection process may simply serve to drive the client to take their business elsewhere or force the client into an insolvent situation.

Bad debt

There will occasionally be individuals and businesses from which you will never receive payment owing to the fact that they may have entered into an insolvency process. It is important to realise that it may be necessary to write off some debts as bad debts and to provide for this by maintaining contingencies within your accounting structure, thereby enabling the business to absorb any loss. By being prepared in this way, the debt is less likely to have a significant effect upon the business and it will be possible to recover more quickly.

Debt collection procedure

It is important that every company has an established procedure for dealing with debts. Unpaid invoices should be quickly identified and a policy implemented to determine the stage at which action should be taken, and what that action should be. Often accounts departments deal with chasing up debts themselves but there are some situations in which there are advantages for outsourcing the collection of debts to debt collections agencies or law firms. This is generally seen to be more suitable in circumstances in which debts have existed for prolonged periods of time.

Many businesses are put off by debt collection agencies and solicitors in the belief that their deployment will affect their reputation and that it will hinder their relationship with the debtor, thereby having a negative influence upon future business. However, sometimes only a more rigorous approach to debt collection will result in the payment of money owed. In the current financial climate it often pays to be robust.

Enforcement

Debts can be recovered in a number of ways including by using a bailiff, obtaining a charging order or third party debt order, issuing a winding up or bankruptcy petition,  applying for an attachment of earnings order, enforcing rights as a mortgagee in possession and by way of injunction. It often pays to be aware of these processes so that they can be implemented in the most effective and strategic manner.

Pitmans LLP is a leading law firm in the Thames Valley and London. We have a dedicated Hospitality team who understand the needs of our clients in the Hospitality sector. If you would like any specific advice on any of the issues raised in this article, please do not hesitate to contact:

Nicola Kirk
Partner
T: 0118 957 0226
E: nkirk@pitmans.com

Stacey Jones
Solicitor
T: 0118 957 0235
E: staceyjones@pitmans.com

Insolvency Rules Update

The new Insolvency rules which came into force on 23rd February 2012 provide that when presenting a Petition, the Petitioning Creditor must now conduct an initial search to ascertain whether any other petitions have been presented against the debtor within the previous 18 months.

Initial guidance on the effect of this provision suggest that the search for prior petitions presented in the High Court and the Central London County Court must be conducted even where the petition is not being presented in one of these courts.  Creditors outside the London insolvency district must write to the appropriate District Judge applying for permission to attend the court to conduct a search and/or adhere to the particular court’s search procedures.  These procedures may vary.

Under the circumstances, we must make you aware that this new provision will incur an additional cost to the petitioning creditor and delay between instruction and petition.

Court fees to rise in Scotland

There will be 3 separate increases in Court fees within the next 2 years.  The proposed new fees which will come into effect in 3 stages from 1st November 2012, 1st April 2013 and 1st April 2014.

While the increases appear to be close to inflationary – with 5% for November 2012 and 3% for the two subsequent rises, significant uplifts are planned for substantial hearings in the courts.   The fees will be confirmed in due course.

For further information please contact Pitmans Insolvency and Restructuring team or Pitmans Debt Recovery team.

Donna Goddard
Director
T: 0118 957 0507
E: dgoddard@pitmans.com

Non-payment for goods supplied is an ever increasing risk for business. A validly drafted and effectively incorporated express clause providing for reservation of legal title to goods supplied is a useful method of protection for non-payment in solvent and distressed situations alike. A valid retention of title clause will:

(i) provide quasi security in the event of the buyer’s insolvency in respect of the goods supplied; and

(ii) absent insolvency allow the seller to recover the goods supplied if they have not been paid for.

Such clauses, if enforceable, can greatly increase a creditor’s bargaining position and, as such, prospects of payment.

Retention of Title clauses range from, a basic clause providing that legal title to particular goods sold (on an order-by-order basis) does not pass to the buyer until the goods have been paid for in full, to an “all monies” clause, which does not permit title to pass in any goods supplied at any time until all sums owed – for any goods that have been supplied by the seller – have been paid in full.

The addition of a mixed goods clause is advisable in situations where the goods supplied are to be subject to a manufacturing process (where they are combined with other goods owned by third parties) to create a new product. Such a clause is only effective in law where the goods supplied retain their identity and can be easily removed from the manufactured product without causing damage.

Similarly, it is often necessary to consider the effect of a valid retention of title clause where there is likely to be a sub-sale to an end user and, in particular, the frequently found addition of a clause which aims to attach a claim to the proceeds of sale paid on a sub-sale of the goods. Such a clause will often be drafted so widely as to create a charge which may be invalid if it is not registered as a legal charge.

Further, where it is intended that finished goods are to be supplied for the purpose of an immediate on-sale by the buyer to its customers it is possible that an “all monies clause” may be considered ineffective unless an express provision has been made for the re-sale of the goods.

A well drafted retention of title clause should provide for the seller to gain access to the buyer’s premises to repossess the goods. However, where the buyer is a company in administration, no steps can be taken to repossess any goods supplied without first obtaining the permission of the appointed Administrators’ or an Order of the Court.

The law relating to retention of title is constantly evolving and changing. It is, therefore, important that parties seeking to rely upon the terms of a retention of title clause ensure that such provisions are regularly reviewed and updated. The key is to ensure that such clauses are not drafted so widely so as to render them unenforceable in any moment of need.

If you have concerns or queries about any of the issues dealt with in this article please contact:

Adrian Wilmot
Director, Insolvency & Restructuring
T: 0118 957 0595
E: awilmot@pitmans.com

Suzanne Brooker
Partner
T: 0118 957 0516
E: sbrooker@pitmans.com

The long awaited judgment in The Commissioners for her Majesty’s Revenue and Customs v. Football League Limited, on the so called “football creditors’ rule” (the “Rule”) has been given.

This article only concerns itself with the issue of whether the Rule was or was not considered void on the grounds that it was contrary to the pari passu principle and the anti-deprivation rule and not on the fairness of the Rule itself.

The Rule operated by the Football League (“FL”) provides that in the event that a member club of the FL becomes insolvent then unsecured “football creditors,” including (but not limited to) players, other member clubs and the FL are afforded a super-priority for sums owed to them resulting in payment to them before all other unsecured creditors.

The Commissioners for her Majesty’s Revenue and Customs (“HMRC”) challenged the Rule on the basis that the relevant provisions of the Rule appeared to conflict with two fundamental principles of insolvency law, namely: (i) the pari passu principle; and (ii) the anti-deprivation rule. As a consequence of which, HMRC were unfairly prejudiced.

Both the pari passu principle and the anti-deprivation rule were considered in the case of Belmont Park Investments Pty Limited v BNY Corporate Trustee Services Ltd [2012] 1 AC which also helpfully set out a definition of both principles: “the anti-deprivation rule is aimed at attempts to withdraw an asset on bankruptcy or liquidation or administration, thereby reducing the value of the insolvent estate to the detriment of creditors. The pari passu rule reflects the principle that statutory provisions for pro rata distribution may not be excluded by a contract which gives one creditor more than its proper share.”

HMRC argued that the Rule was an attempt to contract out of the insolvency legislation, in that: (i) the property distributed to football creditors’ should properly be made available for distribution to unsecured creditors pari passu, in accordance with insolvency legislation; and (ii) the provisions of the Rule are void and unenforceable as, in breach of the anti-deprivation rule, they allow for property to be removed from the insolvent club following the onset of insolvency, thus reducing the value of the insolvent estate which would otherwise be available for distribution to creditors.

Applying the facts, the Court ruled that in most circumstances the Rule will not be rendered void by the anti-deprivation rule or the pari passu principle. However whether it is rendered void or not will be decided on the particular facts of each matter. The Court declined to make the declarations sought by HMRC and concluded by saying “The FL should not regard the result of this case as an endorsement of its approach to football creditors. It is, as I said at the start, a decision on a challenge brought on a particular legal basis.”

It is fair to say, that the Rule has been the subject of some criticism. Before handing down his judgment, Mr Justice Richards stressed that “These proceedings are not concerned with whether giving priority to football creditors is socially or morally justified. The issue is one purely of law, whether the provisions which together accord this priority are void and of no effect on the grounds that they are contrary to insolvency law.” This point notwithstanding, whilst the decision has maintained the status quo it has not resolved the underlying issue of football creditors’ being paid in priority to other unsecured creditors and it remains to be seen what (if anything) HMRC does next.

The judgment also clarified a number of legal principles that are not related to football.

For further information on this article, please contact Pitmans Insolvency & Restructuring team.

Adrian Wilmot
Director
T: 0118 957 0595
E: awilmot@pitmans.com

It is looking increasingly likely that 2012 will be another difficult year for the automotive sector, leading to a decline, not only in vehicle sales, but also in goods and services supplied to the sector. As a result, businesses may experience cash flow problems and increased creditor pressure to pay invoices.

There are a number of ways in which a business may look to ring fence its existing unsecured debt. If the underlying business is sound, a company struggling to pay its creditors may propose a composition of its debts via a Company Voluntary Arrangement (“CVA”). A CVA is a legally binding agreement between a company and all of its unsecured creditors to pay off historic debt over a period of time, usually 3 to 5 years. Any CVA must offer a greater potential dividend return to creditors than would be achieved if the company were to enter into insolvent liquidation.

Once the CVA is approved by the requisite majority of creditors it becomes a contract between the company and its creditors and binds all unsecured creditors. However, the rights of secured or preferential creditors cannot be adversely affected without their express consent.

One of the fundamental issues with CVAs is that, for the majority of companies, there is no statutory moratorium to prevent creditor/s taking action to recover sums owed to them whilst the CVA is put to creditors. However, “small companies” can obtain the benefit of a statutory moratorium designed to prevent creditors taking action against the company whilst the CVA proposal is put to the creditors. A “small company” is defined as one whose turnover does not exceed £5.6 million; its balance sheet total does not exceed £2.8 million and has no more than 50 employees.

For companies that do not fall within the “small company” criteria it is possible to enter into a formal insolvency process, known as administration, with the intention of exiting it via a CVA once the CVA has been approved. The primary purpose of any administration is to try and rescue the company as a going concern. Administration allows time for a company’s affairs to be re-organised under the protective umbrella of a statutory moratorium.

If it is not possible to rescue the company as a going concern then the business/assets of the company may be sold to a third party via a “pre-pack.” A pre-pack involves the company entering into administration and immediately selling its business and/or assets to a third party under a sale the terms of which were negotiated before the administrators were appointed. It allows the business to continue trading via a new company and secures the employment (employees will transfer to the buyer) whilst leaving behind the burden of historic debt with the company in administration.

Pre-packs are frequently used where the core business is still viable, but the company carries significant historic debt that it can no longer service. Invariably there is no funding available for the business to continue to be traded by the administrators and, for whatever reason, any CVA proposals are not appropriate or have been rejected by a majority of the creditors.

If you have concerns or queries about any of the issues dealt with in this article or wish to explore confidentially the various methods of restructuring and/or refinancing your business please contact us and we will be happy to provide you with advice and assistance.

Adrian Wilmot
Director
T: 0118 957 0595
E: awilmot@pitmans.com

Suzanne Brooker
Partner
T: 0118 957 0516
E: sbrooker@pitmans.com

From 19th March 2012, all money claims issued in the County Court under the Civil Procedure Rules (Part 7) will be issued in the Northampton County Court. 

The National Civil Business Centre based in Northampton will act as an administrative office and will manage the preliminary stages of actions commenced in the County Court including issuing Claim Forms, applying for Judgment and filing of acknowledgement of service and defences.

This change is being accompanied by increased automation and whilst this might ultimately speed up court process and turnaround volumes and times, we would like to warn all our clients in advance about potential delays in the first weeks of the new scheme.

Please note that there will be an opportunity to have an action transferred out of the Northampton County Court to a more local/convenient County Court at the allocation stage where the Defendant is not an individual.  As is standard practice now, where the Defendant is an individual, the action will be automatically transferred to the Defendant’s home Court. 

For more information, please contact Pitmans’ Debt Recovery team.

Donna Goddard
Director, Debt Recovery
T: 0118 957 0507
E: dgoddard@pitamns.com

Courtesy of the Thames Valley Business Magazine July/August 2011.

It has become increasingly commonplace for commentators to cast doubt on the effectiveness of the AIM market.  Since the start of the current financial turmoil, prior to which the number of new entrants to the market boomed, there has been a significant slump in primary issues and fundraisings on AIM.  This has of course coincided with a downturn in the global economy and the resulting drain on the cash available for investment in the UK, but does the problem run deeper than that?

When AIM was launched in 1995 it sought to provide a platform for smaller and growing companies, providing them with liquidity and access to capital on a global scale.  This made AIM a very popular choice for small and medium sized companies looking for growth and for investors looking for an exit route. Over the last 15 years the success of the AIM market has shown why it is important to have a strong, functioning junior stock market in the UK and it has become a model for other stock markets across the financial world. 

Most growing companies reach a point in their development when they need access to more capital.  Frequently they will turn to venture capital or private equity funding to obtain it.  Any such investors typically will be looking to exit that investment in a three to five year timescale, often dictated by the lifespan of the funds which they in turn have raised from external investors.  Although the growth of a secondary and tertiary buy out market over the years has meant that has become a very serious alternative, and a trade sale to a competitor is in many cases another option, an IPO onto AIM or the full list is one of the classic exit routes. 

If this IPO exit route is increasingly closed out, it reduces the exit options for those investors.  Given how important the financial investor sector has been to the UK economy over the last two decades, this in itself is a reason to try to address some of the problems that AIM has been experiencing.  It is even more pressing because of the issues that currently dog the debt funding market.  As we know, many banks (both UK and international) are busy focusing on strengthening their own balance sheets following the 2008 credit crisis (and given the sovereign debt risk that is still out there in much of Europe) rather than on new lending to corporates.  Therefore, the number of avenues for corporates to seek new capital to grow their businesses is further reduced. 

So what has gone wrong and why have we seen an increase trend in de-listings and alternative investment routes? In some ways AIM has been a victim of its own success. Sold on a brochure of lighter regulation, access to international investors providing increased visibility and profile and the badge of being a listed company, entrants to market have not been hard to find in the good times.  Now that investment capital is limited, is the market is self regulating the quality of successful applicants as investors become more selective or cautious about where they invest their money? Is there a danger that this self regulation will disappear when the equity taps begin to open again and how should this be addressed? Alternatively is it the cost of regulation that is putting off growth companies these days from going down the IPO route?

More emphatic regulation by the London Stock Exchange both of AIM market companies and their Nominated Advisors would be welcomed in some quarters to counteract any reputational damage sustained over recent years and further improve the quality of market applicants.  In order to achieve this any such regulation could make it harder to get an inappropriate company onto the market, or make the consequences for failures to meet minimum standards more severe.  The fear amongst the investment community is however that over regulation may strike at the heart of what AIM is about and further dampen the appetites for IPOs.  

Whilst greater regulation is a cornerstone of a sound financial market, it is unlikely to address all of the issues currently facing AIM. There has been some discussion as to whether the UK Government should give further tax incentives to those making AIM investments.  While this seems unlikely in the current economic climate, encouraging a broader mix of investors into AIM, which is still dominated by investment funds, would certainly be likely to increase the range of investors and liquidity in the market generally, thereby reviving the market. 

Whilst it is true that if nothing is done to turn the AIM market around, it may continue to slide in popularity and that would be to the detriment of UK industry, particularly at the medium sized company level, many of the problems faced by AIM are not of its own doing and the solution should not be found in tinkering with the market. Medium sized companies need access to long term, reliable sources of capital.  The absence in the UK of a banking system like the German regional banks, who support these types of companies over the long run, means companies, who are not FTSE 350 size, but have long outgrown friends and family and business angel funding, do need a functioning junior public market as an alternative.  Regulation coupled with tax breaks can be a good thing where market regulation fails, but on their own they will not change market sentiments. Confidence is slowly returning and advisors are reporting an upturn in AIM related instructions. Now is the time for investors in AIM to lead the way, allowing medium sized companies to access capital, grow and succeed, providing confidence to other sectors in the economy. Of course we could just create a new regional banking structure – but that is another challenge altogether.

If you would like to know more information about this article, then please contact either Andrew Peddie or Daniel Jacob of our corporate team.