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Compulsory liquidation

What are illegal dividends?

Illegal dividends, or unlawful dividends as they are also known, is when there are insufficient retained profits within the company to cover the dividend being paid. The technical definitions of this can be found at Section 830 of the Companies Act 2006 and reads as follows: “A company’s profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.” Dividends vs Salary A director of an owner managed business, where they are the sole director and shareholder, may ask why not just keep things simply and just receive a salary. The popularity of the split between dividends and salary is due to the tax benefits this arrangement achieves:

Directors’ redundancy – can I claim?

Can directors claim redundancy following liquidation? Directors’ redundancy entitlements have historically been  difficult to successfully claim for. It used to be the case that directors were unable to make redundancy claims from the government-backed National Insurance Fund (NIF) where they were also controlling shareholders. The NIF is managed by the Insolvency Service and provides statutory payments for employees that have been made redundant. However, contrary to much popular belief, the position for directors has changed in recent years. This applies even where a director is the sole director and shareholder of the company.   Case law: Secretary of State V Knight The current case law relies on the court of appeal finding in the matter of Secretary of State for Business Innovation and Skills v Knight.   The respondent in this appeal was the sole shareholder […]

Help for Directors – Pt 1

Director’s Disqualification By way of introduction, I have written this piece to highlight the various pitfalls and knock-on effects commonly seen by Directors whose business has gone through a formal insolvency process. Due to the scope of the assignment, I have broken the blog into two parts, Director’s Disqualification and ‘Directors Being Sued’. This first part will concentrate on the why’s and wherefores of disqualification proceedings, detailing how common they are, the potential effects of disqualification and concluding with advice on how to proceed if there is a chance this affects you. The second part will deal with what happens when directors are sued by Insolvency Practitioners. It looks at the types of action that can be brought by liquidators and administrators against directors, shareholders, and even their families, and examines ways to lessen their effect. Director’s Disqualification Process When a company enters into either Creditors Voluntary Liquidation, Compulsory Liquidation or Administration, the […]

Management of bad debts

It’s a fact of business life that your business will suffer bad debt. It’s also a fact that most of the paperwork you receive informing you of the bad debt and the subsequent insolvency proceedings can be somewhat difficult to understand. Also, if you’ve received the insolvency paperwork, you’re not getting paid, right? Not necessarily…. The North East Business Support Scheme (NEBSS) has been set up by Robson Scott Group to provide a service to North East businesses to manage and maximise their returns from insolvent customers. We will review the paperwork, and give you a clear, concise outline of the process (whether that be Pre-pack Administration, Liquidation, Company Voluntary Arrangement “CVA”, or an “IVA”). We will then contact the insolvency practice dealing with the case, and come back to you with a realistic appraisal as to whether you will get your money back, if so, how much and when. We will […]

The Tax Man toughens up

Over the past 2 years, we’ve noticed a much more vigorous approach from HM Revenue & Customs in collecting business taxes. The reason behind this increased activity is undoubtedly the Treasury looking to alleviate the effect of its decreasing tax receipts by tightening its enforcement arms collection methods. The effect has been stark, in the 2010/11 tax year, HMRC issued 3,367 winding-up petitions, whilst in 2011/12 there were 5,302 issued. Extrapolating out from the activity Robson Scott has seen, I wouldn’t be surprised if that increased to almost 7,000 for this tax year. HMRC’s investigations units have been unlikely winners whilst other departments have suffered swingeing cuts. £917 million in extra funding has been promised, with the quid pro quo that the Treasury expects HMRC to generate a further £7 billion in recovery of taxes that would have otherwise remained unpaid. The main upshot from this is that official investigations into businesses and […]

Closing down your business

“It costs less than £100 to set up a limited company, but the costs of closing down can be considerably higher, especially if the wrong approach is taken!” There are three main ways of closing down a limited company, with similar procedures available for sole traders or partnerships. The way that suits you best will depend on the circumstances of your company. As there are such differences in the costs and implications between the three, it is well worth carefully examining which means of business closure before you decide. Below we examine the 3 main options. Dissolution (also known as ‘Striking off) This is applicable only if you have a company that has ceased trade for over three months and no longer has any assets. Before dissolution, your company must have already paid off all its debt – this is important, as if you dissolve a business whilst debt is still outstanding, […]

Thatcher’s legacy

Thatcher’s insolvency legislation is backbone to current business enterprise With the recent death of Margaret Thatcher, I thought it opportune to have a look back at the huge effect she had on the way we deal with insolvencies in the UK. Towards the end of 70s and the beginning of the 80s, Britain was in the grip of a recession, suffering a lack of confidence in its own business prowess, and facing a need to move away from its core raw material industries. Much wrong was done in the need to change Britain’s direction, and many communities were ripped apart in the way it was approached, especially across the North. However, when Mrs Thatcher was appointed prime minister in 1979, she also set the UK onto a path of business reform that completely changed the way businesses operate. Having loosened the grip of the unions, she also brought in new measures in line […]