Local Authority Debt Recovery Insolvency as a Debt

Local Authority Debt Recovery Insolvency as a Debt Recovery Tool Presented by Freeths LLP and Weightmans LLP 15/01/2015 www. emlawshare. co. uk

Peter Brewer Weightmans LLP www. emlawshare. co. uk

BANKRUPTCY AS A RECOVERY METHOD Graham Danby Freeths LLP www. emlawshare. co. uk

About me • • • Worked in Debt Recovery for 10 years in both the Debt Purchase and Legal sectors. Previously Head of Litigation at debt purchaser The Lowell Group and now Head of Debt Recovery at Freeths LLP Between 2009 – 2012 presented 13, 000+ Statutory Demands and 8000+ Petitions to debtors resulting in 2500+ Bankruptcy orders. In the same period only the Inland Revenue made more Bankruptcy Orders but Lowell Group attracted no complaints due to ethical and compliant nature of collections Average dividend 86 p in the pound against target of 70 p Also responsible for issuing of small claims and associated enforcement mostly by charging order but use of this post 2008 was very sparse www. emlawshare. co. uk

Why Bankruptcy? • • • Nobody litigates because they want to usually a long process has tried and failed to engage with the debtor The bankruptcy process is far more effective at breaking the silence between creditor and debtor than other forms of legal recovery action Response rates over 60% higher than small claims actions where many customer already have a CCJ(s) and are not concerned about this process Fixed fee disbursements – not dependant on balance so can allow the creditor to take a commercial view on larger balances and expectations of return. Many debtors happy to have a charging order registered against their property as they have no intention of moving or more importantly paying Courts now reluctant to give order for sales to a creditor but not to Trustees in Bankruptcy who represent all creditors www. emlawshare. co. uk

Cont. • • • Finality – as opposed to a charging order which can sit against a property for an undefined length of time a Bankruptcy has a definite start and end to the process Access to data – as creditors you can now have access to much more information on not only the debtors financial situation but information about the assets they own and their value ‘Repeat business’ its not often that somebody who has received a stat demand / or a petition and then paid decides to fall behind again. Many Law firms willing to fit into whatever commercial structure is needed including CFA’s Continuity with same law firms doing post appointment work who are familiar with the customer and any past avoidance tactics they may have www. emlawshare. co. uk

What Performance Should You Expect? • • • On the serving of a Statutory Demand we have found 32% of debtors ‘convert’ of which the vast majority enter into payment plans rather than settlements On the serving of a Bankruptcy Petition we have seen a further 35% conversion of which the split between plan and settlement was c. 60 / 40 Around 25% of cases go through to Bankruptcy Order. Between 8 -10% either apply to set the demand aside, oppose the petition or information would come to light regarding the customers situation which would lead to us discontinuing proceedings. All stats above based predominantly on aged consumer debt – other types e. g local authority debt has performed better. All percentages above based on original size of portfolio stat demanded. www. emlawshare. co. uk

Performance • • • Average payment plan £ 117 a month Default rate much lower than other forms of recovery Dividends – full recovery possible on all cases where they are picked correctly. www. emlawshare. co. uk

The Asset • • • Value the property and reduce internet valuation by an average of 15% - Zoopla will sell this on commercial terms Bulk Land Reg to ensure that the property is owned by the customer and not just a mortgage applied for from a different address on file (IP would do this) Take away the secured debts from the above to leave the equity figure Deduct all unsecured debts from the customers share of the equity If there is a 20 k+ surplus figure put forward for bankruptcy www. emlawshare. co. uk

Things to Avoid • • • Leasehold properties – Difficult to value Apartments and Flats – Difficult for process servers to gain access and serve the documents reducing conversion Sole Traders – HMRC bills can wipe out equity leaving very little for unsecured creditors Credit files where only entry for that address is the mortgage on jointly owned – very often a sign of marital breakdown and the customer is not there Engage with your IP whenever possible / let them do it for you www. emlawshare. co. uk

Any questions? www. emlawshare. co. uk

Presentation on insolvency Jason Norwood Restructuring Services 15 January 2015

Jason Norwood Zoë Cherryman Ed Thomas Client Service Manager Director and Insolvency Practitioner Mazars LLP, Gloucester Mazars LLP, London Britannia Warehouse, The Docks, Gloucester GL 1 Tower Bridge House, St Katharine’s Way, London E 1 W 2 EH 1 DD jason. norwood@mazars. co. uk zoe. cherryman@mazars. co. uk ed. thomas@mazars. co. uk T: +44 (0)1452 874 711 / M: +44 (0)7929 000 487 T: +44 (0)1273 712743 / M: +44 (0)7794 031318 T: +44 (0)207 063 5039 / M: +44 (0)77 10 397553 About Mazars: Mazars is an international, integrated and independent organisation specialising in audit, advisory, accounting, tax and legal services. As at 1 st January 2013, the Group operates in 71 countries, and draws on the expertise of 13, 500 professionals to assist companies – major international groups, SMEs, private investors – and public bodies, at every stage in their development. Mazars also has correspondents and representative offices that give the capacity to serve clients to the same high quality standards in a further 14 countries. 13

Insolvency is… • The situation where liabilities exceed assets. or • The situation where debts cannot be paid when they fall due. 14

UK Personal Insolvency Landscape • Level of Personal Debt in UK = £ 1. 43 trillion • Of which £ 158. 9 billion is unsecured • England & Wales • Population 56. 1 m • Total Personal Insolvencies in 2013 = 101, 049 • 0. 18% 15

UK Personal Insolvency Landscape • England & Wales • Bankruptcy • Individual Voluntary Arrangement (IVA) • Debt Relief Order (DRO) 16

Personal Insolvencies in England & Wales 140, 000 120, 000 100, 000 Total 80, 000 Bankruptcies 60, 000 DROs IVAs 40, 000 20, 000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 17

Who is involved? • The Insolvency Service - a Government Agency which deals initially with all Insolvencies • The Official Receiver - An officer of the Court, and an employee of the Insolvency Service • The Court - Most County Courts and the High Court have the power to make Insolvency Orders • An Insolvency Practitioner - An authorised, and appropriately qualified person who deals with various types of insolvency. He is usually paid out of the assets 18

Overview – Debt Relief Orders SIMPLE WAY OF OBTAINING DEBT RELIEF FOR PEOPLE WITH LITTLE OR NO ASSETS OR SURPLUS INCOME • Criteria: • - Debts less than £ 15, 000 - Car less than £ 1, 000 - Other assets less than £ 300 - Less than £ 50 surplus income per month - Unable to pay debts Process - Apply to The Insolvency Service DRO lasts for 12 months No action by creditors (unless unhappy? Misrepresentation? Conduct) Free of debts at the end of 12 months (unless circumstances have changed) No Court involvement Introduced in 2009 19

Debt Management Plans (DMP) • An unofficial, unregulated agreement with creditors to pay off debts. • Involves an intermediary but not an Insolvency Practitioner • Agree to pay a small amount (e. g. £ 50 per month) into a fund • Creditors agree to be paid out of that fund • Not binding, no guarantees, • No debt forgiveness – debtor still liable until he pays everyone in full • Probably several hundred thousand DMPs but no official figures 20

Overview – Individual Voluntary Arrangement ALTERNATIVE TO BANKRUPTCY – A DEAL WITH CREDITORS • Criteria: • Unable to pay debts as and when they fall due Process - Debtor makes a Proposal to his creditors - Proposal is reviewed by an Insolvency Practitioner - He reports to creditors on its feasibility - Creditors then vote – needs >75% in value of creditors to approve - If IVA is approved it is binding on creditors - Modifications can be suggested - Creditors can’t pursue the debtor, they must await the outcome of IVA - Usual IVA is a monthly contribution from monthly income for 5 years - Plus sale of property/cash injection in the final year - Success results in debtor no longer being liable for any unpaid amount - Failure usually results in Bankruptcy 21

Overview – Bankruptcy USUALLY THE LAST RESORT – COMPLEX AND EXPENSIVE • Criteria: • - Unable to pay debts as and when they fall due Process - Application to Court – debtor’s petition or creditor’s petition - Official Receiver decides whether the level of assets justifies the appointment of an Insolvency Practitioner as Trustee in Bankruptcy - Trustee’s role is to turn the assets into cash, and pay costs Creditor must be owed £ 750 or more Debtor must be unable to pay debts Court makes Bankruptcy Order Official Receiver deals with it initially Debtor prepares Statement of Assets & Liabilities and Income & Expenditure Any surplus is paid pari passu to creditors 22

Bankruptcy – General Points • All funds are paid into an Insolvency Service Account for the bankruptcy estate • Insolvency Service takes a levy (17% roughly) to fund the Insolvency Service • Trustee’s fees – paid out of the funds realised. No funds = no fees • Bankrupt has some restrictions for 1 year – e. g. company director • Upon discharge after 1 year, bankrupt is no longer liable for his debts • Poor conduct may result in a Bankruptcy Restrictions Order (BRO) which imposes restrictions for between 2 -15 years • Official Receiver applies for a BRO • Poor conduct = failure to co-operate, giving away significant assets, incurring credit with no prospect or intention of repaying it 23

What a Trustee in bankruptcy does: Role • Appointment • Officer of the Court • Administers the estate • Impartial referee between creditors and bankrupts • Protect assets • “Get in assets” • Realise assets • Powers • Distribute the estate 24

What a Trustee in bankruptcy does: Assets • Matrimonial Home (90% cases) • Buy Out of Equity • Voluntary Sale • Possession and Sale proceedings • SONS and JONS • Local Authority petitions • Other assets – chattels / investments / PPI claims / Cash • Antecedent Transactions • Pensions are, generally, exempt • Surplus Income • Windfall Assets 25

What a Trustee in bankruptcy does: Creditors • Costs are paid first, before creditors get anything • Frequently, there are no funds to allow payments to creditors • If there are funds: • Preferential creditors (mainly employees) get paid first • Unsecured creditors paid a % of their debt • This includes any family members except spouse • If 100%, then interest is paid at the statutory rate – currently 8% • Any debt to spouse paid after everything else • Still funds? Surplus to debtor 26

What a Trustee in bankruptcy does: Summary • Added Value • Best result for creditors • Negotiation and costs • Experienced team and high quality agents/lawyers • Be fair, but be firm • Speed and size of dividend to creditors 27

CT and NNDR Claims in Insolvencies • Re: Kaye v South Oxfordshire District Council (2013) • April 2013, South Oxford District Council issued Certain Exhibitions Limited with a notice in respect of non-domestic rates for the period 1 April 2013 to 31 March 2014 in the sum of £ 25, 905. • Certain Exhibitions Limited suffered a fire on 21 April 2013 which destroyed its storage facility and led to disruption of their business. • Due to the effect of the fire damage, the company entered a CVA on 10 July 2013. • The council subsequently submitted a claim in the CVA for the arrears to 10 July 2013 with a view to collecting the future instalments. • The CVA Supervisor (Kaye) objected and the matter went to court, where Kaye was successful in obtaining a judgement. • The Insolvency Service have subsequently amended their technical manual to confirm that the entire year’s council tax or national non domestic rates liability (less any payments already made) is therefore provable in personal and corporate insolvencies as an unsecured debt. 28

Corporate Insolvency Administrative Receivership Administration Fixed Charge Receivership Company Voluntary Arrangement Creditors’ Voluntary Liquidation Compulsory Liquidation Members’ Voluntary Liquidation 29

Corporate Insolvencies in England & Wales 30, 000 25, 000 20, 000 CWU CVL ADM 15, 000 ADR CVA TOTAL 10, 000 5, 000 2004 2005 2006 2007 2008 2009 2010 2011 2012 30 2013

Administration Appointment § Directors/company § Floating charge holder § Creditor Purpose § Rescue company § Better return to creditors § Pay secured/preferential creditors Duration § 12 months § Extended 6 m by creditors § Court Order - indefinite 31

Administration Reporting § Proposals within 8 weeks § 6 monthly progress reports § Final progress report Creditors meeting § Within 10 weeks § By correspondence / If applicable § Directors may be required to attend Exit § 12 months – automatic end § CVL/CVA § Dissolution 32

Administration – pre-packs Accountancy Age • Insolvency service promises a hard line over pre-pack abuse Retail Week • Legalised robbery The Independent • MPs to probe revolving-door administrations 33

Administration – pre-packs What is a pre-pack Administration? “…the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator. The administrator effects the sale immediately on, or shortly after, his appointment” 34

Administration – pre-packs Who’s done one? 35

Administration – pre-packs What’s good about them? § More jobs preserved 92% pre-pack / 65% business sale § Better return for secured creditors 42% pre-pack / 28% business sale § Value of business retained § Lower costs § Monitored by Insolvency Service § IP under scrutiny 36

Liquidation - CVL Appointment § Board meeting § Shareholders’ resolution § Creditors’ meeting § Conversion from Administration Purpose § Terminal process Duration § As required 37

Liquidation - CVL Reporting § Annual progress reports § Final progress report Creditors meeting § Initial meeting § Director chairs Exit § Final meetings creditors & members § Dissolution 38

Company Voluntary Arrangement Appointment § Directors § Administrator § Liquidator Purpose § Contract with creditors § Compromise/scheme of arrangement § Company continues with current directors Duration § As required 39

Company Voluntary Arrangement Reporting § Annual progress reports § Final progress report Creditors meeting § Initial meeting § Modification of proposals § 75% by value of voting to approve 50% non-connected creditors Exit § Final report § No dissolution 40

The Phoenix & s 216 Re-use of Company Name • Insolvent liquidation • Oldco name / trading style in previous 12 months (“prohibited name”) • Cannot act as director of newco within 5 years Except: • Leave of Court • Acquired from IP and notice given to all creditors within 28 days • Newco traded under prohibited name in previous 12 months 41

Questions/Discussion • Useful links - http: //www. bis. gov. uk/insolvency - The Insolvency Service website http: //www. r 3. org. uk/ - R 3 website (Insolvency Practitioner Trade Body) 42