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
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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 86p in the pound against target of 70p
Also responsible for issuing of small claims and associated enforcement mostly by
charging order but use of this post 2008 was very sparse
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Why Bankruptcy?
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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
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Cont.
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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
and / 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
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What Performance Should You Expect?
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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.
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Performance
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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
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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 20k+ surplus figure put forward for bankruptcy
www.emlawshare.co.uk
Things to Avoid
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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
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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
Director and Insolvency Practitioner
Mazars LLP, Gloucester
Mazars LLP, London
Mazars LLP, London
Britannia Warehouse, The Docks, Gloucester GL1
Tower Bridge House, St Katharine’s Way, London E1W
Tower Bridge House, St Katharine’s Way, London E1W
2EH
1DD
1DD
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 1st 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.
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Insolvency is…
• The situation where liabilities exceed assets.
or
• The situation where debts cannot be paid when they fall due.
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UK Personal Insolvency Landscape
• Level of Personal Debt in UK = £1.43 trillion
• Of which £158.9 billion is unsecured
• England & Wales
• Population 56.1m
• Total Personal Insolvencies in 2013 = 101,049
• 0.18%
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UK Personal Insolvency Landscape
• England & Wales
• Bankruptcy
• Individual Voluntary Arrangement (IVA)
• Debt Relief Order (DRO)
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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
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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
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Overview – Debt Relief Orders
SIMPLE WAY OF OBTAINING DEBT RELIEF FOR PEOPLE WITH LITTLE
OR NO ASSETS OR SURPLUS INCOME
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Criteria:
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Debts less than £15,000
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Car less than £1,000
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Other assets less than £300
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Less than £50 surplus income per month
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Unable to pay debts
Process
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Apply to The Insolvency Service
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DRO lasts for 12 months
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No action by creditors (unless unhappy? Misrepresentation? Conduct)
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Free of debts at the end of 12 months (unless circumstances have changed)
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No Court involvement
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Introduced in 2009
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Debt Management Plans (DMP)
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An unofficial, unregulated agreement with creditors to pay off debts.
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Involves an intermediary but not an Insolvency Practitioner
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Agree to pay a small amount (e.g. £50 per month) into a fund
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Creditors agree to be paid out of that fund
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Not binding, no guarantees,
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No debt forgiveness – debtor still liable until he pays everyone in full
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Probably several hundred thousand DMPs but no official figures
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Overview – Individual Voluntary Arrangement
ALTERNATIVE TO BANKRUPTCY – A DEAL WITH
CREDITORS
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Criteria:
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Unable to pay debts as and when they fall due
Process
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Debtor makes a Proposal to his creditors
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Proposal is reviewed by an Insolvency Practitioner
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He reports to creditors on its feasibility
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Creditors then vote – needs >75% in value of creditors to approve
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If IVA is approved it is binding on creditors
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Modifications can be suggested
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Creditors can’t pursue the debtor, they must await the outcome of IVA
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Usual IVA is a monthly contribution from monthly income for 5 years
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Plus sale of property/cash injection in the final year
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Success results in debtor no longer being liable for any unpaid amount
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Failure usually results in Bankruptcy
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Overview – Bankruptcy
USUALLY THE LAST RESORT – COMPLEX AND EXPENSIVE
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Criteria:
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Unable to pay debts as and when they fall due
Process
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Application to Court – debtor’s petition or creditor’s petition
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Creditor must be owed £750 or more
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Debtor must be unable to pay debts
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Court makes Bankruptcy Order
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Official Receiver deals with it initially
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Debtor prepares Statement of Assets & Liabilities and Income &
Expenditure
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Official Receiver decides whether the level of assets justifies the
appointment of an Insolvency Practitioner as Trustee in Bankruptcy
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Trustee’s role is to turn the assets into cash, and pay costs
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Any surplus is paid pari passu to creditors
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Bankruptcy – General Points
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All funds are paid into an Insolvency Service Account for the bankruptcy estate
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Insolvency Service takes a levy (17% roughly) to fund the Insolvency Service
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Trustee’s fees – paid out of the funds realised. No funds = no fees
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Bankrupt has some restrictions for 1 year – e.g. company director
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Upon discharge after 1 year, bankrupt is no longer liable for his debts
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Poor conduct may result in a Bankruptcy Restrictions Order (BRO) which
imposes restrictions for between 2-15 years
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Official Receiver applies for a BRO
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Poor conduct = failure to co-operate, giving away significant assets, incurring
credit with no prospect or intention of repaying it
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What a Trustee in bankruptcy does: Role
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Appointment
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Officer of the Court
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Administers the estate
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Impartial referee between creditors and bankrupts
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Protect assets
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“Get in assets”
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Realise assets
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Powers
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Distribute the estate
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What a Trustee in bankruptcy does: Assets
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Matrimonial Home (90% cases)
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Buy Out of Equity
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Voluntary Sale
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Possession and Sale proceedings
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SONS and JONS
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Local Authority petitions
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Other assets – chattels / investments / PPI claims / Cash
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Antecedent Transactions
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Pensions are, generally, exempt
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Surplus Income
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Windfall Assets
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What a Trustee in bankruptcy does: Creditors
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Costs are paid first, before creditors get anything
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Frequently, there are no funds to allow payments to creditors
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If there are funds:
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Preferential creditors (mainly employees) get paid first
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Unsecured creditors paid a % of their debt
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This includes any family members except spouse
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If 100%, then interest is paid at the statutory rate – currently 8%
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Any debt to spouse paid after everything else
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Still funds? Surplus to debtor
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What a Trustee in bankruptcy does: Summary
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Added Value
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Best result for creditors
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Negotiation and costs
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Experienced team and high quality agents/lawyers
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Be fair, but be firm
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Speed and size of dividend to creditors
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CT and NNDR Claims in Insolvencies
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Re: Kaye v South Oxfordshire District Council (2013)
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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.
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Certain Exhibitions Limited suffered a fire on 21 April 2013 which destroyed its
storage facility and led to disruption of their business.
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Due to the effect of the fire damage, the company entered a CVA on 10 July 2013.
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The council subsequently submitted a claim in the CVA for the arrears to 10 July
2013 with a view to collecting the future instalments.
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The CVA Supervisor (Kaye) objected and the matter went to court, where Kaye was
successful in obtaining a judgement.
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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.
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Corporate Insolvency
Administrative
Receivership
Administration
Fixed Charge
Receivership
Company Voluntary
Arrangement
Creditors’ Voluntary
Liquidation
Compulsory
Liquidation
Members’ Voluntary
Liquidation
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Corporate Insolvencies in England & Wales
30,000
25,000
20,000
CWU
CVL
ADM
15,000
ADR
CVA
TOTAL
10,000
5,000
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2004
2005
2006
2007
2008
2009
2010
2011
2012
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2013
Administration
Appointment
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Directors/company
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Floating charge holder
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Creditor
Purpose
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Rescue company
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Better return to creditors
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Pay secured/preferential creditors
Duration
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12 months
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Extended 6m by creditors
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Court Order - indefinite
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Administration
Reporting
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Proposals within 8 weeks
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6 monthly progress reports
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Final progress report
Creditors meeting
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Within 10 weeks
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By correspondence / If applicable
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Directors may be required to attend
Exit
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12 months – automatic end
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CVL/CVA
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Dissolution
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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
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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”
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Administration – pre-packs
Who’s done one?
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Administration – pre-packs
What’s good about them?
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More jobs preserved
92% pre-pack / 65% business sale
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Better return for secured creditors
42% pre-pack / 28% business sale
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Value of business retained
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Lower costs
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Monitored by Insolvency Service
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IP under scrutiny
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Liquidation - CVL
Appointment
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Board meeting
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Shareholders’ resolution
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Creditors’ meeting
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Conversion from Administration
Purpose
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Terminal process
Duration
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As required
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Liquidation - CVL
Reporting
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Annual progress reports
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Final progress report
Creditors meeting
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Initial meeting
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Director chairs
Exit
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Final meetings creditors & members
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Dissolution
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Company Voluntary Arrangement
Appointment
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Directors
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Administrator
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Liquidator
Purpose
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Contract with creditors
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Compromise/scheme of arrangement
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Company continues with current directors
Duration
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As required
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Company Voluntary Arrangement
Reporting
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Annual progress reports
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Final progress report
Creditors meeting
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Initial meeting
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Modification of proposals
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75% by value of voting to approve
50% non-connected creditors
Exit
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Final report
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No dissolution
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The Phoenix & s216
Re-use of Company Name
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Insolvent liquidation
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Oldco name / trading style in previous 12 months (“prohibited name”)
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Cannot act as director of newco within 5 years
Except:
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Leave of Court
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Acquired from IP and notice given to all creditors within 28 days
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Newco traded under prohibited name in previous 12 months
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Questions/Discussion
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Useful links
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http://www.bis.gov.uk/insolvency - The Insolvency Service website
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http://www.r3.org.uk/ - R3 website (Insolvency Practitioner Trade Body)
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