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Insolvency update

Insolvency update

Tuesday, 01 December 2020

In spite of media reports that corporate insolvency is rife, data from the insolvency service continues to demonstrate that, in fact, corporate insolvencies are at levels around 40% lower than this time last year. 

Quite the reverse position appears to be the case with members voluntary liquidations (MVLs) which, from the information I have available, indicates an increase in activity over this time last year by as much as 50%. 

You might well ask why? 

The reduced number of insolvent liquidations, is being attributed to a number of factors, including:

  • Reduced operational activities by the courts together with reduced enforcement taken by HMRC

  • Temporary restrictions when using statutory demands and winding up petitions; extended currently to 31 December 2020

  • Government financial support for companies

My personal view is that the current temporary restrictions on statutory demands and winding up petitions will be extended beyond 31 December 2020. With the Brexit transition period concluding at year-end, the Government will probably want to avoid an increase in corporate insolvencies during the following quarter. The reason for the increase in members voluntary liquidations (MVLs) is perhaps more straightforward. Business owners and directors are looking for certainty and, given media reports about possible changes to capital gains tax, this is believed to be a significant factor in directors looking to realise gains now, given the current CGT levels of taxation.

HMRC preferential status

From 1 December 2020, HMRC will become a secondary preferential creditor in formal insolvencies. Secondary preferential creditor status will rank HMRC after the current preferential creditors but more importantly above floating charge creditors. This could be particularly relevant where directors have personally guaranteed loans and overdrawn director loan accounts. The director loan accounts will be collected and used to pay the preferential creditors before being applied to the floating charge aspect of loans. The directors will, therefore, still be liable for this aspect.

Furlough fraud

HMRC have established a new unit, The Post Payment Compliance Unit, which will deal with fraud relating to:

  • Job Retention Scheme

  • Self Employment Income Support Scheme

  • Eat Out to Help Out

  • VAT deferral

They’re not currently dealing with any frauds relating to bounce back and other loans, but this is under consideration. In broad terms, if employers have made ‘mistakes’, and agree to repay promptly, then probably, there’ll be no further action. However, if there’s a failure to cooperate, and no repayments forthcoming, HMRC will take action to recover, including personal liability orders against directors.

Need help?

If you’d like to discuss any of the above points further, please speak to your usual Larking Gowen contact. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk

Andrew Kelsall

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