How to Avoid Wrongful Trading in Insolvency

The wrongful or fraudulent trading provisions of the Insolvency Act 1986 place a responsibility on directors of failed companies to contribute to the company’s assets.

 

Even though claims against directors for wrongful trading are not that common, with only just a little over 5 per cent of directors disqualified following insolvency proceedings, wrongful trading can still prove a risk to directors of companies facing insolvency.

 

Section 214 of the Insolvency Act states that if before a company is wound up, a director knew or ought to have known that there was no real chance of the company being able to avoid insolvent liquidation, and then from then on they failed to do whatever they could practicably do to minimise loss to creditors, then the court may force a director to make a personal contribution towards the company’s debts.
 

The situation is assessed against the standard of a reasonable diligent person who has the experience, skill and knowledge expected of a director, together with any additional experience, skill and knowledge that the individual is in possession of.

 

In other words, it’s all about negligence rather than dishonesty. Dishonesty is classed as fraudulent trading, and this is dealt with under Section 213 of the Act. We’ll look at that in a separate article. For now, let’s look at ways directors facing insolvency can avoid a claim being made against them for wrongful trading.

Keep appropriate accounting records

 

Without sufficient accounting records and where returns and payments are not made on time to Companies House and HMRC, the road ahead for a director in insolvency is not going to look too good. Providing you keep accurate and up to date records and make sure that everything is filed and paid on time, the court will look more favourably upon you.

Never use company funds or assets for personal benefit

Making use of company funds or assets for personal gain will be classed as wrongful trading as this obviously does not constitute doing everything practical to ensure creditors do not lose out. Be sure to document any drawings on company funds and that such drawings are only made for valid reasons. In addition, you should never draw excessive salaries or dividends during times of financial difficulty.

Be open with creditors

It is vital not to attempt to hide things with suppliers or anyone you owe money to. Being upfront about your situation and seeking practical ways to resolve payment issues will be looked upon favourably by the court.

Do not delay ceasing trading

If you are aware that there is little possibility of repaying debts then you should case trading immediately. If you continue to use credit services in the knowledge that there is no prospect of settling the accounts then this will be considered wrongful trading.

Take professional advice

If as soon as you realise there is a serious issue you seek professional advice from insolvency specialists then the court will take this into favourable consideration.

Avoiding director disqualification

The ramifications of director disqualification are very serious indeed. Not only does it involve a ban from running any company in the UK, directors who have been disqualified are also not permitted to act as school governors or charity trustees and are not allowed to retain membership of professional bodies.

It is therefore crucial to take professional advice as soon as there is even the slightest inkling of financial difficulties within your business. If you are worried about anything, why not talk in the first instance on an informal basis to your bookkeepers? They’ll be able to give you an idea as to whether it’s time to talk to insolvency experts or perhaps look at company rescue solutions.

A Guide to Preference Claims, and How to Avoid Them

When a company is going through financial difficulties and there is a prospect of insolvency, it is vital to take care over actions taken. This includes who you decide to pay.

If you decide to clear debts with a particular creditor and paying that creditor puts them in a more beneficial position than the rest of your creditors, this action could be challenged by the liquidator or administrator in the event of insolvency proceedings following. This is known as a ‘preference’ under the Insolvency Act 1986.

In certain situations, a payment or transaction that is considered a preference can be set aside. If the payment was made within six months of the start of the insolvency proceedings, or within two years if the recipient of the payment was connected to the company, this will usually be the case.

If a company is unable to pay its debts due to a payment or transaction being made to a particular creditor, or if the company was encouraged by a desire to see the recipient of the payment in a more beneficial position, then the a payment or transaction may also be set aside.

Repaying a director’s loan can also be classed as a preference if the company enters into administration or liquidation.

 How can a company avoid creating a preference?

The most straightforward way to avoid creating a preference is to ensure all creditors are treated equally. Where this is not possible, there will need to exist a proven and commercially feasible reason to have paid one creditor over another.

Such a reason could be that it would have been in the best interests of the other creditors for a particular supplier to be paid so that business could continue.

It is always a good idea to approach creditors like HMRC to request time to pay when it becomes apparent that a company is facing challenging financial times. Asking for support from the bank could also be considered by a liquidator or administrator as proactive attempts to improve a situation.

At the first inkling of financial difficulties within your company, you should always be upfront about what is going on. Discussing the matter in the first instance with your bookkeepers is always a good place to start. They can help you work out your position and make the best decisions that won’t land you in trouble down the line.

Apprentices to be Top Source of Talent in 2018

Are you making use of apprentices to grow your business? 37 per cent of businesses say apprentices will be their top source of talent this year according to a poll of more than 2,000 senior HR professionals.

The poll, conducted by Alexander Mann Solutions, followed the introduction of the Apprenticeship Levy in April 2017. The levy was designed to boost the number of young people going into vocational training.

Previous research by the same organisation revealed that 71 per cent of senior HR leaders are of the opinion that the Apprenticeship Levy will create a new route into the workplace and that it will effectively supplement or even rival the intake of graduates.

Sandrine Miller, head of emerging talent consulting at Alexander Mann Solutions, says, “As these findings suggest, leaders are certainly reassessing where they source fresh talent. And while graduates remain the preferred choice for the highest percentage of businesses, there are signs that the tide is shifting.”

University Applications Down, Apprenticeships Up?

Miller also comments that UCAS has reported that university applications have declined by 4 per cent. “While there will always be demand for graduate-level talent, HR Leaders are increasingly considering the benefits of developing talent in house, where the role allows, as part of a wider total workforce strategy,” she says.

Reports would suggest that new apprenticeship starts have actually reduced by as much as 59 per cent since the Apprenticeship Levy came into force. Miller however believes that this is most likely due to the way businesses are reassessing long-term requirements, taking the time they need to plan and implement new programmes. In other words she says, “It’s the calm before the storm.”

The Apprenticeship Levy

The Apprenticeship Levy came into force on 1 April 2017, replacing all taxpayer funding for apprenticeships for companies of all sizes. 0.5 per cent of an employer’s wage bill goes towards the levy, although there is an offset allowance of £15,000 equating to 0.5 per cent of a £3 million wage bill. This means that all employers with a wage bill greater than £3 million will be subject to the levy.

If you are unsure as to how apprentices could benefit your business or need advice on how the Apprenticeship Levy works, why not seek advice from your local bookkeepers?

How to Boost Your Bottom Line with Charitable Giving

Smaller businesses are able to enhance their bottom line courtesy of charitable donations. But only 20 per cent are actually giving regularly. Here’s why as a business, you should be seriously considering donating a proportion of your turnover to charity.

Research has revealed that the more a smaller business donates to charity, the better its business performance.

On average, small to medium sized enterprises give 1.8 per cent of their turnover to charity. That equates to £32,000 per year. Businesses that donate more than 0.5 per cent of their turnover are 20 per cent more likely to see a boost in profits. They are also twice as likely to enjoy a lift in reputation, and 50 per cent more likely to see and improvement in staff retention and recruitment.

In general, 67 per cent of businesses who regularly make charitable donations reported a positive impact on profitability. The trouble is, a lot of businesses are not aware of the advantages of charitable giving.

The research has been released on the back of the launch of a new giving platform called Work for Good. The platform makes it easier for businesses to make donations to good causes in such a way that proves beneficial to both the charity and the business.

These days there is a much increased expectation from customers to know that the companies they choose to do business with are actively making a difference and showing that they are socially responsible and community minded.

Work for Good empowers businesses to ‘give to grow’. 37 per cent of small to medium sized businesses claim that charitable giving has assisted them in attracting new clients.

Work for Good has been created to build giving into a day to day working routine. The platform makes it easy to give in whatever way suits a business best. All the legal and administrative burden is taken care of and Work for Good helps givers shout about the good they are doing. This helps businesses connect with clients, inspire their workforce and strengthen their brand. As a member you get to display the Work for Good mark which instantly demonstrates your values.

If you are unsure as to how charitable giving could benefit your business in any sense, including from a tax or reputation perspective, why not discuss it with your local bookkeepers?

How Technology can Help You Grow Your Business

Growth is one of the key objectives for most businesses, and without a doubt, one of the most effective methods of achieving growth is through the use of technology. Here we take a look at three great technology innovations that could really help take your business to the next level.

The Cloud

Most businesses have adopted cloud technology in some form or another. If you are using Dropbox, Google Drive, Office 365 or anything that allows you to logon and work any time any place via an internet connection, then you are already using the cloud.

But what about the wider possibilities? The cloud allows meetings to be held with clients and partners around the world without having to leave the office. Not only can you talk, you can have real time eye-contact, share and collaborate on documents and other types of files and even record a copy of the meeting to pass to absent delegates.

Interviews can be conducted via video conferencing and training can be provided via live streaming cameras, which means you can expand your workforce and your company outside of global perimeters without major investment.

The cloud is a major player in the realms of business growth, so it is well worth talking to your IT providers to ensure you are making full use of its benefits.

Customer Relationship Management

When was the last time you were in touch with any one of your clients? What was the last conversation you had with a prospect? Who is buying what and who could you cross or upsell to? Without this information at its fingertips, a business is never going to grow.

If you are still toiling over a basic spreadsheet or relying on file notes or diary entries to keep up with the current position with your clients and prospects, you are seriously missing out on what modern technology has to offer.

These days, businesses with their finger on the pulse of growth opportunities are all investing in customer relationship management (CRM) software. These are powerful database driven platforms that bring together all the information and data needed to keep a handle on what is happening at any given moment with clients, contacts, partners and prospects.

CRM systems such as SalesForce, Pipedrive, Zoho, Insightly and HubSpot vary in cost and features but all offer the same advantage of making it straightforward to manage your client contact programme. You’ll be able to see at a glance where opportunities lie and make sure that clients are adequately taken care of and prospects nurtured. Most systems will track calls, emails and progress automatically so that admin time is cut down. Some will allow you to assign tasks and attach files, schedule emails and track email opens and clicks.

With a CRM system, the power to grow your business is literally at your fingertips! 

Business Intelligence

How much money do you have in your bank account right now at this very minute? What is going out tomorrow? What is coming in? Who owes what? How much are you spending on IT support, stationery, postage, transport?

If you need to make an important business decision, you will find yourself in a risky position unless you have all the relevant and up to date information to hand. The trouble is, much of the information you need to access will be segregated across different departments and may take the form of reports that are not up to date.

Business intelligence platforms however bring all of this information together into one place, funnelling everything from sales and marketing, accounts and finance and operations and admin into an easy to navigate format that is totally up to date.

If you are not sure where to go next with your business growth plan, why not talk to your local bookkeepers? They will be able to steer you towards the innovations and contacts who could really help you excel.

Shared Parental Leave Campaign Follows Poor Take Up

The Government has launched a campaign to promote shared parental leave after statistics have revealed that very few couples are making use of the programme.

Figures published by the Department for Business, Energy and Industrial Strategy show that of the 285,000 couples eligible, only 2 per cent have actually used shared parental leave since it was introduced in 2015.

The campaign is being backed by a £1.5 million investment with the objective of encouraging couples to ‘Share the joy’ of parenting. Backed by social media and digital advertising together with advertisements along commuter routes, it will hinge on providing information and guidance on how the scheme works. A new shared parental leave website has also been launched.

Shared parental leave allows mothers to terminate their maternity leave and pay at a certain date so that their partner can make use of the balance of leave that has not been taken. Up to 50 weeks of leave can be shared, or up to six months’ taken off work together.

Business minister Andrew Griffiths said: “Shared parental leave gives choice to families. Dads and partners don’t have to miss out on their baby’s first step, word or giggle – they can share the childcare, and share the joy.

“Employers can reap the benefits too. We know that flexibility in work is proven to create happier, more loyal and more productive workforces.

“Providing truly flexible employment options is a key part of the Industrial Strategy, the Government’s long-term plan to build a Britain fit for the future by helping businesses create better, higher-paying jobs in every part of the UK.”

A 2017 survey by charity Working Families revealed that 25 per cent of fathers had never heard of shared parental leave. Sarah Jackson, chief executive of the charity, explained that a lot of fathers would be interested in using the scheme, but were either not eligible for it or decided not to use it as they would only be given the minimum statutory rate of £140.98 per week.

“The Government’s drive to raise awareness amongst parents about the scheme is a step in the right direction. Many fathers are excluded from the scheme because they haven’t been in their job for long enough. The Government should make shared parental leave a day one right for fathers in the same way that maternity leave is for mothers and extend the scheme to self-employed parents,” she said.

“Of those fathers who said they wouldn’t use the scheme, more than a third said this was because they couldn’t afford to. Those employers that can afford to should go beyond the minimum pay for share parental leave.

“But if the Government is serious about equality at work and tackling the gender pay gap, it should consider also introducing a properly paid, standalone period of extended paternity leave for fathers.”

If you are unsure as to how shared parental leave works or are interested in making the scheme more attractive to your employees, why not consult with your bookkeepers? They will be able to explain how shared parental leave works, the benefits to your workforce and how it will pan out financially for you.

Working Hours and Salary Main Drivers for Career Change

A poll undertaken by the Oxford Open Learning Trust has revealed that working hours are just as important as salary when it comes to seeking a new job.

The poll of 2,000 adults explored the main motivations that drive people to career change. It found that money was, predictably, the main reason for job moves, accounting for 64 per cent. However, 55 per cent said that working hours were important. This figure indicates that people are now more likely to seek a healthy work-life balance and will therefore look for roles that fit in with their lifestyles.

Enjoyment of a role was also considered important. Whilst the money side of things is always going to be a key consideration for job seekers, 50 per cent are clear that they would be prepared to put their personal interests and enjoyment first.

Job security was cited by 40 per cent of respondents as a key consideration when seeking a new position, and working environment by 37 per cent.

Generally, the poll revealed that 28 per cent of British workers are looking to change jobs within the next ten years, whilst 13 per cent are potentially considering new careers within the next four years. Three in five are prepared to retrain to land the career that fits with their key objectives.

Courses director and founder of the Oxford Open Learning Trust Dr Nick Smith says: “People often see the start of the year as a good opportunity to start afresh and plan for a brighter future. Moving jobs is one way of achieving a lifestyle shift and it’s really interesting to see the main reasons why people are looking to make such changes.

“While money is always going to be an important consideration, it is pleasing to see that the nation is looking after their own interests too, with things like location and enjoyment listed highly.”

If you are recruiting new staff, it is wise to take the results of this poll into consideration, bearing in mind the importance placed on various factors by job seekers.