Free business rescue and insolvency advice
We take a personal approach to business rescue and insolvency, and have done since we were established in 1978.
By working in partnership with you and your client to understand their business challenges and aspirations, we can often find a solution to save the business and set it up for a more successful future.
A big part of moving forward is having the right knowledge at the right time.
We offer AIA members two benefits that will connect you and your clients to one of our licensed insolvency practitioners when and where you need them:
1. Free business rescue and insolvency helpline.
Our nationwide team of business rescue experts and licensed insolvency practitioners are on hand to give you guidance on any personal and corporate procedure. The call - and all advice - is completely free. You can get in touch on 08450 705959
2. Discount on our services of 20%.
If your client needs advice and support through their business’ financial challenges, they can speak to us without obligation or charge. Should they choose to use our services, they’ll benefit from 20% off any of our fees if they’re referred by you. They can call us on 08450 705959 or visit one of our offices across the UK. You can find a full list of our locations here
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We’re getting an increasing number of calls from worried business owners who want to liquidate their company but are concerned that their company does not have the assets to fund an end of road liquidation. They feel like they have no option but to wait for a winding-up petition to arrive.
I imagine you’re having similar conversations, which is why I wanted to look at the pros and cons of all the options, including how we could help your clients to a better, more profitable future.
We always explain all the options to a director, one of which is to fund the liquidation themselves in order to have an effective closure of the business and to remove any pressure from creditors. In the situation when a director is also an employee of the company, they will be able to make a claim alongside other employees for statutory employment related payments due to them from the Government.
Be aware that the Government is unlikely to make these payments to a director if the director owes money to the company. This debt is most commonly an overdrawn director’s loan account.
Dissolution
Dissolving the company and having it struck off the Companies House register might seem like the best alternative to avoid paying a company’s debts, as long as the client meets the requirements set out by Companies House. However, as you’ll know, its creditors are within their rights to apply for the court's intervention to recover their debts.
There’s been many news stories about company directors who’ve been prevented from dissolving their company due to outstanding Bounce Back Loans or CBILS loans. Such strike offs are being blocked to protect the majority who used the Covid loan schemes for their intended purpose. This is done by ensuring an investigation into how the funds were used is carried out by a regulated professional, generally a licensed insolvency practitioner.
This investigation could potentially result in a director’s disqualification for those found to have acted inappropriately.
Compulsory liquidation
You’re best placed to show your client that ignoring a financial crisis can lead to severe consequences. Namely, a winding-up petition. Should your client’s creditors petition the court for a winding-up order and force the business into compulsory liquidation, the court will appoint an official receiver to liquidate the company.
Your client will lose control of all company assets and the official receiver will investigate the actions of the directors. If they’re found to have acted irresponsibly, improperly or negligently, they could face disqualification and the penalties that come with it.
Many petitioning creditors are willing to allow the company to go into voluntary liquidation if their petitioning costs are met.
Getting back into profit
Of course, the ideal scenario for both you and your client is to work through their financial crisis so that their business can stay open. As licensed insolvency practitioners, this is a process we specialise in. We work with many AIA accountants to advise and guide their clients through insolvency and out the other side.
The first step we take is to determine if the company has a legitimate future, if the immediate pressure of the debts was removed. If so, a Company Voluntary Arrangement (CVA) could allow it to continue trading. This is done by working with creditors to agree a repayment plan. A CVA does require certain stipulations to be met and for a strong business plan to be produced.
Due to the conditions attached to this option, your client must use a licensed insolvency practitioner to carry out a CVA. We’ll work with you and them to create a practical, achievable plan - one that has a good chance of being accepted by their creditors.
Administration is another option. In this case, an licensed insolvency practitioner acting as an administrator will take over control of the business. Our aim here is to rescue the business by selling some or all of its assets to pay back its creditors. During this process, the business may be able to continue trading, depending on the circumstances.
A pre-pack administration is slightly different in that the business and its assets are sold to a new company, which can be owned by the existing directors.
In some cases, we can also use a Creditors’ Voluntary Liquidation (CVL) to save a business. Acting as the liquidator, we sell the company’s assets so maximise the value for creditors. But it doesn’t have to mean an end to the business.
Subject to valuation, the directors could purchase the assets. This is called a Start Afresh Liquidation. There are a number of restrictions surrounding this process so it must be done carefully.
The options available to your client will of course depend on the company’s individual situation. But for businesses that are struggling now but have a viable future, the end of the road for the business could be avoided. With careful planning, these businesses can be guided through and onto a better future.
Richard Simms is a licensed insolvency practitioner, chartered accountant and MD of FA Simms. If you think your client could benefit from insolvency or business rescue advice, call 01455 555444 or email us at enquiries@fasimms.com for more information about how FA Simms can help.
The Bounce Back Loan (BBL) Scheme was 100% guaranteed by the government. So naturally, your client shouldn’t be liable for the money they borrowed, if the loan was spent in line with the government’s terms.
However, with director’s disqualifications appearing regularly in the news, many of our enquiries are from directors facing insolvency and worried about their BBL. Will they become personally liable?
In this article, I’ll outline the options if your clients can’t repay their loan, including the possibility of using a liquidation to restart their business.
Was the loan used correctly?
Many businesses were able to survive because of the government loan schemes. However, for many those funds have run out before their marketplace has been sufficiently revived.
When we’re acting as the liquidator for an insolvent business, we’re legally bound to review its activities and decide if one or more of its directors is responsible for its failure. This includes looking at whether a BBL was used fraudulently.
The government website, gov.uk, states: “The Bounce Back Loans were made on the condition that they were not to be used for personal purposes, but could be used, for example, to purchase a company asset such as a vehicle, if it would provide an economic benefit to the business.”
If your client’s BBL wasn’t used legitimately and the company finds itself in a position where it can’t afford to repay the loan and subsequently enters into a formal insolvency procedure, there’s a risk that company directors could be made personally liable for the repayment of the loan.
Fortunately, most Bounce Back Loans were used for their intended purpose, and our investigations are able to absolve the company directors of any involvement in causing the insolvency.
What are the consequences for company directors if they’re unable to pay a Bounce Back Loan?
If your client used their BBL correctly, they will have options to make repayment more manageable, or possibly write off the debt entirely without having to close down permanently. They won’t be held personally liable for their BBL. Depending on their company’s individual circumstances, one of these common insolvency solutions could be the answer.
Company Voluntary Arrangement (CVA): A CVA will allow your client’s company to repay its debts over a specified period, subject to approval by creditors. They’ll still be able to trade and the arrangement is legally binding, which prevents any legal action from creditors. A CVA essentially gives them breathing space to work with you and us to implement vital business improvements to bring them back into profit.
Administration: Administration aims to keep a business open by shedding the parts that are no longer viable. As the administrator, we’ll take control of your client’s company to sell some of the company's assets in order to repay debts, restructure or find a buyer to keep the business open under a new company.
Creditors' Voluntary Liquidation (CVL): Yes a CVL is a liquidation. But it doesn’t mean the end of a company. We can often reopen your client’s business under a new company but without the legacy of debt. This enables them to continue to work with you on how to plan for a more profitable future.
By exploring all the options, your client could emerge stronger from their crisis. Each of these approaches has its own set of advantages and challenges. We work closely with many AIA members to give them advice that’s tailored to their client’s circumstances. And the decision on which path to take is always up to your client.
We’re seeing a significant increase in the number of businesses facing financial difficulties. According to the latest data from The Insolvency Service, in May 2023 alone there were 2,181 Creditors' Voluntary Liquidations (a 34% increase on May 2022) and 189 Compulsory Liquidations (a 38% increase in May 2022).
These figures highlight the challenging economic environment that many businesses are operating in, with increasing competition, rising costs and the ongoing impact of the pandemic.
In such circumstances, we work with AIA members to inform their clients of the options available to them to help save their business from closure. One such option is a Creditors' Voluntary Liquidation (CVL), which can sometimes be used as a business rescue process.
This article will discuss how a CVL could save your client’s business - and what happens after the CVL process to set them back on track to profit.
While the term "liquidation" may initially seem negative, a CVL can often provide the directors with an opportunity to learn from the mistakes that led to the insolvency and build a stronger, more sustainable business going forward.
There are several other key benefits to using a CVL:
Once the CVL process has been completed, the company will be dissolved, and its name will be removed from the register at Companies House. However, this does not necessarily mean the end of the business.
If carefully managed by an experienced licensed insolvency practitioner, the directors of the company may be able to set up a new company to continue trading, provided that they comply with certain legal requirements.
We call this process a Start Afresh Liquidation. It can be particularly beneficial for businesses with a strong underlying trading position that has been hampered by unsustainable levels of debt. By using a CVL as part of a Start Afresh Liquidation, it’s possible to create a platform for future growth.
Richard Simms, MD of FA Simms and AMLCC, is a licensed insolvency practitioner, chartered accountant and a leading authority on anti-money laundering. He is a sought-after guest at Accountancy and AML conferences worldwide due to his position at the pulse of changes in guidance and legislation that impact DNFBPs.
Traditionally many company owners and directors have turned to their accountant, in the main, for all things financial. To make sure they meet their statutory obligations, make payments to HMRC, filing with Companies House…you know the drill. And to draw on their knowledge of changes to tax and other legislation. Many have always also been trusted business advisors to their clients
As a result of the economic turbulence of the last few years, you may have found that clients need extra support. Indeed, we’ve spoken to many more accountants who have become trusted business advisors, using their expertise and experience to secure business survival for company owners and directors.
Business survival is what we’re here for too. As this article will show you, it’s actually one of the biggest aspects of a licensed insolvency practitioner’s (IP’s) role. If we work together to support your client at a time of financial difficulty, that time can often become just a ‘bump’ in the road of your long relationship with the client. Contacting an insolvency practitioner doesn’t need to mean the end of a business.
Giving professional advice before insolvency
One of the primary responsibilities of a licensed insolvency practitioner is to provide professional advice to individuals and businesses experiencing financial difficulties. This advice can help clients understand the options available to them and the best course of action to take to address their financial situation.
IPs can help with various challenges, such as:
• Assessing the financial position of the business or individual
• Identifying the causes of financial distress
• Recommending appropriate insolvency procedures or alternative solutions
• Advising on the legal and financial implications of insolvency
• Assisting with the preparation of financial forecasts and budgets
• Providing guidance on debt management and restructuring
The goal of this advice is to help clients make informed decisions about their financial situation and, if possible, avoid formal insolvency proceedings.
Negotiating with creditors for informal agreements
When a business or individual is facing financial distress, it’s often in the best interest of both them and their creditors to reach an informal agreement to resolve the outstanding debts. Licensed insolvency practitioners can help to negotiate these agreements and act as an intermediary between the debtor and the creditor.
We can use our expertise and knowledge of insolvency law to negotiate the best possible outcome for your client. These informal agreements can provide a lifeline for struggling businesses and individuals, helping them avoid the perceived stigma and financial consequences of formal insolvency proceedings.
Working with accountants
We often work closely with accountants to ensure that their clients receive the best possible advice and support, to address all aspects of their financial situation. By pooling our expertise and resources with you, we can achieve the right outcome for the client and hopefully help your client’s business move forward to a positive future.
FA Simms has worked closely with the AIA as a partner for the last 20 years. During that time we have supported many of your clients during challenging times for their businesses. We’ve clearly explained all the options available to them and allowed these clients to make informed decisions on the best way forward for their particular circumstances. No two situations are ever the same and FA Simms will never offer a ‘one size fits all’ solution to any business.
Closing solvent businesses
In some instances, we may be called upon to close a solvent business, for say a contractor or someone wanting to retire, using a Members' Voluntary Liquidation (MVL). Some business owners choose to use an MVL because it’s a tax efficient way of extracting cash from the business and, if they’ve owned at least 5% of the shares for at least one year beforehand, they could qualify for Business Asset Disposal Relief.
The MVL process involves:
• Preparing a Declaration of Solvency, which confirms that the company can pay its debts in full within a specified period (usually 12 months)
• Holding a general meeting of the company's shareholders to pass a resolution for voluntary winding-up
• Selling the company's assets and distributing the proceeds to creditors
• Distributing any remaining funds to the company's shareholders
The IP is responsible for ensuring that the MVL is conducted in accordance with the relevant laws and regulations.
Guiding clients through an insolvency processes
Of course, we do handle a lot of formal insolvency processes too. We act as an administrator for companies going through an administration process. We also supervise and manage Company Voluntary Arrangements (CVAs) to ensure that the agreed terms are followed.
When it comes to liquidation, we oversee the Creditors’ Voluntary Liquidation (CVL) process so that assets are distributed fairly among creditors and that the company is dissolved according to the law. Even if a formal insolvency process is necessary, your client will potentially be able to take the ‘good ’parts of the business and move forward in a new company. We call this ‘start afresh ’liquidation.
The key to future success is for you or your client to get in touch with us as early as possible so we can use everything in our armoury to ensure the survival of the business.
We’re also AML regulated
As with any regulated profession, we have a legal obligation to comply with anti-money laundering regulations in exactly the same way as you do. This means we have to take steps to prevent our services from being used to facilitate money laundering, terrorist financing or proliferation financing.
In conclusion
Yes, licensed insolvency practitioners are an essential part of the liquidation and administration processes. But we can play a much bigger role in a business. Especially when a business wants to avoid insolvency and stay open. Or has a potentially positive future once debt levels have been addressed.
In fact, a large part of our role is to help businesses and individuals navigate the complex world of financial distress and come out the other side in a stronger position. It’s always preferable if we support a client alongside their existing accountant. The earlier you can spot signs that a client needs help and contact us for advice, the better the likely outcome for your client will be.
We offer a free support line for AIA members who have questions about a client’s situation or want to find out more about our services. We don’t have a call centre, so every person you speak to has the experience to give you professional advice. You can call us on 01455 555 444
Richard Simms, MD of FASimms and AMLCC, is a licensed insolvency practitioner, chartered accountant and a leading authority on anti-money laundering. He’s a sought-after guest at accountancy and AML conferences worldwide due to his position at the pulse of changes in guidance and legislation that impact regulated businesses.
One of the most challenging aspects of running a business is navigating the financial landscape, especially when faced with the possibility of insolvency. In these situations, it’s crucial for business owners to seek the guidance of a licensed insolvency practitioner to help them find the best course of action.
However, there’s sometimes a concern that consulting a licensed insolvency practitioner might lead to director disqualification. This may stem from a misunderstanding of what a director must have done to be disqualified and a licensed insolvency practitioner’s role in the process.
A recap of the role of a licensed insolvency practitioner
A licensed insolvency practitioner is a professional who specialises in assisting businesses in financial distress. We’re qualified to provide advice on and guide business owners through various insolvency procedures, such as administration, liquidation and company voluntary arrangements.
Our primary goal is to help businesses find the most appropriate solution to their financial difficulties, which may include restructuring and refinancing to keep the business open. We’ll carefully explain all the options and the directors will make the decision they feel is most appropriate for their company and personal circumstances.
Consulting us doesn’t mean a business owner has failed
Some business owners may believe that consulting a licensed insolvency practitioner is an admission of failure. However, this is not the case. We’re here to help businesses find the best possible solution to their financial problems. Engaging our services early on can actually save their business from insolvency.
Again, we lay out all the options for a business in financial difficulties and the directors make the decision on the way forward. We’ll always discuss with directors whether any actions they have concerns over could possibly lead to action being taken against them or disqualification.
It’s crucial for business owners to understand that insolvency itself is not a sign of misconduct. Working with a licensed insolvency practitioner can help them navigate the complex financial landscape and find the best possible outcome for their business.
Director disqualification: What is it and when does it happen?
It’s important to note that director disqualification is not an automatic consequence of insolvency. Director disqualification is a legal procedure that prevents an individual from acting as a director of a company for a specified period, typically between two and fifteen years. It can occur if a director is found to be unfit to manage a company due to serious misconduct or failure to fulfil their legal duties. However, the actions a director will need to take to be disqualified are more extreme than you may think.
For example, a director was disqualified to hold the role of Company Director for 10 years on 20th March 2023 for applying for multiple Bounce Back Loans for a number of companies by illegally declaring false turnover levels (exaggerated by 5 plus times) on the application forms. All the companies received BBLs they were not entitled to and subsequently went into liquidation to try to not repay the debts.
The licensed insolvency practitioner involved in an insolvency procedure has a legal duty to investigate the causes of insolvency and report any misconduct to The Insolvency Service. However, the vast majority of directors in insolvent companies have done nothing wrong and no action is taken against them.
In fact, seeking the advice of a licensed insolvency practitioner can demonstrate that a director has taken responsible steps to address the company's financial difficulties. This proactive approach can be seen as evidence of good conduct.
If you have concerns about a client in financial distress and think you or they could benefit from our advice, please get in touch with our expert team at FA Simms on 01455 555 444 or email enquiries@fasimms.com.
One in four SMEs in the UK struggled to survive in 2022 amidst daunting challenges. Many are facing immense pressure to repay the loans they took out during the pandemic. With the government's Bounce Back Loan Scheme and Covid Business Interruption Loan Scheme (CBILS), 100,000s of businesses were able to stay afloat during the economic turmoil caused by Covid-19.
However, the time has come for these loans to be repaid. And businesses are struggling to do so. With the ongoing uncertainty caused by Brexit, geopolitical tensions and the challenges of economic recovery from the pandemic, many businesses are finding it difficult to generate the revenue needed to repay these loans while meeting their other costs.
The pressure on companies to pay their debts is likely to lead to an increase in the number of creditors resorting to legal action to recover their debts, resulting in a surge of winding-up petitions being filed with the courts.
This situation highlights the need for businesses to take proactive measures to manage their finances and cash flow, and to seek professional advice if they’re struggling to meet their financial obligations.
When is solvent liquidation an option?
You might have clients who, after years of uncertainty, want to throw in the towel and start a new venture, or retire altogether. Taking full-time employment to avoid getting caught up in IR35 complications is another common reason we’re seeing for winding up a solvent company.
Solvent liquidation, also known as Members' Voluntary Liquidation (MVL), is an option for businesses if they’re able to pay off their debts in full. This process allows the business to distribute its assets to its shareholders, pay off any remaining debts and ultimately close down with no loose ends.
An MVL is a quick and straightforward way of winding up a solvent business. It will allow your client to extract cash and distribute it in a tax efficient way. The owner might also qualify for Business Asset Disposal Relief, if they own at least 5% of the shares for at least one year before the MVL.
A word of caution: your client won’t be able to go back into the same sector as a business for the next two years if they’ve taken advantage of Business Asset Debt Relief via the MVL process.
When can you liquidate an insolvent company?
If your client is unable to pay its debts as they become due, or its liabilities exceed its assets, then they’re in an insolvent position. Liquidation is one solution open to them. The decision to liquidate an insolvent company should be made by the directors of the company, and the reasons for the decision must be documented. These might include:
What is an insolvent liquidation?
A Creditors' Voluntary Liquidation (CVL) is the most commonly used corporate insolvency process. In some cases, we can even use it to stop a Compulsory Liquidation. If your client’s been threatened with a winding-up petition or received a letter from the court regarding one, it’s vital they contact us as soon as possible to give them the best chance of success.
While a CVL is initiated by the company's board of directors, it requires the approval of at least 75% of the shareholders to proceed. The aim of a CVL is to provide a fair process for the company's creditors to receive as much of the money owed to them as possible, while also allowing the company to wind up its affairs legally.
In a CVL, the directors of the company will propose to the shareholders that the company be wound up and a liquidator be appointed to sell the company's assets and distribute the proceeds to its creditors. The liquidator will also investigate the conduct of the directors to determine whether any wrongful or fraudulent trading has taken place.
It’s our job as licensed insolvency practitioners, acting as the liquidator in a CVL, to guide the client through the process and make it as stress-free as possible.
Can a client start again after a CVL?
In certain circumstances, the directors of the liquidated insolvent company can restart under a new company in a process we call Start Afresh Liquidation. This allows the directors to buy out the good bits of a business and carry on, leaving the unprofitable parts behind.
This is a process that’s governed by strict rules and so must be overseen by an experienced licensed insolvency practitioner. We’ll arrange for the valuation of the assets and goodwill of the insolvent business, as with a Creditors’ Voluntary Liquidation. The new company (owned by the insolvent company’s directors) can then make an offer to purchase them. This amount can be paid by way of deferred consideration.
The personal challenges of corporate insolvency
Many company directors find the process of managing a distressed company overwhelming. It can be emotionally and physically draining, impacting their lives beyond the business environment. This is especially true if the company director has made personal guarantees or put their own money in to fund the company. They might also worry about consequences of a liquidator’s investigations.
Have they inadvertently continued to trade while the company was insolvent and as a consequence be accused of wrongful trading? What will happen about their overdrawn director’s loan account? Will their personal credit score be affected?
All insolvency practitioners have a legal duty to investigate the causes of a company’s failure. But it can be reassuring to know that the majority of business directors are found to have played no part in the insolvency. The best way to allay these worries is to contact us for advice, which we offer free of charge for all AIA members and their clients. When you or your client call, they’ll speak to an expert - not a call centre - who can give relevant advice there and then.
Bounce Back Loans (BBLs) and other large bills can be a huge burden for business owners struggling to stay afloat.
For clients who are worried about not being able to pay their creditors and heading towards insolvency, or who already find themselves in an insolvent position, liquidation might be a solution that’s been mentioned.
When faced with seemingly impossible circumstances, people often feel that they have no choice but to liquidate. But this is not always the case.
How we can work with your clients
We’ve helped thousands of SMEs to adapt their business plans in ways that will have a positive impact on their futures, by identifying which parts work best in their business and which no longer offer a benefit.
We then work with the client to identify their goals, examine possible scenarios and ultimately support them to make a decision that's right for their personal and business aspirations.
It's essential for business owners to know that options are available and understand those options. The ability to deal with a situation in a clear-headed, unemotional way is key when addressing these issues.
Our role as a licensed insolvency practitioner is show your client these options and make sure they have the knowledge they need to make essential decisions. We'll also walk them through any business rescue or formal insolvency procedure, from beginning to end.
Around 1.5 million businesses took out a Bounce Back Loan (BBL) during the pandemic, borrowing more than £47 billion total. The terms for these loans were designed to be supportive towards small business owners: no lender was allowed ask for a personal guarantee from them as part of the contract agreement.
Even sole traders or small partnerships, whose personal assets are usually at risk without the limited liability protection of a company, BBL terms mean that no recovery action can be taken over a principal private residence or a primary personal vehicle.
When the Government guaranteed the BBL scheme, it ensured that if a company taking out a loan went into liquidation, then the lender would be repaid in full by the Government.
Bounce Back Loan Fraud
After BBL were released the British Business Bank guidance stated, “……the loan will only be used to provide economic benefit to the business…”. An example given is the provision of working capital and goes on to explain that a BBL was not for personal purposes.
Martin Lewis, founder of MoneySavingExpert, asked the Treasury to explain more fully the meaning of this guidance. He then confirmed that the Treasury had written back to him, stating that it was acceptable and reasonable for a BBL loan to support a ‘normal’ level of income as a director of a company.
We refer to the MoneySavingExpert information as useful background rather than as definitive guidance.
The trade association for the UK restructuring and insolvency community, R3 (the Restoration and Reconstruction of Financial Assets), then published a set of ‘frequently asked questions’ surrounding BBL.
While these cannot be relied on as formal guidance, answers include if “…they used the BBLS loan monies to draw funds for reasonable living expenses at a rate similar or lower to that of pre-pandemic then it would be difficult to justify taking action against the director…”.
You would most likely have read about company directors buying luxury cars with their Bounce Back Loans. Fortunately, the vast majority of Bounce Back Loan recipients used the funds responsibly. Realistically, there are multiple factors that must be used to determine if a Bounce Back Loan has been obtained or used dishonestly.
What happens if a client goes into liquidation with a Bounce Back Loan?
If a BBL was not obtained and used legitimately, and the company subsequently enters into formal insolvency proceedings because it cannot afford to repay its debt, then there is potential for directors of that company being held personally liable for repayment.
When a company enters an insolvency process, the liquidator must determine whether one or more of its directors are responsible for the failure.
The pandemic and subsequent economic downturn has led us, as licensed insolvency practitioners, into a new situation. We've always supported business owners who are forced to close their company through no fault of their own. But now we're facing multiple businesses with the same issue at once, which is unprecedented.
We've needed to apply insolvency law and guidance to a set of circumstances that weren’t foreseen at the time the guidance was prepared. It's taken a combination of knowledge, experience and common sense to make distinctions between dishonest directors and unlucky ones who can’t repay Bounce Back Loans.
If the loan has been used responsibly, liquidation would bring an end to that debt. An insolvency practitioner will look for evidence that the loan has been used to benefit the business. For example, it could have been applied toward equipment or inventory. Or it might have supported a sensible income level for company director(s).
Do you need more information about personal liability and Bounce Back Loans?
If your client is concerned they could be made personally liable for repaying a company Bounce Back Loan, then please call our expert team of licensed insolvency practitioners on 08450 705959. We provide free and confidential advice to all AIA members on how best to help their clients through times of financial difficulties.
You don’t need me to tell you that managing your money laundering, terrorist financing and proliferation financing (ML/TF/PF) risk is a legal requirement for accountancy service providers. But a surprising number of people I speak to in the industry are still failing to give AML the attention it requires.
Regulations have changed and continue to change. Controls are getting tighter and there is increasing scrutiny on the sector. According to recent research by Credas Technologies, accountancy service providers saw fines increase by 1,083% between September 2021 and September 2022.
In this article I look at what you need to do to avoid these fines and stay compliant. And why it’s so important to do so.
What must you have in place?
The Anti-Money Laundering and Counter-Terrorist Guidance for the Accountancy Sector (AMLGAS), issued in July 2022, puts huge emphasis on implementing a risk-based approach. Your firm is required to develop policies and procedures that enable every relevant employee to assess and mitigate risk, in every area of operation.
But what does this look like in practice?
Knowing your client isn’t enough
Having a client for many years, knowing them personally or simply collecting a copy of their passport and trusting they are who they say they are, is not enough to satisfy your Supervisor on their next inspection.
Electronic verification can give you access to vast amounts of data on people on various databases, such as lists of known terrorists/terrorist organisations or politically exposed persons (PEPs). There’s also the option of biometric identification, which checks your client’s image against their government ID. But beyond this, you need to know who it is you should be running the checks on - the ultimate beneficial owner.
You must be able to identify and name beneficial owners of your client’s business, and supply the requisite details about them to Companies House. If your client is based overseas, information supplied to the Register of Overseas Entities will be verified and the entity will need to update its information annually, in accordance with the Economic Crime Act 2022.
Penalties for non-compliance
In February 2022, a Midlands-based tax firm was fined £16,891 by HMRC for not having risk assessments for new clients or an up-to-date set of AML policies. There were also many clients that the firm didn’t hold any verified ID for.
AMLGAS clearly sets out “the systems and controls that businesses must possess, as well as the related offences that can be committed by businesses and individuals within them by failing to comply with relevant requirements.” (1.1.8 AMLGAS 2022)
The biggest threat to your firm is not being able to prove that you have these systems and controls in place - and that you’re using them - when your supervisory visit comes around. This alone can result in large fines. If they also discover that your failure to implement suitable processes and procedures has caused your firm to unwittingly become involved in ML/TF/PT the penalties can be disastrous.
They start at censure and fines…and could end in imprisonment. To say nothing of the reputational damage you and your company could suffer. But there are other potential ramifications. If you do get caught up in an investigation into money laundering then the courts have the power to freeze your business bank account. With no access to your bank account, carrying on your business is likely to be impossible.
Getting your AML in shape
As you weigh up your AML risk management, it’s worth taking the time to remember exactly why you’re doing it. According to a 2021 UK Government report, “the most common offences to appear alongside a modern slavery prosecution in the last three years were: supply and possession with intent to supply a Class A drug, money laundering and exploitation of prostitution.”
This criminal activity cannot happen without regulated businesses and professions willingly or unknowingly facilitating it. As the NCA puts it: “Virtually all high-end money laundering schemes, and several cash-based ones, are facilitated by the abuse of legitimate processes and services. Accounting and legal professionals, and estate agents, can be criminally exploited – this is sometimes complicit, sometimes negligent, and sometimes unwitting – and this small minority of people can pose a very significant threat.
Every business in the UK uses the services of an accountant or bookkeeper, yet the NCA’s UK Financial Intelligence Unit’s ‘Suspicious Activity Reports annual report 2020’, covering the period April 2019 to March 2020, showed that accountants and tax advisers made just 5,347 Suspicious Activity Reports - less than 1% of the total made. By comparison, money services businesses, or MSBs, made 17,701 in the same period.
There’s no question that the accountancy and tax sectors could be doing more. If they don’t, the Treasury has the power to make them. With potentially devastating consequences for the firms that aren’t prepared.
Richard Simms, MD of FASimms and AMLCC, is a licensed insolvency practitioner, chartered accountant and a leading authority on anti-money laundering. He is a sought-after guest at Accountancy and AML conferences worldwide due to his position at the pulse of changes in guidance and legislation that impact DNFBPs.
The post-covid landscape has not been kind to UK businesses. Economists from Goldman Sachs have predicted that UK inflation could top 20% as recession looms and fuel prices spiral. In recent research by business insurance company Simply Business, 54% of small business owners cite rising fuel and energy costs as the biggest challenge for them right now.
If your client’s business is struggling with rising bills and heading towards insolvency - or is already in an insolvent position - it’s likely that liquidation is a word that’s been batted around. It might not be what they want to do. But when faced with what seems like an impossible situation, they may feel like they have little or no choice in the matter.
That’s not always true. In this article, I’ll look at the potential solutions available to a business in distress that are an alternative to liquidation.
Informal arrangement
For most businesses in trouble, an informal arrangement will be the first option to consider. If the money owing is to one or two creditors, and your client has a good relationship with them, then this type of arrangement is worth pursuing. The key here is for the client to be able to maintain a strong relationship with those owed money and therefore to prevent enforcement action against the business happening without advance warning.
For the creditor, an informal arrangement will sometimes be preferable to a formal one. If the creditor company is a supplier, they might have an eye on doing future business with the indebted firm.
The advantage for your client is that they have the flexibility to create bespoke arrangements with each creditor. It’s important that the creditor agrees that the new payment terms replace the existing terms. Although please be aware that your client cannot show preferential treatment to one creditor over the other. If they do end up in a formal liquidation process, any informal arrangement will be looked at by the licensed insolvency practitioner (IP) and any preferential situation will be reviewed.
The first step in an informal arrangement is to contact the creditor directly to explain the situation your client’s company is in and to request a discussion on setting a plan in motion.
Once they agree to this, it will be your job as the distressed firm’s accountant to help them put forward a credible case to the creditors, based on a detailed cash flow forecast. This means having to prove that any plan to repay the debt is realistic and achievable. With your expertise you’re ideally placed to help your client devise this plan, which will prove the longer-term viability of their business.
In cases such as these we’re often called upon to provide a sanity check of any proposal.
It’s generally worth consulting an IP before you go to your client’s creditors with any type of offer. They are best placed make sure that it’s fair and legal, so that you can avoid any negative repercussions for your client.
One problem with informal agreements is that by their nature they are informal. The lack of a legally binding terms means that at any time the creditor may back out of the agreement and pursue legal action against your client’s company, leaving them completely unprotected. It’s vital that all steps and decisions are properly recorded so that the business owners and the advisors are not exposed to litigation if the informal arrangement doesn’t go to plan. A paper trail of agreements with each creditor will be very important.
Creditors’ Voluntary Arrangement (CVA)
We regularly use a CVA to provide a sustainable business with the breathing space it needs to stabilise. It will mean compromise from creditors in return for payment from future profits. But that is better for them than the alternative of a possible no return in a liquidation.
Although similar to the informal arrangement discussed above, a CVA is legally binding. All (unsecured) creditors must also get the same pence in the pound.
Working with an IP, your client will need to create a plan for repayment of their debts, which will then be sent to their creditors. The creditors will then respond to the action plan by voting, at a creditors’ meeting, on whether to accept it.
If it’s accepted, your client will then need to work with the IP to implement the action plan and set up a schedule of monthly repayments. This schedule will determine how much each creditor is paid each month and how long the CVA will last (usually three or five years).
Remember that the terms of a CVA can be flexible. For example, we’ve seen occasions where creditors have accepted a CVA where a liquidation may have looked like the only option. The significantly lower cost and speed of distribution to creditors can mean a quickly and higher payment to creditors.
Administration
If your client’s company is insolvent but has a core business that works, company administration is a way of protecting it from legal action by creditors and from potential liquidation. It essentially puts the company’s financial situation on pause while the company director(s) work with an IP to see how – and if – the business can be saved.
Your client’s company needs to have a predictable cash flow and significant assets or value to make a company administration viable. If an administration is decided on and entered into, the company’s chosen IP becomes the administrator during the process.
It’s the IP’s role to look at cash flow and assets, to see what’s working…and what’s not. They will then send a proposal to the company’s creditors, detailing the situation and confirming whether they believe the company can be rescued. If rescue looks possible, they will also set out how the company will repay its debts.
A pre-pack administration might also be an option. In this case, all or some parts of your client’s business and its assets will be sold to a different company, which in some cases may be owned by the existing company director(s). The proceeds from the sale repay the creditors as much as possible and the old company can be liquidated. Your client’s business, under the new company, can then carry on trading without the debt. Have in mind any business sale must be for market value.
Of course, the viability of these options will very much depend on the company’s individual situation. For some, liquidation might be the only way forward. If so, remember that - in some cases - they can still start again. Sometimes after buying the goodwill and assets of the old company. This is a complex process that must be handled by an IP so that the correct steps are followed. The same principle applies: as it is administration any sale of assets or goodwill must be for market value.
For businesses that are in a bad position now but have good long-term prospects, liquidation can be avoided. With careful planning, these businesses can be guided through and onto a better future.
Richard Simms is a licensed insolvency practitioner, chartered accountant and MD of FASimms. If you think your client could benefit from insolvency or business rescue advice, call 01455 555444 or email us at enquiries@fasimms.com for more information about how FASimms can help.
Most business owners who took out a BBL during the pandemic spent it as they were supposed to. But what happens if they didn’t…?
How seriously should you take the prosecutions for Bounce Back Loan fraud?
A recent MPs’ report estimated that £5bn of the £47bn spent on the Bounce Back Loan Scheme (BBLS) has been lost to fraud. While recent news coming out of The Insolvency Service shows companies being wound up and directors being disqualified for the misuse of the BBLS, I ask the question: are these the only consequences we’ll see for defrauding the taxpayer?
Bounce Back Loans (BBLs) were designed to provide a lifeline for businesses struggling to stay afloat due to the effects of the covid lockdowns and subsequent restrictions. Do not forget the majority of the loans were taken for genuine reasons and utilised appropriately during extremely unusual circumstances.
The speed with which the scheme was introduced meant loopholes were left wide open. This invariably meant that unscrupulous company directors took advantage of what was seen by some at the time as free money. You might remember the reports of businesspeople openly admitting to buying sports cars and other luxury good with their loans.
While potential disqualification might be a wake up call for some to ‘come clean’ about the misuse of their BBL and make arrangements to make good, for many it may seem like a worthwhile price to pay.
What are the potential consequences for misusing a BBL?
Repayment of funds
The Insolvency Service is able to initiate a Court Order for the company director(s) concerned to repay the misused funds. Likewise, banks are working with the British Bank and enforcement authorities to recover the money claimed fraudulently. A Confiscation Order, which allows the courts to recover the proceeds of crime following a conviction, is also a definite possibility.
A criminal investigation
If the company director(s) concerned have committed criminal offences or other regulatory breaches, The Insolvency Service may refer them to their internal criminal investigation team, the police or a regulator (if they’re in a regulated sector). They may then be subject to a criminal investigation and the loss of reputation, business and potential legal consequences that comes with it.
It’s important to remember that using the money attained through fraud, which is what the misuse of a BBL is, is money laundering. The NCA successfully achieved the conviction of 3 men who had, amongst other money laundering charges, attained £10m in fraudulent BBLs.
Jail time
In June 2022, Abdulzarzag Zagroba became the first person to be prosecuted by The Insolvency Service and receive jail time for misuse of a BBL. If you read the details of the case you’ll see that there were clear signs of fraud and misuse, which could not be explained away.
An extension of a Bankruptcy Order
For sole traders who have been through an insolvency process, they could have their Bankruptcy Order extended. This means that they will continue to be restricted in their borrowing, business activities and impacted by their credit rating for potentially years longer than necessary.
What advice should you give clients?
If your client has received a BBL - however they’ve spent it - it must be repaid. If it isn’t, the company may be investigated, even if it’s already been dissolved.
If the company sees no prospect of repaying the BBL, an option is for your client to liquidate their company, so that the outstanding debt is settled as much as possible. The liquidator in charge will investigate to ensure the BBL has been used as it was intended.
As an insolvency practitioner, I’m seeing more business owners than ever looking to cut their losses. It takes knowledge and experience to view each situation in the context of the past 2.5 years and determine which directors have - and have not - acted honestly in the face of an unceasingly hostile climate.
The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 gives The Insolvency Service new powers to tackle directors who dissolve their companies to avoid paying debts. This makes it much harder to strike off a company that still has an outstanding BBL. Which is why we advise seeking the help of an insolvency practitioner (even if the company is solvent) before your client takes any action.
Has your client misspent their BBL?
If your client has used their BBL for purposes other than to keep their business going (or draw an appropriate income) during the pandemic (case studies on misuse can be found on The Insolvency Service site), they need to seek advice as soon as possible. As you can see above, there are consequences worse than disqualification. Potentially much worse.
I mentioned previously, using a BBL fraudulently is money laundering. If you suspect that your client has intentionally fraudulently obtained or fraudulently misused their loan, as a regulated professional you have a legal duty to submit an SAR to your MLRO - or to the NCA if you’re the only employee in your firm.
There’s the possibility that your client’s conduct could be reported by a concerned party, or discovered during an insolvency process. If it’s discovered during the investigation that you were aware of your client’s money laundering and did not submit an SAR, you could also be subject to a criminal investigation.
Richard Simms is a licensed insolvency practitioner, chartered accountant and expert in anti-money laundering. He is also MD of FA Simms and the Anti Money Laundering Compliance Company (AMLCC).
If you think your client could benefit from independent Bounce Back Loan advice, call 01455 555444 or email us at enquiries@fasimms.com.
UK businesses are under assault from every side. Global supply shortages, inflation, staff shortages, hugely increased energy costs, Brexit, governmental uncertainty and the crisis in Ukraine have created a perfect storm - and many are being blown off course.
PayPal’s latest annual ‘Business of Change’ report found that 78% of small firms cite the cost-of-living crisis is the biggest threat to their survival in the coming year. Two-thirds of Britain’s small business owners told PayPal that the past two years have been the most challenging since they started their venture – and 47% fear the next 12 months could prove even more difficult.
One of our biggest roles in a time of crisis is to guide clients through challenging financial circumstances.
For those with a chance of survival, it’s about taking stock of their current position and identifying the possible futures. These are the steps that we take a business through when we hope to rescue it. As the closest person to your clients’ financial position, you might already be doing some - or all - of this with them.
The last two+ years have taken their toll on 1000s of business owners. Some might have viable businesses but not the impetus to continue. So the first thing to determine is what their aspirations are for the future.
Do they want to evolve their current business?
Do they want to look at changing their business?
Do they want to extract any profits and walk away?
Or even, are they in an insolvent position and need a formal process to save their business?
If your client is solvent and has made the decision to stay in business, it’s important to define where they want to end up. Or put another way, if where they are now is Point A, what’s their ideal Point B? To get to B, they might have to make small adjustments, or big changes.
This is the time to take stock of their business and look at every aspect - from brand to employee costs and premises. Try to sort these into categories of essential obligations, contractual obligations and optional obligations.
Once you know how vital each aspect of your client’s business is to its running, it’s important to look at whether, in Point B, this will be the same or different. Or whether it even has a place at all. Premises is a good example of this. It might be essential now but do they need it for the future?
It’s important that you help your client to see things objectively. Think about the cost, whether a contract can be broken, and the value of the part of the business you’re examining. It might be best for the business that any owned premises, to continue the example, are used in another way to create income. Or that your client downsizes or employs a work-from-home model.
Your client will need to understand that their ideal Point B might have to change, depending on how the cash-flow forecast looks in different scenarios. It might be that their dream Point B is not possible now but Point C, D or E is the best option. Again, you will most likely need to help them be objective about this and remove sentimentality from the decision of which direction is best.
By this stage, your client should have a clear view of what needs to be done to make the changes in their business. These changes might be able to happen quickly. They might take some time and careful guidance from you.
I’m sure this is a role you’ve been used to playing since the beginning of the covid crisis. For them to have the best chance of success, continue to be by their side to give sound advice…and probably some gentle encouragement to overcome any challenges.
Richard Simms is a licensed insolvency practitioner, chartered accountant and MD of FASimms. If you think your client could benefit from insolvency or business rescue advice, call 01455 555444 or email us at enquiries@fasimms.com for more information about how FASimms can help.
There is much doom and gloom about the UK economy right now with the coronavirus pandemic set to cause the deepest recession in Britain for 300 years. Many companies, large and small, face the prospect of administration. But rather than fear it, could it be a blessing in disguise?
The Azzurri Group has recently been sold out of administration, saving around 5,000 jobs.
Steve Holmes, chief executive of Azzurri Group, said: “Despite being a successful operator, the immediate loss of revenue during lockdown meant that we have had to make some incredibly difficult decisions to protect the business for the long term.
“Additional investment has enabled us to preserve the majority of our restaurants, stores and jobs and I am confident that, under TowerBrook’s ownership, Azzurri will navigate the period ahead successfully.”
How could administration benefit the company?
The ‘breathing space’ administration affords is one of the main benefits, but it is far from the only one.
Negotiating deals to pay off creditors means you can move your business forward debt-free. This increases your scope for investment in technology, staff, product development and marketing/PR. It could also give you a competitive advantage over rival businesses carrying a debt burden.
Too often companies operate a business model ‘because we’ve always done it that way’. Streamlining is an inevitable part of the administration process, giving you the opportunity to work better with customers, suppliers and staff.
For example, the coronavirus pandemic has shown many firms that they can operate without having to rent office space (or they can vastly reduce their office-space requirements).
Mike Hampson, chief executive of Bishopsgate Financial, told the ‘thisismoney’ website the company is “ditching [its] swanky offices in London”. The business employs 18 people but following the lockdown he has realised that the staff only needs to meet a couple of times a month to operate, and all will be working remotely.
Unlike insolvency, where all jobs are lost, administration means there’s a good chance some jobs will be saved.
And by continuing to trade, your company is helping others by doing business with them – and so the wider economy. The government benefits too, from an increased tax take and spending less on social security programmes.
Taking a company into administration and bringing it out the other side leaner and more fit-for-purpose shows you have solid business acumen and are not afraid to make tough decisions when they need to be made.
Types of Administration
Administrations generally resolve in four ways: with a CVA, with a pre-packaged insolvency sale, with a healthy, stable business, or with liquidation/dissolution.
For the purposes of this article we will focus on the first two.
CVAs are a common way of dealing with potential insolvency. Working with a licensed insolvency practitioner (IP), you must work out a schedule for repaying your debt – also outlining what percentage of the debt you will be paying back.
A CVA is a formal arrangement that must be overseen at all stages by the IP, who ensures creditors are paid the right amount and on time.
Creditors vote to accept the proposal, and in many cases approve because they accept that having some of their debt repaid is better that none at all (which could be the case with liquidation).
The process has also been used by clothing store All Saints, Hotter Shoes and high street giant Debenhams.
Insolvency trade body R3 describes a pre-pack as: "Where the sale of a company’s business and/or assets is arranged before the start of an insolvency procedure then completed immediately or shortly after the procedure begins. Proceeds from the sale are used to repay the company’s creditors.”
Pre-packs take place when an IP agrees a pre-pack is the means of achieving the best possible returns for the company’s creditors (all pre-packs are overseen by an IP).
Bed retailer Dreams and Blacks Leisure are examples of where a pre-pack has been used successfully.
The Corporate Insolvency and Governance Bill
The focus of the Corporate Insolvency and Governance Act 2020, which came into force on 26th June 2020, introduces a formal ‘moratorium’ - an initial period of 20 business days - during which no legal action from the majority of creditors can be taken against a company without court permission.
It will allow SMBs extremely valuable time to seek help from an IP - only a licensed insolvency practitioner can supervise a company entering a moratorium - and formulate a rescue plan.
Going into administration can be daunting. But with the right help it need not be the end of the line for your business. You could emerge debt-free (or with much less debt), leaner, with a clearer plan for the future.