Clarity Turnaround: Who we are and what we can do for you
Clarity Turnaround provides well informed, pragmatic advice for directors unexpectedly thrown into a complex and perilous environment when financial difficulty sets in. Some of us have been there ourselves and our combined experiences make us skilled and experienced allies and a friend on your side fighting your corner at a time when you really need it.
We can introduce funders from our very selective panel to refinance an ailing business but we can also introduce lawyers, valuers, regulated insolvency practitioners and other professionals into the mix to deal with anything that requires more than just negotiation and replacement funding.
We can assist with any level of distress, from negotiating a Payment Plan with HM Revenue & Customs and releasing funding from company assets, to providing a Project Management service for a full Liquidation or Administration prepack, covering all points between.
We will remain involved after our engagement and work with you should any claims arise against you, with aftercare support provided as part of our relationship. We will not walk away from you.
We assume that you are visiting this website as your business is facing some financial difficulty so, rather than outlining the various options that we can provide, it covers the areas of concern that company directors often flag up by way of a small but very relevant selection of questions that we are frequently asked together with our answers to those questions.
These questions and answers are followed by an explanation of how our relationships work with our clients, our fees and costs and a little about our Clarity Turnaround business and culture.
I’ve received a winding up petition and I can’t pay it off. What can I do?
After finally losing patience, a creditor might well increase the pressure by issuing a winding up petition to try to force your company into paying what’s owed or, in the case of HM Revenue & Customs, to bring everything to a head in the public interest by driving it towards a High Court governed Compulsory Liquidation.
If you can’t pay off a petition debt and you don’t act swiftly your choices will steadily reduce and the position may then spiral out of control.
Although a petition is issued on a specific date (you will soon know if a petition has been issued as you will immediately receive phone calls and mailshots from various consultancies offering a wide variety of sometimes confusing options) it will take a little time for it to become visible to the outside world when the petition and its hearing date are advertised in the London Gazette. The company bank account will then almost certainly be frozen as part of a process which protects the company’s assets from being disposed of, creating critical trading difficulties which can prove terminal if no action is taken.
The period between the issue and the advertisement of a petition is invaluable as it gives you the time to explore the options available to you. Those options range from cutting a Time to Pay deal with the petitioning creditor, implementing a Company Voluntary Arrangement to park some or all of the debt for five years, liquidating the company yourself in a Voluntary Liquidation and avoiding the issues that come with a taxpayer funded liquidator, or implementing a prepack restart process to move the business and assets to a separate company with the same name but without the debts.
We can help you to choose the most suitable option for you and manage the issues by applying decades of experience, a tremendous network of professionals and a huge capacity for lateral thinking which will combine to provide a soft landing for your business and a sensible outcome for the stakeholders, including you, your family and your staff.
My Company Voluntary Arrangement is unravelling. What can I do?
A recent Insolvency industry evaluation (Company Voluntary Arrangements: Evaluating Success and Failure, R3 and ICAEW, May 2018) reveals that out of the 552 CVAs commenced in 2013, 65% were terminated without achieving their intended aims. Some 31% of those were terminated within 18 months.
In short, the statistics show very poor outcomes and these numbers do not even include CVAs that have not formally failed but which are nonetheless not functioning and are awaiting formal failure.
CVAs are therefore very fragile, particularly within the first year or so, as a company in a CVA:
- has no credit rating for the entire length of the CVA and, as a result, will encounter difficulties in putting on new business;
- is obliged to pay some old supplier debt to maintain continuity of supply, often leaving HMRC as the only, or nearly the only, creditor;
- often has a difficult relationship with its lender as a result of their aversion to CVA fragility;
- is often obliged by HM Revenue & Customs modifications to guarantee a minimum dividend to creditors;
- regularly, despite having paid its monthly contributions on time, will actually pay no money to creditors during the first 12 months and, based on the statistics above, no money at all to creditors by the time that the CVA is terminated;
- almost without exception is governed by a CVA Proposal which does not cater for redundancy pay, a significant liability and a missed opportunity for older companies with long serving directors and employees;
- must disclose and define any overdrawn Directors’ Loan Account balances before the period accounts have been agreed and filed, obliging repayment in very early course (generally inside 3 to 6 months at the insistence of HM Revenue & Customs) of a potentially incorrect balance.
If your CVA is showing signs of unravelling then it is important to take advice on the options available to protect the business and bring it to a soft landing through another more appropriate and relevant procedure.
The Clarity Turnaround team has handled many CVA turnarounds over the years with a plethora of different offerings and procedures, including refinancing, formal Variation Applications and prepacking CVA businesses into restart companies.
We know that choosing a different procedure may also solve a number of the bullet point issues outlined above and, in short, we have the answers to the difficult questions faced by directors when their CVA is moving towards a failure.
If you simply want a CVA health check then let us know and we’ll be happy to do that. If more is required then we’ll help in any way that we can to get the business through to a soft landing.
If my company goes bust what problems could I face?
Can I restart my business in a new company and will Clarity Turnaround help me to do that?
Yes and yes.
Generally, unless you are disqualified as a director or you are an undischarged bankrupt, you can be a director in as many other companies as you wish so yes, you can restart your business in a new company if your old company goes bust.
Clarity Turnaround can assist you with incorporating that new company, applying for PAYE/VAT registration, obtaining a new bank account and asset/invoice finance facilities and supporting you before, during and after the process.
You will most probably wish to be a Director in the new company so we will also help you to deal with any timing issues that arise and support you while the business gets on its feet.
Can I be a director in a new company with the same name/ brand as my old company?
As long as that new company acquires the assets/business of the old company from its liquidator or administrator and the director(s) validates the process by a formal notification to creditors or successfully applies to Court to re-use the old company name/brand.
This is a hugely important issue as penalties for ignoring the validation process are hugely punishing, involving a criminal offence and personal liability for debt. We have an arrangement with specialist solicitors who, for a small fee, will undertake the necessary validation process on your behalf to remove your exposure to these penalties.
Am I personally liable for any company debts?
Generally, you will not be personally liable for any old company debt unless you’ve contractually signed to pay it personally, typically this would be the bank overdraft or loan, property leases, car and equipment loans etc.
CBILS and Bounce Back loans generally do not require a personal guarantee and remain only as an old company liability.
The debts that are personally guaranteed can be managed by offering payment terms or by transferring leases and finance agreements into the new company to be used for future trading.
There are, however, certain circumstances where a director can be made personally liable to contribute to the estate of a failed old company such as where they have made preferred payments to favoured creditors or transferred assets out of the company at a time when it was insolvent.
There are also specific circumstances where personal liability can apply, ie when a director is disqualified and a rare compensation order is made against them and also for the recovery of outstanding taxes where very specific issues such as tax avoidance and evasion and repeated insolvencies are involved.
Any liquidator or administrator is obliged to investigate the old company’s activities to see if any of these have taken place and to look to the directors for explanations and potentially a repayment where they see this but if this leads to a claim some liquidators and administrators are more likely to agree a sensible arrangement for a negotiated payment over time while others take a much more aggressive and litigious stance.
Therefore, your choice of liquidator or administrator is one of the most important that you will make during this process and by talking you through the marketplace that exists in the insolvency industry, as it does with all industries, we can help you to make that choice.
Will I be disqualified as a director?
In 2019/20 the number of disqualified directors totaled 1,280, slightly up on the previous year’s total of 1,243, with an average disqualification length of 5 years and 4 months.
87.2% of those disqualifications were dealt with by way of negotiated undertakings with only 12.8% by way of Court Orders.
The most common allegation made in director disqualifications is that the Crown (which usually refers to HM Revenue and Customs) has been unfairly treated. Unfair treatment of the Crown can range from cases where a director had made a conscious decision to pay other creditors rather than company taxes to cases where a director has defrauded or attempted to defraud HM Revenue and Customs. Unfair treatment of the Crown has been the most common allegation made since comparable records began in 2011/12.
Every director in every insolvent company is a potential target for disqualification so the above statistics reveal the low probability of any individual director facing disqualification action and the major reason for disqualification targeting being unfair treatment of the Crown.
However, it is important that directors understand that other factors play a role in the disqualification targeting decision, such as the identification of any criminal activity and a director’s multiple business failures and that periods of disqualification span between 2 and 15 years depending on the circumstances.
It is equally important that directors are aware that in the event that they are disqualified, and it is ruled that they have deliberately set out to deprive the Crown of taxes then those directors can be made jointly and severally liable with the company to reimburse those taxes from their personal assets.
The statistics quoted above disclose that the Insolvency Service (IS) gained Disqualification Orders or Undertakings, which have the same effect but are generally for a shorter term, in respect of 1,280 individuals during 2019/20.
Some 15,429 companies entered into a formal insolvency process during the year ended 30 June 2020.
Using the IS statistics, it is apparent that, crudely, one director was disqualified for every twelve companies that entered into a formal insolvency process and, of course, many if not the majority of the companies held more than one director, so the probability of Disqualification is actually lower.
It is also important to point out that a very significant majority of those directors who were disqualified agreed to proceed by way of negotiated undertakings rather than by way of Court Orders, leading to reduced periods of disqualification and potentially to applications by those directors for ongoing Leave to Act as directors in their new companies given suitable representations being made.
The probability of DBIS targeting an individual for Disqualification is low but directors can improve their chances of avoiding being targeted for Disqualification by taking some very simple steps involving:
- the delivery up of the old company’s books and records at the outset.
- complying with the liquidator’s or administrator’s requests and.
- the submission of a comprehensive response to their initial paperwork, specifically the Company Directors Disqualification Act questionnaire which forms part of the bundle submitted to the Insolvency Service.
We at Clarity Turnaround have dealt with the preparation and submission of many Disqualification questionnaires and we have found that a robust response can yield dividends in terms of persuading the Insolvency Service that Disqualification is either not appropriate or that a shorter period of disqualification would be a fairer outcome.
Where the Insolvency Service does insist that Disqualification is appropriate a robust attitude from the outset can lead to an offer of a reduced Disqualification term to below 7 years, a threshold which allows an individual the ability to seek Leave of the Court to act as a director in a new company, subject to undertakings being given on future conduct, providing a satisfactory result in testing circumstances.
For example, during the Summer of 2020 we were involved in negotiating a reduction in the period of disqualification of a client director from the six years on offer to just three years. Concurrently that director was granted Leave to Act as a director in a company trading with the same brand as the failed old company and as a member in a separate Limited Liability Partnership enabling him to be paid in a tax efficient manner by way of dividends and drawings respectively and also giving him the ability to promote the ongoing business.
As the Application for Leave to act is a formal legal process, we will introduce you to a suitable lawyer from our panel who will handle the application and talk you through the mechanics of acting as a director during a reduced Disqualification term.
What about my overdrawn Directors Loan Account?
When a company goes into liquidation or administration the last filed accounts may reveal that the director(s) owe the company money under an overdrawn Directors Loan Account. Perhaps, they have taken their remuneration in lump sums in the expectation that profits will be disclosed in the next accounts which will cover what they have taken.
The period subsequent to the last filed accounts but before liquidation or administration is likely to lead to a worsening of the position as this is when the company started to fail. It is therefore unlikely that profits or reserves will be available to cover any remuneration that the directors have taken.
In these circumstances any remuneration taken without profits and reserves to cover it is considered as an illegal dividend which is repayable to the company. The liquidator or administrator is likely to calculate the amount that the directors have taken outside their payroll wages and claim against them for what are then overdrawn Directors Loan Accounts.
Again, some liquidators or administrators are more likely to reach a sensible arrangement with a director for a reconciled outcome and, if there is an overdrawn Directors Loan Account, a negotiated payment over time, while others take a much more aggressive line.
It is therefore important that you are mindful of your choice of liquidator or administrator and that you engage with them to achieve a sensible outcome. We can assist with both by giving an informed view on the choice available and by performing a reconciliation of the relevant transactions and, if necessary, preparing accounts to disclose the true position rather than an approximate one.
If I instruct Clarity Turnaround what is expected of us both and what are the costs?
All initial meeting and set up advice is free and if you like what you hear we will then negotiate and agree a fee and costs structure with you which will be dependent on what you want from us. This structure and the nature of our agreement will be evidenced by a contract signed by us both.
Our fees and costs will be completely transparent and agreed at the outset and we will anticipate payment of our fees and costs within the agreed structure.
What do I need to know about Clarity Turnaround?
Throughout we have worked closely with invoice and asset funders, angel investors and a network of professionals all of which combine to provide solutions for directors with companies facing financial difficulties.
We act for you to get the business through those difficulties and to a soft landing and our many successes speak for themselves.
If antecedent transaction claims such as Preferences and overdrawn Directors Loan Accounts claims are made we will be there to support you as we have where necessary with past clients, almost all of whom return to us if they need to repeat any restructuring processes, something which does happen, of course.
Clarity Turnaround, its owner and staff are not regulated insolvency practitioners and we will not give any advice that can only be provided by regulated insolvency practitioners. If any given situation requires the involvement of a regulated insolvency practitioner then we will introduce you to one who will be suitable in terms of your given situation and also in terms of value and price.
However, we are confident that our offerings can deliver what directors need to deal with their companies’ issues and much of our involvement relates to good governance and getting the funding right so that the client can look forward to a prosperous future rather than backwards to a troubled past.