Based in the City near Blackfriars, Isadore Goldman is a niche solicitors practice specialising in insolvency (personal and corporate), bank recovery, property and commercial litigation.
The end of the corporate director is nigh – or is it!
The Small Business Enterprise and Employment Bill contains provisions that will mean it is no longer possible for a company to have a corporate director. In future all directors will have to be human. The Government says that the change is to increase transparency in the ownership and control of companies and to make it harder for companies to be used to facilitate tax evasion, money laundering and other forms of criminal activity. The bill has had its third reading in the House of Commons and has now transferred to the House of Lords, and is expected to pass into law before the current Government finishes its term in office in April 2015. When the law comes into effect, existing corporate directors will automatically cease being directors.
It is established law that human director (A) of corporate director (B) is not automatically a director of the company (C) in respect of which B is the corporate director. This means that, for example, in the event of C becoming insolvent, A can distance him/herself from enquiries into C and any wrongdoing which might give rise to claims against the directors. It also means that A is not covered by the report into directors’ conduct that every Administrator and Liquidator has to submit to the Insolvency Service. Within regulated industries, it also means than in future A can say “no” when asked whether he/she has ever been a director of an insolvent company, and so can successfully navigate any “fit and proper” tests.
The position of corporate director is therefore capable of being misused. It gives A the opportunity to control C without the responsibilities and liabilities that attach to a director. Of course, it is entirely possible that A oversteps the mark to the point that a Court decides that A is actually acting as a human director of C (i.e. is a shadow or de factor director of C) but this can be difficult to prove as a matter of evidence.
For some time it has been a legal requirement that every UK company must have at least one human director. The thinking was that the human director would be answerable for any misbehaviour of the corporate director. The Government has now decided this degree of accountability is inadequate.
Currently, only 1.2% of companies registered in the UK have corporate directors. They are particularly prevalent within group structures where they are a useful and flexible management tool. In this scenario, the corporate director will usually be another company in the group. This enables the corporate director to attend board meetings or participate in board decisions through any one of its employees.
The Government is currently consulting on exceptions to the prohibition against corporate directors, and it seems likely that there will be a carve out for large public companies in group structures, particularly where the shares are traded on regulated or prescribed markets such as the FTSE and AIM. At the moment “large” is defined as a company that meets two of three criteria being more than 250 employees, a balance sheet of £11.4m+, and turnover of £22.8m+ though these limits are set to increase. It seems less likely that private companies in group structures will be exempted.
So those who have used corporate directorships in relation private companies need to start planning now for their demise .
A diary note for all Insolvency Practitioners.....don't miss out!
You may just about remember the Jackson reforms… and the extension to the recoverability of CFA success fees and ATE premiums which R3 did so well to secure. Sadly, as an industry we have to face the likelihood that in just over 5 months time, success fees and ATE premiums will no longer be recoverable from your opponent. Whilst R3 and the various professional bodies continue their vociferous and very well founded criticisms of the ending of the Jackson exemption, it seems increasingly less likely that we’ll be exempted again.
What we’re reminding you of, however, is that this will only apply to funding arrangements entered into after April 2015. Until then, CFAs and ATE premium arrangements entered into already or new agreements will still be recoverable so we’re inviting you to gather your files, write up your interview notes, pull together the searches and draw your conclusions about where the claims are!
We’re in regular contact with ATE providers and we’re being told that whilst there are still funders out there with an appetite to provide ATE before April 2015, there’s bound to be a backlog of applications so the message is – don’t wait until February or March as you may be unpleasantly surprised if funding cannot be put in place before April.
Let’s be clear, though – we can still enter into “no win, no fee” arrangements but they’ll take the more ‘Americanised’ form of the Damages Based Agreement, or DBA. These are effectively contingency fee arrangements but any award of damages will be reduced by ATE premiums (even if you can get deferred premium arrangements, which is currently unclear) and rather than success fees, the lawyers operate on a percentage of the recovery (the opponent still pays the costs but no uplifts, which under current arrangements are recoverable in addition to base costs. If you’re looking to run a smaller claim, working out how the matter can be run effectively will be even more difficult that it has been to date.
Here’s a quick example of how a DBA would work. Let’s say you have a claim for £100,000 and your lawyers agree a 45% DBA with you. The claim proceeds very smoothly, and you win. You have costs incurred of £30,000 and your opponent is good for all the money (yes, we know…but there’s one of those out there somewhere!). Your lawyers are entitled to 45% of the claim, so the opponent pays the costs of £30,000 and you pick up the tab for the other £15,000, leaving a net return to the insolvent estate of £85,000. Not necessarily a bad result but creditors are going to have to know about this, and approve it as a recovery method. Also, as long as the claim is a lot greater than the likely costs, and the opponent is good for the money, everything is fine. It’s only when the ideal world scenario isn’t there that there may be some issues.
The big risk, of course, is that after April 2015 many good claims will not be pursued because of a lack of viable funding options. We’d recommend strongly that our Insolvency Practitioner clients prioritise preparing their cases now, so funding proposals can be made in good time and CFA agreements entered into where appropriate, together with a section 236 or 366 Insolvency Act 1986 application which also takes time. And, don’t forget potential need to apply for sanction… Court applications or organising creditor responses for sanction purposes can also take time and the closer to the deadline we get, the more difficult these things always seem to be!
Anyone needing to discuss funding arrangements after April 2015 can of course contact any of our specialist team via the main number 0207 353 1000
Chambers and Partners and a new arrival
Every Autumn most lawyers anxiously await the publication of Chambers & Partners, the leading independent publication for the ranking of lawyers and law firms. This publication is important to lawyers and law firms as it is based on feedback by clients and peers. We are absolutely delighted that our London and Norwich offices have once again have been ranked as the top law firms for restructuring/insolvency, both UK wide and in the East Anglian region.
Extracts from the publication include:
“Experienced bench, providing high quality guidance on contentious and non -contentious issues. Recognised for its dedicated specialism in field”.
“The team are extremely professional, at the top of their game, and they know exactly what they are doing”.
“Well recognised for its ability to handle high value and complex cases”.
“A top firm for insolvency work”.
Danny Schaffer, Frank Brumby and Simon Loome have also been identified as leading individuals. Danny is described by clients as “efficient, quick–thinking, straight-talking and knowledgeable”. Frank Brumby is recognised as a leading figure in the region and is described as “A very good all-rounder and a very proactive adviser”. Simon Loome is described as a “very bright and able lawyer and a skilful and forceful litigator”.
And if that wasn’t enough to be going on with……..Isadore Goldman is delighted to announce that Andy Taylor, another Chambers & Partners top ranked insolvency specialist, has joined us from ASB Law LLP. Andy is a Licensed Insolvency Practitioner (non-appointment taking) with 25 years’ experience advising upon all aspects of corporate and personal insolvency, with a particular specialism in defending claims against directors and asset recovery work for Insolvency Practitioners.
Most clients who operate in the insolvency industry will have known of Andy for many years through his outstanding reputation, and we are proud to welcome him on board.
Q3 Insolvency Statistics for East of England
Quarterly statistics published today (29 October 2014) by the Government’s Insolvency Service show that the number of company liquidations in England and Wales decreased by 11.7% from July to September 2014 compared to the same period in 2013. Company administrations decreased by 18.8% over the same timescale and company voluntary arrangements and receiverships have also seen a downward trend.
Commenting on the figures, R3’s Eastern region Chairman Frank Brumby, a director at Isadore Goldman in Norwich, said: “The long-term corporate insolvency trend is downwards and activity has been very quiet recently. However, it is encouraging to see relatively greater use of business rescue procedures – rather than liquidations – in the last quarter following recent falls.
“Decreasing corporate insolvencies and sustained economic growth don’t always go hand-in-hand: counter-intuitively, growth can lead to rising insolvency levels.
“Businesses can run into trouble after recessions or economic doldrums – as we’ve experienced for the past five years or so – because they’re simply not ready for growth. If a business can’t invest to support its growth, cash flow can become a big problem and the business may find itself ‘over-trading’. Fresh access to finance is crucial to avoid funding gaps.”
Recent R3 research found 154,000 businesses, up from 103,000 in November 2013, were only able to pay the interest on their debts.
R3 predicts a possible change in the make-up of the corporate insolvency landscape in the next year as reforms, lobbied for by the insolvency profession, begin to take effect.
Frank Brumby explained: “The 2013 Enterprise and Regulatory Reform Act will make it easier to put businesses into a business rescue procedure by preventing key suppliers, like IT providers, from changing their terms of supply to struggling businesses. This will enhance the UK’s business rescue culture and save more viable businesses once the relevant parts of the Act come into force.
“Other Government reforms are set to damage the corporate insolvency landscape, however. The Government’s refusal to make insolvency litigation permanently exempt from changes to civil litigation rules – the 2012 Legal Aid, Sentencing and Punishment of Offenders Act – could see £160m of creditors’ money stay in rogue directors’ hands every year from next April.”
The Insolvency Service data also shows that the number of people who became insolvent in England and Wales decreased by 4.6% over the last quarter compared with July to September 2013. The Insolvency Service highlights that this was driven by decreases in the number of bankruptcy orders and individual voluntary arrangements. Conversely, debt relief orders saw a quarterly year-on-year increase.
Frank Brumby continued: “The recent spikes in personal insolvency numbers have been partially driven by people switching into formal processes – usually IVAs – having previously been in unrecorded debt management plans. It may be that the bulk of this ‘switch’ has now taken place.
“It does need to be remembered that until non-statutory debt management plans are officially recorded, it will be difficult to establish the full picture of personal insolvency in England and Wales. R3 research shows 44% of British adults are worried about their level of debts, while one-in-four 25-44 year olds have five or more debts to their name, so falling insolvency numbers do not necessarily mean the UK’s personal debt issue is going away.”
East of England businesses remain burdened by regulation
New research from R3, the insolvency body, shows only one in ten [10%] businesses in the East of England feels that the burden of business regulation has fallen since the 2010 General Election, despite Government promises to cut red tape.
By contrast, a third [33%] of the region’s businesses feel that it has stayed the same.
R3 Eastern Chairman Frank Brumby, a director at Isadore Goldman with offices in London and Norwich, said: “The Government’s record on deregulation has been decidedly mixed so far. Although the sentiment behind ideas like the ‘one-in, two-out’ rule is laudable, it is not clear that the regulations being removed are being noticed much by businesses.
“Speaking from the insolvency profession’s perspective, we have seen ‘deregulatory’ ideas proposed by the Government that would actually add to the regulatory burden of the UK’s insolvency practitioners. Business and Government aren’t necessarily seeing eye-to-eye on deregulation.”
Bankruptcy and winding up costs
Following the coming into force of The Insolvency Proceedings (Fees) (Amendment) Order 2014 on 6 April 2014 and a revision of thecourt fees, the costs for presenting a bankruptcy petition or a winding up petition have increased:
Bankruptcy Debtor's Petition - £525
Bankruptcy Creditor's Petition - £750
Company Winding up Petition - £1,250
Bankruptcy Debtor's Petition - £180
Bankruptcy creditor's Petition - £280
Winding up Petition - £280
In summary, if you wish to petition for your own bankruptcy it will now cost £705, and to petition for someone else's bankruptcy will cost £1,030, in addition to any legal costs. To present a winding up petition will now cost £1,530.
The Official Receiver has also increased their fees for administering insolvent estates to £1,850 (bankruptcy) and £2,400 (winding up).
2014 Rankings published
It’s autumn, the legal directory rankings have just been published by Chambers and Partners, and…we’re absolutely delighted that once again our clients and contacts have put us at the very top. As a firm, we’ve been given the highest ranking level for the whole of the UK for our personal insolvency work – which in such a huge field (with so many firms claiming to be specialists these days) is a real accolade and a reflection of the depth of expertise and the outstanding reputations that our people have worked so hard to achieve.
We’re just as pleased to be able to say that our Norwich office has been open for almost exactly two years – and for both of those years we’ve been ranked as No.1 in the city for insolvency and restructuring work. For that to have been achieved from the testimony of our clients is something we never take for granted and we promise we’ll be working harder than ever to keep up the standards of service and commitment that we’ve set for ourselves.
Here's what they had to say about us:
What the team is known for Dedicated insolvency and commercial disputes team with considerable expertise across a variety of personal insolvency matters.
"Isadore Goldman is a very good firm with decent people who understand insolvency."
"They have decent people who understand insolvency, the requirements of transactions and the nature of insolvency practices."
Market standing: Sources comment on the strengths of the firm's relationships with insolvency practitioners.
Daniel Schaffer is "a class act" and a "living legend," according to market sources. Interviewees commend him for his "great commerciality" and say he is "an excellent tactician."
Frank Brumby has a reputation as a leading figure for contentious insolvency matters. Clients have commented that "people see him as the go-to lawyer on insolvency," while other market sources have also observed that "his history is in this region" and "he is one of the key players."
Simon Loome is a key partner within the firm with a particular focus on insolvency litigation. Clients have noted that he is "a very good lawyer" and "an important player" in East Anglia.
View from the top…Chambers and Partners 2012
Cue celebrations at both ends of the A11 this week – Isadore Goldman has been given top rankings for both its London and Norwich offices in the Chambers and Partners’ UK 2013 independent guide to law firms and individual lawyers which was published at the beginning of November 2012. The Chambers UK guide is based on an extensive and qualitative research which is carried out with clients and lawyers with a particular focus on client feedback.
Given that our Norwich office opened just over a year ago, we’re absolutely delighted to have had that specifically recognised by our clients and peers who told the Chambers' researchers that we have ‘quickly won a reputation for delivering the highest level of quality’, that we’re ‘timely and efficient’ as well as ‘pragmatic, commercial and focused’. This was reinforced by our dual ranking as the No.1 firm (Band 1) in the region for Restructuring and Insolvency and two of our partners, Frank Brumby (Band 1) and Simon Loome (Band 2), being singled out for praise: "immensely experienced, and providing advice that removes the jargon".
Our London team has once again been recognised as being ‘packed full of brilliant lawyers’ and has retained the top ranking that it has enjoyed for a number of years being ranked as a Band 1 firm for London and Danny Schaffer, senior partner, being rated in Band 1.
We’re very committed, being true specialists, in the services we offer and it’s a real boost to see that the commitment and expertise we bring to these services is what our clients want and our contemporaries acknowledge. We’re determined to keep the high regard that we’ve worked hard to win and we take nothing for granted – so a huge thanks to all of our clients and business partners for your support so far. We look forward to maintaining our strong relationships with you.