Debt Collection

New figures from the Insolvency Service show a shocking decline in enforcement actions against unscrupulous businesses since the government’s austerity programme was introduced in 2010.

According to the Service’s regular Enforcement Outcomes updates, the number of interventions to wind up companies in the public interest is set to decline again this year, the fourth consecutive annual fall. Over the longer term, in 2009/10 there were 267 successful petitions to close companies down, compared to just 73 in 2017/18 - a decrease of 73%. In the current year, with just a month to go, there have been just 57 completed actions.

Similarly, for Bankruptcy and Debt Relief Restriction Orders and Undertakings, in 2009/10 there were 1,945 actions taken by the Insolvency Service in total. In 2017/18, there was just 444, a decline of 77%. In the year to date, there have been 393.

The figures suggest a service struggling to keep up enforcement activity at previous levels. The fact that the sharp decline coincides with austerity, which has seen the majority of public bodies across the UK suffer drastic cuts to their funding, is surely more than a coincidence. It would be naive to suggest that the rate of decline is down to fewer rogue businesses misbehaving.

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Free Late Payment Reminder Letter Templates

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Counting the financial cost of poor credit control

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Crowdmix Ltd in Administration

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Combating fraud and maladministration

Companies can be wound up by a judge in the public interest following a petition from either the Insolvency Service or stakeholders. There are various grounds for shutting a business down in this way, including proof of fraudulent and illegal activity and maladministration leading to serious debt. The Insolvency Service has frequently taken action against companies running investment and other financial scams, or to protect creditors from further risk when a company’s debts are spiralling out of control.

Debt Relief Restriction Orders are intended to prevent abuse of Debt Relief Orders (DROs), a new insolvency measure introduced in 2007 as an alternative to bankruptcy. DROs free individuals from responsibility for debts under £20,000 if it can be proven they do not have the means to pay them. However, they have been open to abuse, with ploys such as people disposing of assets before applying for a DRO, or deliberately running up business debts with the intention of using a DRO to protect themselves, or applying for credit fraudulently. Restriction Orders were introduced to combat such behaviours.

There has been a lot of disquiet recently over the link between austerity police cuts and a worrying rise in violent crime. These figures from the Insolvency Service should cause similar concern. If we do not fund our enforcement agencies appropriately, then more rogue companies and their proprietors will get away with scamming and ripping off innocent people and the majority of honest, trustworthy businesses. That will only further damage our already fragile economy at a grassroots level.

Image "Fraud Key" from Flickr User "Got Credit" used in accordance with CC BY 2.0

Backers of a project to reboot the classic ZX Spectrum as a handheld games console have been left half a million pounds out of pocket after the developer went to the wall.

As we have previously reported, the project to bring back the cult 80s device launched by Retro Computers Ltd has been dogged with problems in what has become a long-running saga.

The company initially set up a crowdfunding campaign through IndieGoGo to bring the concept to life. It raised £513,000 from more than 4,500 backers, with Retro promising each enthusiast a finished console when production was completed.

However, the completed ZX Spectrum VEGA+ devices never materialised, with persistent stories of conflict between directors, poor financial management and technical issues.

Retro Computers Ltd has now been wound up, with a number of court cases pending between different factions of directors.

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Unsecured creditors

The encouraging news for backers who put money into the project through IndieGoGo is that it seems they will be considered as unsecured creditors when Retro goes through the liquidation process, giving them a glimmer of hope for recovering at least some of their investment.

This would not normally be the case for people who put money into a crowdfunding scheme. Companies like IndieGoGo act as agents, with backers entering into agreements with the third-party funding site, not with whoever is looking to raise the cash. However, crowdfunding sites also have clauses in their terms and conditions absolving them of liability if a project does not deliver on its promises.

But last year, one of the IndieGoGo backers went to court arguing that Retro’s promise to deliver a console amounted to a contractual agreement and that he should be entitled to his money back in the event of non-delivery. The claimant, Rob Morton of Mickleover, Derby, England, won the case, which has apparently paved the way for all backers to be considered creditors following Retro’s demise.

It is, however, extremely doubtful that backers will ever see any of their money, regardless of that legal precedent. Nobody can be sure of the value of the assets that are left in the company, but in our experience, it would be rare for upwards of half a million pounds in funds to be left in a liquidated company for unsecured creditors once assets have been dispensed to other creditors.

Backers would be advised to register their claim with the liquidator, just in case. But they should be aware that, in the pecking order for debt repayments, they fall behind secured creditors like banks and preferential creditors like employees. When they have all received a share of any available funds, there is very likely to be nothing left in the cupboard for anyone else.

Image "August_2018_Delivered_Vega_Plus" from "Phills4125" used in accordance with CC BY-SA 4.0

Thursday, 15 November 2018 12:59

No Win, No Fee: Too Good To Be True?

It’s a phrase that has become a mantra for personal injury and small claims lawyers. Imported from the US legal system in the mid-90s, No Win, No Fee is the consumer-friendly name given to a method of claims financing officially known as a conditional fee agreement.

It more or less works as the two names suggest - payment is conditional on the case being won. This means litigants don’t have to raise funds up front for expensive legal action, it is the lawyers that take on the risk, and final payment is usually taken as a percentage of the compensation won.

Tuesday, 06 November 2018 11:03

Fake Bailiff Telephone and Text Scams

Action Fraud are warning UK based consumers and businesses to be aware of a new type of financial scam, fraudsters claiming to be bailiffs are sending sending SMS messages or making calls to targets across the UK in the hope of pressuring them to pay fictitious debts.

The scam sees victims receive texts by the fraudsters about the fake debt, claiming that they will "attend your address for resolution" if payment of the imaginary debt is not made.

Tuesday, 04 September 2018 13:36

Government to Clamp Down on Phoenix Companies

Directors who dissolve companies to write off debts, only to start up near identical businesses shortly after, could be banned and fined under new regulations.

The government has moved to crackdown on so-called ‘phoenix companies’ as part of a raft of changes intended to protect employees and pension holders when companies are shut down.

Retail tycoon Mike Ashley has been quick to position himself as champion of the high street after buying House of Fraser out of administration. But whether suppliers, pension holders and even landlords will be celebrating the takeover is questionable.

The Sports Direct owner snapped up the struggling department chain for £90m just an hour after entered administration last week, vowing to keep open at least 80% of its UK stores open.

The concept of a ‘gentleman’s agreement’ is something of a myth in business. Technically speaking, a verbal understanding between two parties is enforceable under contract law, as long as certain criteria relating to contracts are met.

But there lies the rub. If nothing is ever written down, if everything is done on a nod and a handshake, how do you ever prove things like intention to enter a contract and due consideration by both parties?

For video game fans of a certain vintage, it was a beautiful dream. A plan to reboot the classic ZX Spectrum console of their childhoods, but this time as a handheld device.

The company behind the proposed ZX Spectrum Vega+, Retro Computers Ltd, launched a crowdfunding campaign through IndieGoGo to finance the project. Enthusiasts rushed to back the plans, based on the promise of receiving one of the consoles hot off the production line upon launch. More than half a million pounds was raised in no time.

There have been plenty of stories in recent times of large corporations going bust, leaving a trail of out-of-pocket suppliers and creditors in their wake.

But it would be wrong to assume this is the kind of thing that only happens in the world of big business. Even down at the ‘grassroots’ level of microbusinesses and one-man-bands operating in niche cottage industries, where the principles of trust and your word being your bond are still believed to hold sway, things can go wrong.

The collapse of construction giant Carillion could spell havoc for the UK’s small business economy, the country’s SME trade body has warned.

The massive building services conglomerate has been forced into liquidation with debts in excess of £2bn, putting 20,000 jobs at risk. As a major government contractor, there are immediate concerns over infrastructure and maintenance projects covering schools, hospitals and transport.

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