The Blog of an Entrepreneur

A few years ago there was an active industry with a good few hundred companies in the UK trading at varying levels of success, from big companies to small one man operations. This industry was just like any other, providing income and jobs to hundreds maybe thousands of people in the UK. This industry was the private numberplate industry.

That was until a Government agency, namely the DVLA, realised that they could make a lot of money from the private numberplate industry and decided to abuse their position and monopolise the market. They undertook extremely agressive marketing activities, from TV to magazine to Internet, and they basically “cleaned up” as the term would go. A Government agency basic abused their position, exploited it to great financial gain, and the end result was many businesses went into liquidation and many more lost their jobs. If this happened in the private business sector it would have gone through the courts with an anti-competitive law suit, but nothing happened, the Government which claims to encourage commerce did completely the opposite and did what in my opinion should be illegal.

Well guess what, it’s happening again!

Companies like one of my business, Quick Formations, are being forced by law to carry out very time consuming comprehensive checks on each and every one of our clients under the Money Laundering Regulations 2007. These checks not only take time, but also cost money too, and we must reflect these costs and time taken in the prices we charge. This isn’t just my business, but it is all businesses in my industry sector (that comply with this legislation that is, but that’s another story). However, what do Companies House do?

Companies House state that they are an “administrative” agency, who’s role is to store data for the public record. Yet, Michael Mouse is able to file forms 10, 12 and 288a with them and Incorporate a Limited company without question. He can use a completely fictitious address, he doesn’t even have to exist, and Companies House will incorporate this Limited company for Mr. Mouse without question. Mr Mouse can then go to one of a number of countries around the world to open a business bank account because a UK company does not have to bank in the UK, and then Mr. Mouse has all the tools he needs to launder all the money he likes out of the UK. By launder, and to quote the Governments own scare mungering about this required legislation, I mean to potentially finance terrorism. Companies House, a government agency, is openly flouting a legal requirements of the company formation industry. The businesses within the company formation agency must charge to cover the administrative burden of complying with this legislation imposed upon them, but Companies House by not complying with this same legislation do not and can abuse their position in the market. The DVLA story seems likely to repeat itself all over again.

However, I have a solution and have raised this to parliament. At first I thought it would come to nothing, but at least Sally Keeble MP is listening and has started to raise concerns and move them forward.

My solution is as follows;
All agents who provide a company formation service apply for an account with Companies House. The requirement of holding an account is that the agent must be registered with HM Revenue & Customs under the MLR2007 regulations, and as such comply with the regulations. Companies House then have no requirement to carry out due diligence on documents filed by that agent.
Any company formations filed by non-account holders will require due diligence, and Companies House will be required to operate under the same legal requirements imposed on all other businesses carrying out the same business activity. They will also have to cover their costs to carry out this activity, leveling the commercial playingfield.

Here is hoping that Sally Keeble can get some results on this.

This time I’m providing an article that I didn’t write but was in fact written by a friend of mine that I hope will provide helpful to business owners who may find themselves in a difficult situation with a shareholder, or worse still in difficulty with their business overall.

You will probably be aware of the terms “Phoenix” and, more recently, “Pre-pack”.  Invariably, these terms often go together since the introduction of the Enterprise Act on 13 September 2003.  However, should we always cry foul when a new company rises from the apparent ashes of old?

You will probably be aware of the terms “Phoenix” and, more recently, “Pre-pack”. Invariably, these terms often go together since the introduction of the Enterprise Act on 13 September 2003. However, should we always cry foul when a new company rises from the apparent ashes of old?

In a recent case I was confronted with a shareholder dispute where a 30% shareholder was holding the company to ransom in exchange for consideration of his shares at an extortionate rate. His conduct in preventing various actions by the company was like a corporate tourniquet, slowly strangling the company to death. My advice was to place the company into administration (an Administrator is exempt from requiring shareholder approval on prescribed issues under the Companies Act) and seek a purchaser for the business as a going concern.

The outcome was an expression of interest from four parties, with the offer that was best for the creditors as a whole coming from the existing directors. Technically, this could be regarded as a phoenix but the result in this case was the saving of all employee positions and there will be a sizeable return to creditors. The alternative would have meant no funds available and creditors writing off 100% of their debt.

On the other hand, we have the phoenix where creditors ought to be concerned and aware of their rights. In a recent case where creditors asked me to represent them the insolvency practitioner (”IP”) had agreed to sell the business back to the directors for a nominal sum and “put the company to bed” by a voluntary liquidation. The nominal sum conveniently matched the IP’s fees.

Because the creditors I represented were aware of their voting power, I was appointed Joint Liquidator and the original concerns were justified as I am about to sue the directors for a significant sum.

The Association of Business Recovery Professionals is the trade body for IPs and is currently waiting for approval of new guidelines on what must be reported to creditors in a pre-pack scenario. Having read the draft guidelines, I cannot see why the same requirements are not imposed on liquidations where a phoenix has occurred.

When you are a creditor of a company that is being presented with a “Done deal” and the business has been sold (or it is being proposed that a sale be approved) creditors should consider whether the (proposed) transaction is beneficial to creditors as a whole. To assist in this thought process I would suggest the following be taken into consideration:

What marketing activities were undertaken by the company and/or the IP prior to agreeing the proposed sale?
How (and by whom) were the assets valued
What alternative courses of action could (or should) be taken or considered?
Following on from (3) above, what is the likely financial outcome of the alternatives available?
Are there any reasons why the alternative options could not be followed through (e.g. inability to trade for the interim period due to no funding)?
Were steps taken to enquire whether third parties could offer interim funding while the business was advertised for sale?
Had the directors guaranteed any of the liabilities and how were those creditors holding guarantees being handled as a result of the phoenix?
If deferred consideration, what security will the IP have to protect the sale proceeds?
Being able to switch off the emotional mind (very difficult in many cases) and focus on what you are actually being asked to approve generally allows a considered conclusion to be reached. Knowing your rights as a creditor of an insolvent company re-enforce your ability to ask those searching questions and, where appropriate, challenge the proposals put before you.

The field of insolvency is a highly specialised area and very few people truly understand its meanings. Therefore, should you be the unfortunate recipient of an insolvency notice then you would be best served contacting a Licensed Insolvency Practitioner who can explain your rights in a clear and concise manner.

Gary Pettit is a Partner and Licensed Insolvency Practitioner at Begbies Traynor who are the largest independent firm of insolvency and corporate rescue specialists in the UK. Should you wish to contact Gary then his details are:

Begbies Traynor
Calverton House
Tilers Road
Milton Keynes
MK11 3LL

T: 01908 261300
F: 01908 565850
D: 01908 264870
M: 0787 6477312
www.begbies-traynor.com