New hope for recovering unpaid business rates

A landmark Judgment by the High Court will help local authorities to recover unpaid business rates from companies which go into administration.

The case involved Exeter City Council, which went to court almost two years earlier against the former administrators of Trident Fashions, which owned the Ciro Citterio group of shops.

Mr Justice David Richards made the following declarations sought by the council:

• Unpaid business rates are "necessary disbursements" by the administrators in the course of an administration within the meaning of rule 2.67(1) (f) of the Insolvency Rules 1986; and
• Business rates accrued during the aministrators' expenses fall within the meaning of paragraph 99(3) of Schedule B1 of the Insolvency Act 1986.

Mark Taylor, Business Development Manager for Incasso LLP, commented: "The Trident Fashions case confirms that it was always intended by the rule-making authorities that business rates should be a necessary disbursement, paid as an administration expense, and rank ahead of payments to the administrators. Rule 2.67(1 (f) is all but identical to Rule 40218(1) which applies to liquidations. It fully justifies the determined attitude taken by the council in pursuing this case."

Mark continued: "There was a great deal of interest in this test case from the Attorney General, insolvency practitioners and many local authorities, and its effects will be far-reaching.

"I expect that considerable sums of money will have been retained by administrators pending the outcome of this case, which should now be handed over to the local authorities.

"However, the judgment does not apply to 'old-style' administrations before September 15 2003 when the Enterprise Act came into effect.

"The effect on closed 'new-style' administrations is a little uncertain and local authorities may wish to look again at their files to see if they can claim against former administrators who have been appropriately paid.

"Former administrators may argue that they acted honestly and reasonably and should not be required to repay business rates out of their own renumeration. However, in the case of Trident Fashions, they did agree to do so.

"There is an argument that including rates as an administration expense will have an adverse effect on company rescues; consequently there could be amended legislation on this eventually. For the moment, the picture for existing and future administrations is much clearer. Local authorities should look to administrators to pay business rates or to set aside enough money to pay them at the end of the administration.

"In an extreme case, however, especially with regards to unoccupied rates, the Administrator may seek to invoke the power of the court under Rule 2.67(2) and (3) to vary the prder of priority of payment of the administration expense."

To discuss the detailed implication of this case, please contact Mark Taylor.

Seperating gold nuggets from the rest

A new online Land Registry service is helping some of our clients to identify those debtors against whom a Charging Order would be most effective.

It is generally accepted in the industry that charging orders are most effective on owner occupiers, particularly those with mortgages as once they sell or remortgage their homes, the order becomes effective.

One problem is that information about such people can be sketchy. Has their name and address been recorded properly by their creditors? Is the property registered at the Land Registry?

In the past, it was only possible to do a search at the Land Registry on one property at a time. This was not only time-consuming but, if you don't know which cases are the gold nuggets in your portfolio of debtors - and, equally important, which are best left alone - you can waste a lot of effort unnecessarily. This is when the online, rapid response service from the Land Registry comes in.

Rob Young, Support Service Manager at Incasso LLP explained: "We can now send a spreadsheet to the Land Registry with hundreds of names and addresses on it. On several occasions, we've had a response on every single entry within 48 hours."

The search results show:

• if the full name, or perhaps only the surname, matches that on the Land Registry's records as the property's owner;
• if the address is correct; and
• if the property is registered.

"If the results do not match our details, the probability is that the case is not worth pursuing. But the closer we get to a match, the more effective we know our actions are likely to be, " said Rob.

The service is available for lists of at least 250 cases.

"It's obviously only of value to our larger clients at the moment but, in time, the Land Registry may well make the scheme more accessible and reduce the minimum figure," Rob concluded.

To find out more about the service, please contact Rob Young.

Service line Spotlight - Orders for Sale

There is an increasing awareness that obtaining a charging order is not the end of the recoveries process, but a means to obtaining an Order for Sale.

A perception has grown that a charge can be left in place until the debtor either sells the property or raises the finance to redeem the charge. However, this does not compel the debtor to pay off their arrears. The Limitation Act and case law in this area shows there is a need to maintain the charge and, if the debtor fails to arrange payment, a pressing need to enforce the charging order.

To enforce a charging order, an Order for Sale of a debtor's property needs to be obtained. This allows a creditor to sell the property to pay the judgment debt and costs.

The art of making an Order for Sale application has largely been lost, due to to the negative equity "nightmare" of the 1980's, when this method of Enforcement was rarely used. However, Incasso LLP is pioneering a new wave of Order for Sale applications, with the help of David Scottow, Legal Team Leader.

Initially, we must ensure the application is viable. One obvious factor is the equity in the debtor's property. To establish this, we obtain a valuation and then contact the mortgagee and any other chargees. Other factors also need to be considered before seeking a client's instructions to make the application.

When we are instructed to make an application, we must present the court with new proceedings. These are issued by the court, with the debtor being allowed 14 days to respond. A hearing is then listed for a judge to consider the application and the debtor's response.

At hearings, judges have a wide discretion over the orders that they can make; for example, they may adjourn the hearing to allow the debtor to re-Mortgage and pay off their arrears. It is important to note that each hearing of this type is unique and the result may be equally unique. However, in most of our cases, an Order for Sale has been granted with costs.

We then obtain a writ of possession, to be executed by a professional High Court Enforcement Officer. This is a very powerful tool as, if the debtor fails to make full payment, the officer will evict the occupiers and secure the property.

The final stage in the process would be to sell the property at auction. However, as Geoff Waterton, Enfield's Head of Collections has said: "We haven't had to sell a single property. The threat of enforced sale was enough to get people to pay in full, including all of our costs as well."

In fact, less than 1% of all cases, where Incasso LLP has been instructed to proceed with an Order for Sale application, has resulted in an actual sale.

Another client, Tim Ring, Brent's Revenues and Benefits Support Manager, commented: "We are very impressed with Incasso LLP's handling of the Order for Sale process and the service provided in some of our more difficult cases."

More and more of our clients are getting wise to the fact that a charging order is not the end of the recoveries process - but a way to improve their collection rates.

For further information on Orders for Sale, please contact David Scottow.

Did you know?

The rate of Late Payment Interest on unpaid debts we can now claim on our clients' behalf went up to 13% from January this year.

Shout Out for Collect Outs

What happens when a company goes into administration, yet they themselves have unrecovered funds?

This is the dilemma that a specialist team at Incasso LLP have undertaken, with the solution so far being used by banks and other financial institutions (also their advisors and insolvency practitioners) who have offered their own invoice discounting or factoring facilities to the companies concerned.

When a company enters into administration, often the outstanding sales ledger consists of current invoices as well as overdue debt, which means that clear communication to debtors and current clients is vital.

The financial mediators handling the administration case require a speedy turnaround and understanding of any potential risk cases in order to streamline the process. As a first point of contact for the bank and their advisors the specialist team enter into discussions to assess the complexity involved and the potential recovery.

An assessment is made to identify any bespoke requirements for the administrators, and often within 24 hours, a visit is made to the troubled company to remove their sales ledger and any supporting documentation. A check list and inventory form part of this uplift process and is made available to the bank and advisors, before agreeing upon a recovery process suitable for the company concerned.

Often when a company goes into Receivership, it is due to mismanagement, cash flow problems or new ownership - issues that are not always clearly communicated to staff. Upon attendance at the company, the team ensure that their presence is explained as well as outlining the process to the current ledger staff. Sensitivity must be a key factor when dealing with employees, and although advice on account history is useful, it is often not proffered or expected due to these circumstances. As a result of this, constant communication is kept with the Credit Controller concerned to advise on any dispute resolution.

Once all relevant documentation is retrieved, a review is carried out and a report of the findings will be provided to the bank and advisors. Discussions will then take place to agree the recovery process, including letter and telephone activity and notification of daily remittances.

During the recovery process, the contact established with the customers provides an excellent opportunity to verify outstanding and current invoices, whilst chasing overdue debt. This information is then recorded and provided to the bank and their advisors at agreed regular intervals.

One of the issues facing the financial mediators and administrators is that the relevant bank can demand progress and creditors reports at any time, with little or no notice. To assist in this, an online facility provided by the team allows accounts to be checked at any time, and further instructions to be submitted and actioned almost immediately. To compliment this, any monies recovered must be paid into their dedicated account, so that real-time reports are always accessible.

The administration process is often difficult and confusing, and no more so than for the current customers of the company concerned. When recovery action is taken, it is imperative that any communication made is straightforward and clearly states that the team are acting on behalf of the financial administrators. The aim is to explain why the team is involved  and where payment is to be made, without becoming involved in any disputes that the customer may have. Whilst some confusion is inevitable on the customer's behalf, primarily due to lack of communication from the troubled company, often the amount outstanding is simply an unpaid current invoice which the custome is prepared to pay immediately.

In some cases, where the company concerned has started a new company, trading under another name but with the existing customer base, upon receiving communication from the team, the customers refuse to continue their business until the matter is resolved. In these cases, dispute resolution is the priority for the new company, aiding the recovery process yet allowing the team to remove themselves from the deviation.

When matters fall outside the standard collection recovery, the team will decide whether to introduce legal and court proceedings, takinf full control of the recovery process and removing the issue from the financial mediators.

The key factors in performing a successful ledger collect out are to recover as much as possible, quickly and effectively to meet to meet the bank's expectations. Having the relevant knowledge and experience, and combining this with the appropriate attitude to companies in receivership, can result in large recovered funds as well as becoming a valuable partner to administrators.

The issues facing an outstanding sales ledger whilst in receivership are numerous, but ledger collect outs are proving to be a successful remedy during sensitive and often difficult situations - showing that there is light at the end of the administration tunnel.

For more info, please contact Laura Geall.

True Brits and the Med!

They say that men are from Mars and women are from Venus.

For Incasso LLP clients, though, it seems that men are from Britain and women are from the Mediterranean!

Two client events earlier this year proved the point. Both were held at The Queen's Hotel in Leeds but they were very different in character.

The Ladies' Evening took the form of a Salsa Night with delectable Mediterranean-style food followed by a Sangria aided Salsa lesson. For entertainment there was tuition from three Salsa teachers and then everyone threw themselves (almost literally) on to the dance floor to have a go for themselves.

Meanwhile the Gentlemen's Club event, held a few weeks earlier, was a Best of British Race Night. Here the food was unashamedly British - Yorkshire Trout, British lamb and sticky toffee pudding - and it went down extremely well. Everyone was given £10,000 in fun money to bet on horse, greyhound and even pig races. The most successful punter won a bottle of very good whisky - a great end to a great British night.

Meet Chairman Ron

In addition to his 'day job' as the Department Manager of Incasso LLP, Ron Lack also finds time to act as Chairman of the Northern Region of the Civil Courts' Users' Association (CCUA).

Ron's territory extends from Sheffield into Scotland and it provides him with opportunities to network with other people in the industry, to the benefit of our clients.

"For example, three of our members represent water companies and information about best practice procedures they follow has helped me to pass on valuable ideas to our own water company clients," said Ron.

"We also have financial institutions as members and, again, this has been helpful for our own financial institution clients."

Ron also sees other benefits from his CCUA activities which help our clients generally.

"The CCUA is very active in lobbying for improvements in the law relating to Debt Recovery," commented Ron.

"A good exampleis the Tribunal Courts and Enforcing Bill which is now before the House of Lords.

"We have successfully lobbied to change the Bill so that it gives greater abilites o enforce payments against people who have entered into an arrangement to pay off a debt by instalments. As the law stands at the moment, if someone is paying off a debt by instalments, you are very restricted if you want to apply a charging order on their property.

"They can sell their property and, although they may have funds to pay off the debt immediately, without such an order you cannot enforce it. Once the Bill becomes law, it will become possible to secure a charging order even though someone is up to date with their instalments."

Ron first got involved with the CCUA more than a decade ago, attending meetings every quarter.

"I got increasingly involved in the organisation because I could see the benefits it gave to everybody in the debt recovery industry," said Ron.

Eight years ago he was asked to become Vice Chairman and six years ago he stepped up to Chairman - a position he has held following elections each succeeding year.

"Everyone involved in the organisation, except those in its central administration, give their time free of charge because they believe its work is so worthwhile.

The CCUA is recognised by both the Department for Constitutional Affiars and the courts service as the membership organisation they like to consult on a whole range of issues, such as changes to IVAs and Administration Orders right through to enforcement matters."