Director of Tax
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Phoenix companies - is this a new record?

A timber frame company went bust recently and I checked out its directors. During the course of the past ten years, they co-ran 16 current or recently dissolved/liquidated companies (most are set up and then quickly dissolved as it happens, and one of them had three further companies too).

Is this a record? 

I am aware from evidence at one of the recent creditors meetings that the directors know exactly what they are doing but I am quite curious see how phoenixing on this scale can be justified by any firm accountants. 

So, has anyone worked for the firm of accountants who advised on this set up, or one like it? Obviously I can see that you have been doing very well abusing ESC C16 and according to what published accounts are around, I note that you were not keen on accounting for work in progress either, but tell me, how did you ever calculate how many associated companies to put in the corporation tax comp?

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15th Sep 2010 16:58

Having a bad day Nichola?

Perhaps you could complain to the Institute about their regulation of the accountants who are on the gravy train that is called the Insolvency Industry.

These accountants certainly give us non-members a bad name.

 

 

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15th Sep 2010 22:56

only one answer

It's a legal loophole that will continue to be exploited until things are toughened up.

One part answer should be that if a company is disolve /liquidated its directors - all of them - are automatically barred from being directors of any company for a period of, say 5 years or until such time as every creditor has been paid in full. 

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16th Sep 2010 10:25

That's quite a good one

In my experience, the Official Receiver does little to investigate directors. A liquidator is best equipped to raise issue concerning directors, but will be disinclined to do so as there is no money in that for him.

There are a huge raft of measures contained in the Insolvency Act which should and could be used by liquidators to fine or even lock up fraudsters. However there are not quite so many measures for creditors to allow direct action, basically the creditor has to prove that the directors have been making transactions as an undervalue, or that the directors have set up a company with a similar name.

The problem for the creditors is gathering evidence, an individual cannot force the liquidator to do anything and the courts are not interested in getting involves with liquidators (surprisingly few cases as it goes).

Bad day? Well it occurs to me that it is utimately in the interest of insolvency practitions to allow rogue directors to go free so that they can start the process again.

So individual creditors need more rights perhaps, however, there should be some standard work program that liquidators should follow, and if the boxes are all not ticked for a director, instant disqualification - five years as you suggest.

 

 

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16th Sep 2010 13:36

Is this a record also?

I'm pleased you share my scepticism about the actions of some IPs - IPs that hide behind the figures produced by the directors, often with poor or non-existent records, and produce reports with no professional judgement involved.

I've recently had involvement with a company that entered a CVA on 25 June 2010 with no doubt a juicy fee for the IP who probably justified this arrangement on the basis that a number of jobs were being saved. The company ceased trading exactly 3 weeks later and the same IP (with a different colour hat on this time around) appointed for the liquidation. Can anybody beat this?

 

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17th Sep 2010 10:41

A little harsh at times?

An automatic 5 year disqualification for any director of a liquidated company is as ludicrous as the current regulations though. One failed company could take down dozens of others, which in turn could take down yet more as the bad debts work there way down the chain. Should the poor unfortunate at the end of the line also be disqualified??

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17th Sep 2010 10:47

lack of enforcement

I have personally complained to the DTi about the actions of some Directors involved in an insolvent company that cost alot of creditors money only to find they were already a phoenix company.

response- no interest whatsoever. The rules are there to punish with director disqualification, they just cant be bothered to enforce it

 

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17th Sep 2010 12:26

Automatic disqualification

Some judgement would be essential ahead of a 5 year ban because it would be patently unfair if you are forced to go under because your main customer goes bust. However, in a lot of these cases the business becomes insolvent because the directors have diverted the profitable activities into another entity ahead of legal action by creditors.

The current problem is that the insolvency service or IP seem to adopt a completely blinkered approach so whilst someone might raise an objection if a creditor is settled in preference to another or if there is obviously a transaction with newco at an undervalue, the fact that the trade has decreased prior to liquidation and a new co has started up and is trading profitably seems to be glossed over.

Anyway, so send me examples of any situations you see as the urge to write an article about this is irresistible, not least from the tax perspective and HMRC's Tax gap. The time is ripe for a review.

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17th Sep 2010 12:44

No I don't think it is a record

No, I don't think it is a record, but people with that many failed companies quite often get banning orders.

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17th Sep 2010 13:52

Publicity may be the answer

Perhaps these directors could/ should  be disclosed on a website with the number/list of failed/insolvent companies to their name.   A sort of "Pheonixers' League Table". The names of directors of companies at point of insolvency is surely public info and could be reproduced in more readily searchable form.  (Co House must have the data,  I woinder if you acn get a feed of the directors of liquidated companies and at what cost?)

If people were able to search on this by name/ locality/industry it could be very useful and form part of any businesses due diligence on new customers.

The problem here seems to be that they 'get away' with it time after time with lots of damage done and victims accumulated before any serious action is actually taken or bans imposed. Knowing there would be publicity at a local/industry and national level might have an impact until such time as changes are made to toughen the law.

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17th Sep 2010 14:10

Phoenix rising

I absolutely agree. Should apply to LLPs as well.

When we. as taxpayers, are having to foot the bill for the redundancy payments to the unfortunate staff laid off. then it focuses the mind somewhat.

If they can afford to set up again, then they should be made to use any funds to pay off the creditors. After all, it is often the ineptitude of the directors which caused the problem in the first place & they should be made to suffer some sort of financial hardship. If they are setting up company after company to avoid settling the creditors, that is a positive action not a consequence of having made a mistake.

With regard to accountants condoning this sort of activity, when it is the accountants themselves who are 'phoenixing' then it is difficult for them to criticise or discourage their clients from doing the same thing. Not that I know of any such firm ..............

 

 

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17th Sep 2010 14:11

Phoenix rising

I absolutely agree. Should apply to LLPs as well.

When we. as taxpayers, are having to foot the bill for the redundancy payments to the unfortunate staff laid off. then it focuses the mind somewhat.

If they can afford to set up again, then they should be made to use any funds to pay off the creditors. After all, it is often the ineptitude of the directors which caused the problem in the first place & they should be made to suffer some sort of financial hardship. If they are setting up company after company to avoid settling the creditors, that is a positive action not a consequence of having made a mistake.

With regard to accountants condoning this sort of activity, when it is the accountants themselves who are 'phoenixing' then it is difficult for them to criticise or discourage their clients from doing the same thing. Not that I know of any such firm ..............

 

 

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17th Sep 2010 14:57

Too true

Especially if you drag HMRC into the picture!!!

They are liquidating companies left right and centre at the moment (without giving sufficent time to allow the owners to raise funds - but that is another story). They often cause a chain collapse with no thought soever given to the devistation that might cause and the enivitable cost the the public purse which far outstrips the monies (if any) recovered from the initial liquidation.

HMRC should be bound by some form of financial accountability for their actions and if not followed, they should be subject to malfeasance in public office charges.

As for Insolvency Practitioners ...... don't get me started! 

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17th Sep 2010 16:06

Not harsh at all
An automatic 5 year disqualification for any director of a liquidated company is as ludicrous as the current regulations though. One failed company could take down dozens of others, which in turn could take down yet more as the bad debts work there way down the chain. Should the poor unfortunate at the end of the line also be disqualified?? 

Posted by keithsharvey on Fri, 17/09/2010 - 10:41

 

I totally disagree with your analysis.

1) If directors were banned until all creditors were paid there would be far fewer companies being liquidated to begin with.

2) Creditors would get paid, albeit over a period of time, which is more than they get now.

3) The cowboys who repeatedly walk away from debts would be out of business so not able to take others down with them.

4) Any business which becomes insolvent because just one of its customers goes out of business really shouldnt be trading.  Only a fool puts all his eggs in one basket.

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20th Sep 2010 08:05

Hang em high?

"The cowboys who repeatedly walk away from debts would be out of business so not able to take others down with them."

Really? Do directors who are currently disqualified not find a way to trade anyway?!

I think that the solution is harsher sentencing than just disqualification for what is essentially fraud.

Agreed that this shouldn't cause chain liquidations, people should take advice from a good accountant and ensure they are not dependant on one customer or suffer the consequences.

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By thomasb
01st Oct 2010 14:46

Name 'em and shame 'em

Publiclicy outing them is about the only thing you can do. God bless the Internet !

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