CreditFILE April 2010

Brethertons Commercial Collections team have made it to the last four of the Credit Today Awards for the litigation team of the year. The awards are presented on the 13th May. The shortlist as published on the Credit Today website is :-

• Brethertons
• HL Legal & Collections
• Incasso
• Moon Beever
• Pannone

We hope the list is a good omen and that we are on top on the night…….and that it has nothing to do with the alphabetical order!

Brethertons ICM Examination Help! - 29th May 2010

Brethertons are hosting the Institute of Credit Management National Revision Day on 29th May 2010 at our Banbury office. Click here for a booking form. Please note that some ICM branches are even covering the cost of the revision day for its student members attending.

The revision day will consist of  three hours of quality revision per subject
Proposed schedule:

Morning Session 9.30am-12.30pm
Business Environment, Advanced Credit Management, Accounting,
Legal Proceedings & Insolvency
Afternoon Session 1.30pm – 4.30pm
Business Law, Law of Credit Management, Credit Management

Institute Of Credit Management Northampton Branch

Brethertons Head Of Commercial Collections Jackie Ray has been elected Chair of the ICM Northampton Branch. Jackie says that the ICM is a great organisation providing training and education for credit managers.

The Insolvency Service - Increase Winding Up and Bankruptcy Deposits

From 6th April 2010 the Creditors deposit for an Winding Up Petition to from £715 to £1000 and Bankruptcy from £430 to £600 for more information see www.insolvency.gov.uk

Companies Act 2006

The Brethertons team have received a number of enquiries regarding Clients ‘credit watch’ services flagging up adverse information. The adverse information is the changing of directors’ addresses from their home addresses to service addresses. The directors are taking advantage of the provision in the Companies Act  2006 allowing directors not to disclose their home addresses. Brethertons advice is to ensure that if any personal guarantees are used to ensure that a home address for the director is obtained. For more information see www.companieshouse .gov.uk

Changes To The Rules Of Service For Insolvency Procedures

Witness statements will now replace affidavits as evidence of service and verification.

Pre-Pack Administrations

Pre-packs are a buzz word at present.  They are generating lots of heat and discussion in the insolvency world and in the media at the moment.  However, if used properly, they can be an effective tool in ensuring that an insolvent business can continue to operate in a new form, ensuring continued use of productive assets, saving jobs and providing a better return to creditors.

A pre-pack is an agreement for the sale of the business or assets of an insolvent company which is arranged prior to the company entering into administration or possibly liquidation.  An agreement is reached for the purchase of the business or assets before the formal appointment of the administrator or liquidator and is completed immediately after the appointment of the administrator or liquidator takes place.

The aim of the pre-pack is to preserve the value of the business, particularly the goodwill.  They are particularly appropriate where either the customers or employees of the business could leave the business if they became aware of the company’s potential insolvency or where continued trading is dependent upon retaining the ongoing contracts with customers.  Pre-packs are also used where there is a lack of available funds to keep the business trading whilst the administrators looks for potential buyers so that the administrator is unable to trade the business himself.  Because of the need to deal with a sale of the business quickly, the business is often sold after limited marketing and no consultation with unsecured creditors. 

Secured creditors need to be informed of the proposed sale of the business or assets as agreement will need to be obtained for them to release their security.  The buyer is often a company which has been set up by or is associated with the directors of the insolvent company. 

The courts have ruled that an administrator has the power to sell the company’s business or assets before the creditors’ meeting without the leave of the court in appropriate circumstances.  This is so, even where the majority creditor opposes the pre-pack.

Before he can market the business, the proposed administrator will need to obtain a valuation of the business on a going concern and forced sale basis in the usual way.  The administrator will use specialist valuers where appropriate.  Given that the main justification for a pre-pack is the likely dissipation in value in the event that an administrator trades the business, the valuation takes account of the goodwill on a going concern basis. 

The IP will also establish the value of the ongoing contracts, the potential difficulties in trading the business and the factors which would lead to a diminution in goodwill before deciding whether it is appropriate to market the business.

Most businesses have a limited market of potential purchasers.  This applies whether the business is a multinational corporation or a small or medium enterprise operating in a local market.  It is important to identify the market in which the business is operating and then assess whether there is a pool of competitors, suppliers or customers who would be interested in acquiring the business.

In some instances, the market can be very small indeed.  The local nature of the business may mean that the pool of potential purchasers will be in low single figures.  Alternatively, the business may operate in a geographic area in which a competitor from another part of the country is looking to expand.  IPs take advice from agents as to the most appropriate media to be used to market the business.  As time constraints are usually tight, it may only be possible to advertise the business once eg in the Financial Times or in the appropriate trade press.  The IP will also consider whether to approach competitors and suppliers direct to see whether they are interested in purchasing the business.

Often, the directors of the insolvent company are best placed to make an offer for the business as they have a detailed knowledge of the business and assets and their value.  In many instances, they are the only party interested in buying the business and assets of the insolvent company.  Ideally, the IP will ensure that he explores other possible sale opportunities before entering into negotiations with the directors regarding the proposed sale.

The main criticism of pre-packs is that they are not transparent.  This is because unsecured creditors are not involved in the sale process due to the commercial pressures which require urgent action to be taken to sell the business.  However, the administrator is required to give full details of the sale including an explanation and justification as to why the pre-pack was undertaken so that the creditors can be satisfied that the administrator has acted with due regard for their interests.

Possession is 9/10ths of the Responsibility 

When someone holds goods belonging to someone else, (a ‘bailee’ in legal terminology), that person owes the other person a duty of care. A recent case shows that such responsibilities should not be taken lightly.

The circumstances were that a company named Matrix had sent 5,000 Bluetooth adaptors worth £375,000 by airfreight to Hong Kong. It used a company called Birkart to ship them. Birkart’s subcontractor mistakenly delivered them to a warehouse belonging to Uniserve. They were stolen from the warehouse. Matrix sued Uniserve and Uniserve sued Birkart, Uniserve alleging that there was an implied contract between it and Birkart which was governed by the standard British International Freight Association terms.

Uniserve was not involved in the transaction but became a bailee. It therefore had a responsibility to the owner of the goods (Matrix) to exercise reasonable diligence and skill to prevent the theft.

The legal arguments were many and varied, but the court ruled that as Uniserve was a bailee, it bore the burden of proof to show either that it had taken all reasonable steps to take care of the goods or, if it had not done so, that the failure was not what caused their loss. The judge enumerated a list of failures by Uniserve which persuaded him that had the company acted correctly, the goods would not have been stolen but would have been collected by Birkart and delivered to the airport the same day. Accordingly, Uniserve’s procedural failures caused the loss and it was therefore liable to Matrix.

Uniserve’s claim against the carrier failed. There was, as a matter of fact, no contract between it and Birkart.

The importance of this case is that it emphasises that responsibilities can arise unintentionally. In similar circumstances, you should make sure that action is taken promptly to advise those involved of the error and ensure that the goods are protected. If such circumstances are a possibility, it is also worth reading your commercial all-risks policy carefully to check that your insurance covers you.

Freezing Orders

As anyone who has ever tried to collect a debt knows, there is a big difference between obtaining a judgment on the debt and obtaining payment.

In difficult cases, one of the ways a debtor can be encouraged to pay is by obtaining a freezing order against his or her assets: this is a court order which prevents the subject of the order from disposing of assets or removing them from the country. It is often described as a ‘nuclear option’, because of the effect it has on the subject of the order, and is only granted in serious cases. If an application for a freezing order turns out to be inappropriate, it is normal for the applicant to bear both their own and the debtor’s legal costs.

To obtain a freezing order, the person owed the money will firstly have to establish that there is a good case for a sum being due and then show that there is a real risk that the debtor will dissipate the assets over which a freezing order is sought.

Webinars- Free Training For Your Staff at Your Office

Our 2010 Webinar training programme has been published. Webinars are a great way to train your staff without leaving the office and what’s more they are FREE! The presentations will last about 1hour and will be followed by the chance to ask questions, raise specific topics and share opinions.

• Overpayment of Salaries - The Right to Recover
  Date: 3rd June 2010
• Insolvency - In a Nutshell
  Date: 20th July 2010
• Retention Of Title In A Nutshell
  Date: 21st September 2010
• Terms And Conditions In A Nutshell
  Date: 10th November 2010

To participate you need an internet connection and a telephone. You will hear the speakers through the telephone and see interactive slides/graphics on your computer  as the speaker makes the presentation.

Click here for a booking form and for more details