IPS and Insolvency Update
Welcome to the fourth IPS and Insolvency legal update. This covers an update on the provision of RTI and feedback from users and HMRC. Turnkey Creditor Portal Phase 2 launch and the ERA and Tax/Ni limits from April 2015.
RTI User and HMRC Feedback
With regards to RTI and the FPS submissions, we have been contacted by a number of users who have spent very lengthy periods on the phone trying to get information from HMRC on certain aspects of the process, including something as simple as obtaining a new PAYE Reference etc for the insolvent company. We decided to follow through on some of the points of concern and although it has taken quite a few reminders to obtain a response, we can now publish the information received for the benefit of all of our users. We have also kept R3 advised on these matters. If users can continue to make us aware of any difficulties with this process we are more than happy to raise these with HMRC and publish further advice as appropriate.
- An assurance was requested that a retrospective FPS will not inadvertently generate a demand for payment as the Tax and NIC will of course already have been paid over when the original dividend was paid;
For any retrospective FPS HMRC will already have received the payment and allocated against the appropriate scheme reference. The FPS will indicate a cessation date, so this and the payment will stop any automatic demands for payment.
- With regards to current submissions, we requested clarification on what should be sent to HMRC if the payment is made by cheque to absolutely ensure that the payment is linked and processed against its associated FPS. We asked do they require the IP’s Accounts Office Ref, the PAYE Ref and perhaps the date of submission of the FPS and should the payments be sent to one central processing unit. If so, we asked for confirmation of the correct address;
Paying HMRC will be the same as if it was a normal trading company, a link to the options for paying is attached. https://www.gov.uk/pay-paye-tax/by-post You will see from all the options for payment the 13-character Accounts Office reference number is required.
- We asked which department should firms contact and what details are required in order to set up new schemes for cases where dividends are to be paid?
Here’s a link to how to “Register as an employer” https://www.gov.uk/register-employer. HMRC’s joint publication with R3 covering detailed information required and how an IP can register for a new scheme by contacting HMRC Employer Helpline Tel no. 0300 2003200. I’m aware IP’s have encountered some difficulties contacting this number, but I’m given to understand their guidance has now been updated, and IP’s are able to get the schemes setup this way.
- Coupled with point 3 above how do users get the Logon Sender ID and Password? Are these issued per firm or per case please?
These are issued at the same time as the new scheme is registered. These are issued per scheme.
- Another user was advised that if they do not use a PAYE Ref issued within six months there might be financial penalties and/or a requirement to commence the registration process again; and
This would be true, however the IP should only request the new scheme reference when they are about to make a distribution and deduct the TAX / NIC. If in a year a further FPS needed to be issued on the same case, the same reference can be used, as on submission the scheme would be resurrected.
- Another user successfully uploaded an FPS for a current dividend but then received three PAYE / NI credit books for the case even though ‘the scheme has ceased’ date was automatically updated by IPS on submission. This is causing some concern that fines might be imposed for failure to submit monthly returns for what was perhaps being considered as an open payroll scheme by HMRC.
This is being investigated
Portal Phase 2 Launch
Phase 2 of the IPS Creditor Claims Portal is now available for IPS users to evaluate, free of charge, until end June 2015. The entire claims process can now be managed online, offering you huge time and cost savings. As demonstrated in our video, the Claims Portal is efficient, secure and exceedingly simple to use, just follow the link below to see how you can start uploading documents today. There is no sound on the video, simply subtitles to enable easy viewing within office environment.
Using the Creditor Portal
A ‘step by step’ guide is also available showing the Phase 2 enhancements. These include managing Creditors’ Meeting Announcements and enabling on-line voting and submission of creditor claims via the portal. If you wish to obtain a copy please contact:
We are certain you will find the interactive portal process to be an extremely cost-effective, faster way to manage your cases (with no need for paper, postage etc.). But why not take this opportunity to try it out and assess the benefits for yourself?.
As always, your feedback is much appreciated. All comments and suggestions for further development are welcome and we look forward to hearing what you think.
ERA and Tax/NI Rate Changes April 2015
ERA rate for England, Wales and Scotland increases to £475 with effect from 6 April 2015. At the time of writing this blog, there have been no changes published to the date and rate for Northern Ireland
Tax and NIC
For 2015/16 the relevant bands are £31,785 (previously £31,865) and £150,000 and so the calculation will be on the following table:
|Weekly paid||Monthly paid|
|20% on the first £612||20% on the first £2,649|
|40% on £613 to 2885||40% on £2,650 to £12,500|
|45% on £2886 and over||45% on £12,501 and over|
NIC rates effective from 06/04/2015 (rates remain the same but small changes to bandings) – Nil to £155 (previously £153), 12% from £155.01 to £815 (previously £805) and 2% on amounts greater than £815. Monthly rates – Nil to £672 (previously £663) 12% from £672.01 to £3,532 (previously £3,489) and 2% on amounts greater than £3,532
Insolvency and restructuring legal briefing
We would like to thank MacDonald Henderson solicitors for their efforts in making this possible.
INSOLVENCY AND RESTRUCTURING BRIEFING – JANUARY/FEBRUARY 2015
England & Wales
Winding-Up – HMRC and VAT assessments
In the case of Parkwell Investments Limited v Wilson & Another  ewhc 3381 (Ch), it has been held by the High Court that HMRC can properly present a winding-up petition on the basis of an unpaid VAT assessment, even if the assessment has been appealed to the First-tier tribunal.
HMRC may issue a VAT assessment if it considers that a company has filed an inaccurate VAT return and has underpaid VAT as a result. The company is entitled to appeal to the tribunal. Pending a successful appeal, however, the sum of VAT assessed by HMRC is a debt due for payment by the company to HMRC.
A winding-up petition raised and which purports to be founded upon a debt which is disputed on bona fide and substantial grounds may be dismissed immediately. Winding-up proceedings are not a forum for resolution of commercial disputes. A petitioning creditor may be required to raise an action for payment with a view to the dispute being determined and a judgment for payment of the debt granted in its favour, before it may apply for the debtor’s winding-up.
In this case HMRC had issued a VAT assessment to a company (“the Company”). The Company disputed the assessment and appealed to the tribunal. HMRC subsequently raised a winding-up petition founded on the unpaid assessment. The petition had also included a successful application for the appointment of a provisional liquidator, on the basis that HMRC contended that there was significant risk of dissipation of the Company’s assets prior to the ultimate hearing of the petition.
The Company’s position was that the assessment was, on the basis that it been appealed to the tribunal, subject to a genuine and substantive dispute. The Company’s primary position was that the Court had no jurisdiction to hear the petition until the tribunal had determined the appeal. The Company applied for an order dismissing or at least staying the petition. The Company also sought to have the provisional liquidator removed from office.
The Court held that it had jurisdiction to hear the petition and that, pending the ultimate hearing of the petition, the appointment of the provisional liquidator should continue.
The Court did not accept that the lodging of an appeal as a matter of necessity obstructed the progress of a winding-up petition by HMRC. If that was the case then it would mean that a company could, regardless of the merits of any appeal, prevent a provisional liquidator from being appointed in circumstances where there was real risk of dissipation of assets. The Court reviewed the evidence presented by the Company as supporting the appeal to the tribunal, and judged that it was highly likely that the appeal would fail and the Company would ultimately be wound-up.
The extra-ordinary position of HMRC was emphasised by the Court. HMRC in exercise of their specific public function of recovering public revenue are not considered as ordinary litigants.
Winding-up – foreign companies
The High Court held, in the case of Buccament Bay Ltd and Harlequin Property (SVG) Ltd  ewhc 3130 (Ch), that it could not wind-up a foreign company.
A company formed and registered in a foreign jurisdiction may be wound-up under Section 221 of the Insolvency Act 1986 as an unregistered company.
The discretion of the Court to do is treated with caution. The Court will consider if there is a more appropriate forum and the Court may exercise its discretion and grant a winding-up order only if it is satisfied as to the following circumstances:-
- There is sufficient connection with England & Wales.
- There is a reasonable possibility that a winding-up order will result in benefit accruing to those applying for the winding-up order.
- One or more persons with an interest in the distribution of the company’s assets is subject to the jurisdiction of the Court.
In this case the creditor companies (“the Creditors”) sought the winding-up of two companies (“the Debtors”) which were incorporated in Saint Vincent and the Grenadines (“SVG”).
The Court were satisfied that elements numbered 1 and 3 above had been satisfied. While the debts related to contracts for the sale of property in the Caribbean and were governed by SVG law, the sole director and shareholder of the Debtors lived in England and attempts to restructure had also been made in England. The Court was therefore satisfied that there was sufficient connection and an interested party was subject to its jurisdiction. However, the Court was not satisfied that there was reasonable prospect of the Creditors benefiting from the grant of a winding-up order.
An English winding-up order would not be enforceable in SVG; there was no SVG legislation facilitating cross-border cooperation in an insolvency context; and a liquidator appointed by an English Court would face great practical difficulties in gaining control of the Debtors’ assets. The Court also considered that SVG would be a more appropriate forum.
The case serves as a reminder that the Court will not exercise its discretion unless satisfied in respect of all three aspects of the test including that it must be persuaded of some practical benefit to those asking it to exercise its discretion.
Bankruptcy – Pensions and IPOs
In the case of Horton v Henry  EWHC 4209 (Ch), the High Court held that a pension not in payment could not be subjected to an Income Payment Order (“IPO”).
The Court declined to follow the earlier decision of the High Court in the case of Raithatha v Williamson  EWHC 909 (Ch) in which the Court reached the opposite conclusion on an indistinguishable set of facts.
A trustee in bankruptcy may apply to the Court for an order compelling the bankrupt to pay some or all of the bankrupt’s “income” to the bankruptcy estate.
Payments made to a bankrupt under a pension which is in payment constitute “income”, and may be subjected to an IPO.
However, the question in both of the cases referred to was if a bankrupt was entitled to draw income from a pension during the currency of the bankruptcy, but had not elected to do so, then could the potential income under the pension be made subject to an IPO?
Mr Henry (“the Bankrupt”) became bankrupt in December 2012. The Bankrupt’s assets included four pension policies. Throughout his bankruptcy, the Bankrupt was entitled to draw his pension but chose not to do so. The day before the Bankrupt’s discharge, the Bankrupt’s trustee applied for an IPO seeking a share of lump sum payment and income from the pensions.
Section 310(7) of the Insolvency Act 1986 defines “income” of a bankrupt as follows:-
“payment in the nature of income which is from time to time made to him or to which he becomes entitled …… and …… any payment under a pension scheme….”
The Court held that pensions not already drawn/in payment could not be said to be payments to which the Bankrupt was “entitled”.
The word “entitled” suggested a reference to a pension in payment under which definite amounts had become contractually payable. In order for the Bankrupt to receive sums under the pensions, he would have to make a number of decisions and elections. In the absence of, the Bankrupt having done so, payments were neither certain or contractually payable.
Further – on the basis that the pensions did not form part of the bankruptcy estate, the Court held that the trustee in bankruptcy was not entitled to make any decision on behalf of the Bankrupt and elect that the pension be drawn.
Although the circumstances were indistinguishable from Raithatha, the Court noted that it was satisfied that Raithatha was wrongly decided.
The decision in Raithatha had been met with surprise, given its contradiction to prior practice which operated on the assumption that an undrawn pension was beyond the reach of a trustee in bankruptcy, and its apparent inconsistency with the underlying aim of the Welfare Reform and Pensions Act to protect pensions from bankruptcy.
The Court’s approach appears to have reverted to the former. A decision of the Court of Appeal would, however, be helpful…
Administration – Validity of Appointment
In the case of Eiffel Steel Works Limited, Re [unreported], the Chancery Division held that although a failure to give notice of the proposed appointment of administrators to the members of the company was arguably a defect in procedure, the administrators’ appointment was not a nullity. The appointment was declared to be valid as there had been no ascertainable prejudice.
Joint Administrators (“the Administrators”) applied for a declaration that their appointment was valid.
The company’s directors had unanimously resolved to appoint the Administrators. The company’s parent company had been aware of and consented to the appointment. The issue was whether a failure to serve notice of intention to appoint invalidated the appointment.
Notice of intention to appoint should have been given to the “company” under the Insolvency Act 1986 Sch.B1 Pt 4 para.26(2) and para.26(3) and the Insolvency Rules 1986 Pt 2(4) and R.2.20 to 2.22.
The Administrators argued that even if notice had been required, the failure to give notice had not rendered their appointment a nullity.
The application for a declaration was granted.
The company owners had been fully aware of and fully approved the decision to appoint. There had been no ascertainable prejudice of any kind. In the circumstances, there was no substantial, irremediable injustice which (under R.7.55 of the Rules) would cause the insolvency proceedings to be invalidated by any formal defect or irregularity.
Bankruptcy – Petition and DRO Thresholds
On 15 January 2015, business minister Jo Swinson announced changes to Debt Relief Orders (“DROs”) and the bankruptcy creditor Petition limit.
As of 1 October 2015:-
- DRO liability limit will increase from £15,000.00 to £20,000.00;
- The DRO asset limit will increase to £1,000.00 plus a vehicle (worth not more than £1,000.00);
- The maximum surplus income a person can have and apply for a DRO will remain £50.00; and
- The minimum level of debt that can trigger a bankruptcy will rise from £750.00 to £5,000.00 (the first change to the bankruptcy creditor petition limit since 1986).
The Insolvency Service reports that as a result of these changes it expects an additional 3,600 people per year to be eligible for a DRO. More than 140,000 people have entered DROs since the scheme was introduced in 2009.
Changes to Scottish property law
Sweeping changes to Scottish property law have been introduced by the Land Registration (Scotland) Act 2012.
These changes will affect insolvency sales and all others alike.
One of the principal changes is the introduction of the concept of “advanced notice”.
Under the previous system – there was risk that between title searches being provided / the sale completing and the purchaser’s title actually being registered, there was risk of registration of a competing title. The solution was that the seller’s solicitor would issue a “letter of obligation” which essentially provided indemnity of good and marketable title in favour of the purchaser provided that the purchaser’s title was registered within a specific period.
In terms of the new system, a solicitor may now register an “advance notice” which will prevent any competing application for registration being registered within a period of 35 days. Letters of obligation will no longer be required.
In an insolvency context, the following implications should be noted:-
- In a sale out of an insolvency, the seller’s solicitors would typically refuse to grant a letter of obligation. The purchaser would require to obtain a title indemnity in order to protect their position. The advanced notice system will now provide protection and obviate the need for such title indemnity. This can only hopefully aid the smooth running of such transactions.
- Advanced notices lodged prior to the appointment of an IP will be a readily available indicator of any proposed transactions in the period immediately leading up to the date of appointment.
- In any scenario where an IP wishes to complete a quick sale and there is a pre-existing advance notice already registered, the IP will have to be aware that the notice will have to either be withdrawn or allowed to lapse before a sale can progress.
Debt Arrangement Scheme – Open for Businesses
Certain businesses in Scotland may now have access to the Debt Arrangement Scheme (“DAS”).
Formerly, DAS was available only to individuals (albeit, including sole traders). The Debt Arrangement Scheme (Scotland) Regulations 2011 extend the application of DAS to a number of further legal entities.
Partnerships, limited partnerships, trusts, incorporated bodies (other than those registered under the Companies Acts) and unincorporated bodies of persons can all now access DAS.
Any such entity will have to have more than one debt. So far as partnerships are concerned, the consent of all partners would be required. A limited partnership would require to secure the consent of all general partners, together with limited partners if they have at any time been involved in the management of the business. A majority only of trustees would be required in respect of a trust. With regards to incorporated and unincorporated bodies, applications will be presented by a person with authority to act on behalf of the body.
The intimation procedure, applicable to the existing DAS, will also be available. Applicable businesses will therefore be able to secure a six week moratorium, during which creditors would not be able to execute diligence or raise a Petition for Sequestration.
In order to be acceptable, any payment proposal would have to provide for completion within a maximum of five years.
The change will provide these forms of businesses – who, like individuals, may be subject to a Petition for sequestration but, unlike individuals, did not formerly enjoy the possibility of the protection of DAS – with a potential route to rescue.
This briefing does not constitute legal advice. Separate legal advice should be taken as required.