Banks beware

As insolvencies rise – beware the Revenue man*

A tougher and uncompromising approach by HMRC is forcing banks to declare more liquidations, warns DAVID HUNTER, Head of Campbell Dallas Insolvency.

The number of companies entering liquidation in England during 2009-10 is set to be the highest since 1992 according to Companies House figures obtained by Campbell Dallas, an independent accountancy firm.

In 2008-09, 23,500 companies went into liquidation and this figure is expected to increase by some 9% to over 25,600 in 2009-10. This will be the largest number of company failures since 1991-92, when 27,300 businesses were put into liquidation as the UK started to emerge from the last major recession.

Separate data from the Registrar of Companies in Scotland show the historic figures for Scottish liquidations remain at a much lower level, despite the recent economic downturn. In 1991-92, there were 862 Scottish liquidations, almost 2% of the approximately 53,600 active companies on the register.

The comparable figures for 2009-10 show there were 1,057 liquidations in approximately 132,000 active companies, less than 1%. Indeed insolvencies in Scotland have actually halved as a percentage of the number of active companies because the number of active companies has almost trebled.

The Registrar of Companies in Scotland produces quarterly figures which give another perspective: liquidations in the quarter to 31 March 2010 have increased over the same period last year by 44% to 325. Receiverships have reduced by about one third and administrations have increased by 18% to 92 administrations within the quarter.

These figures are not entirely unsurprising but will relate to different underlying causes. What we’re seeing in Scotland is an increase in administrations as the recession improves slightly and makes the recovery of borrowings more viable. In other cases, the recession has been around for so long, particularly in the property sector, that relations between directors and banks have become strained needing an external Insolvency Practitioner to protect the banks’ and creditors’ interests.

The increase in liquidations also reflects a change in HMRC’s attitude towards payment plans which are becoming much more difficult to obtain. Indeed, this change in attitude and an uncompromising drive towards court liquidation for errant tax payers is forcing banks to take formal insolvency action in cases where they might have preferred to work out a better solution all round.

A number of companies who ignored impending HMRC legal action at their peril have been faced with a totally inflexible and unsympathetic response to 11th hour rectifying action which may have been appropriate at an earlier stage.

However HMRC has no wish to upset the Courts by being seen to use the Court process as a debt collector of last resort, cocking the gun of liquidation (or sequestration/bankruptcy) only to withdraw upon part payment or commercial compromise. They also seek a punitive consequence for extreme tardiness.

Unfortunately if you do want to negotiate on commercial grounds with HMRC, it is almost impossible to do at an earlier stage as the Collections Departments are now solely interested in 100% collection and seem to have no negotiating leeway.

Bankers beware: unco-operative directors have now become less of a problem than intransigent Revenue officers.

*Sponsored article
Campbell Dallas LLP is a leading independent firm of Chartered Accountants in Scotland. The firm is the Scottish associate of UHY International.
For more information or advice please contact David Hunter on 0141 887 4141 or email david.hunter@campbelldallas.co.uk
Offices: Aberdeen | Bearsden | Paisley | Perth | Stirling www.campbelldallas.co.uk

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