The HM Revenue and Customs (HMRC) insolvency and enforcement department in Worthing appears to have an increasing workload.
There are several reasons for this. Businesses are continuing to withhold payment of PAYE and VAT liabilities, hanging on to the cash and using it to prop up their businesses. Fewer Time to Pay (TTP) arrangements are being approved with HMRC who have tightened up the terms for agreeing deferred payments. A lot of TTP arrangements that have been running for some time are failing. And HMRC have resumed using seizure and distraint as a common method for collecting overdue tax.
In view of the increase in enforcement activities referred to above, HMRC are issuing large numbers of Winding Up Petitions (WUPs). Their Petitions dominate the Companies Winding Up Courts with the weekly list of hearings getting much longer.
“The only options for saving a company with a Winding Up Petition are either paying the undisputed amount due or a Company Voluntary Arrangement (CVA)” says one company doctor and turnaround adviser. The Courts are generally happy to adjourn the Petition at the first hearing for a WUP, to allow time to either pay the bill or propose a CVA. However the Registrars who preside over the Companies Winding Up Courts have adopted a hard line at the second hearing when a further adjournment is sometimes sought.
Companies often complain that the insolvency practitioner who is advising them has failed to draft the CVA when more likely they have not paid the necessary fee for proceeding with the CVA.
As a result at the second (adjourned hearing) the Registrar approves the WUP, especially if the petitioning creditor, normally HMRC, says that it will not support a CVA. Not only is it common that no progress been made with the CVA proposal but often no one has contacted HMRC as the petitioning creditor to keep them advised of what is going on.
In early May turnaround advisers, who regularly attend the High Court with clients, observed that there was a significant increase in the number of WUPs. He predicted that this will rise further following the 19 May deadline by when P35s (Annual PAYE Returns) had to be filed with HMRC.
It is not yet clear whether the upsurge in HMRC Worthing’s activity relates to the traditional increase in company failures that has taken place after the last few recessions when the market begins to grow, or whether the downturn is continuing and companies are just not able to hang on any longer.
In spite of the harder line over TTP arrangements, there is considerable evidence that HMRC are supporting the rescue of companies via CVAs. They are expecting CVAs to be realistic with proposals demonstrating fundamental change to ensure survival rather than continuing the old business model with yet another deferred payment proposal.
It is however imperative that the directors of a company in difficulties act urgently if they want to save their company by proposing a CVA, and that they or their advisers keep HMRC fully informed
Turnaround adviser Martin Pocock, of K2 Business Rescue, considers whether the upsurge in activity at HMRC’s insolvency and enforcement department in Worthing is a sign of the traditional post-recession business failures or a sign that the downturn is continuing.