Debentures and legal status

[Lynnzer]

For sake of anonymity I will keep the details of my friend from the forum, however she has had a real rough year with her shop this year.
The council closed the road that runs past it for 4 months for major road and sewer reconstruction so this had a consequence of decimating her business.

She's now really worried about the way out of this mess.
HMRC are chasing for VAT payments from earlier periods and have now passed her case to the highest level, ie legal consideration. She was told that she would likely have a distraint order issued which would result in them taking her stock for auction, and effectively closing her down.
I've been down to see her and as she has a bank loan for the Ltd Company, I checked the loan agreement. It appears that her company assets, both present and future until such time as the loan is repaid, are secured by way of a debenture to the bank.

I've found some literature saying that Distraint is usually only threatened and not actually entered into, and that the very threat of it is a way of ensuring payment over an agreed term. However, in this case, since the bank has a debenture on the assets, this would be a non-starter for HMRC. They cannot put a distraint on goods or assets under a debenture already. So, failing that, it appears that if they want, and if they do not agree on payment terms, they can institute Court Proceedings which would inevitably result in a CCJ and enforceable in the long run by a Bailiff.
Am I right in assuming that a bailiff would also be prevented from seizure of assets when they are under the debenture?
I've also seen mention that clothing would not be the subject of a seizure but I suspect this not the case when it constitutes stock for resale which is her business.
In that case, should it be so, what further action can be taken by HMRC apart from winding up the company which I'm led to believe is something they really don't like doing. I have the opinion that by doing so they will only solidify the debt and have to write it off.
Any further pointers would be most welcome.
I add that she has only been advised so far that her case has been passed to legal so hasn't got any official notification of anything yet, although it won't be long I fear.

The worst thing is that her father is one of the richest men I Yorkshire but won't help out. He's only rich, and I mean mega-rich - houses in Dubai and Shaam el Sheik etc, by being a real tight fisted old Scrooge.

[Sparkie1723]

Re: Debentures and legal status

Basically it is again all down to the have and have nots...........she would more likely than not have a claim against the local Council for loss of earnings ...........but that would cost money she has not got...........she could work out a business plan to present to the Bank if she could show that things would improve and she could get back in to a state of Liquidity The Bank may help .....but with the economy as it is ....despite the Govt saying they will help small business and told the Banks to help ......I doubt if she could IMO .......without her father's help things do look a little bleak for her.......maybe some one more up on things like this than me will have some advice of cheer.

Sorry for being so dismal

Sparkie

[Lynnzer]

Re: Debentures and legal status

Basically it is again all down to the have and have nots...........she would more likely than not have a claim against the local Council for loss of earnings ...........but that would cost money she has not got...........she could work out a business plan to present to the Bank if she could show that things would improve and she could get back in to a state of Liquidity The Bank may help .....but with the economy as it is ....despite the Govt saying they will help small business and told the Banks to help ......I doubt if she could IMO .......without her father's help things do look a little bleak for her.......maybe some one more up on things like this than me will have some advice of cheer.

Sorry for being so dismal

Sparkie

Bleak is the picture al-right. She's in a business that sees the spring and summer months her busiest period so if she can hang out until then she might be OK.
Anyway, the way I see it, even HMRC might not be able to do much in a quick way. She might be offered payment terms or not, but even if they don't do that they couldn't go to distraint for lack of available assets. In which case, if it does go beyond mere payment terms, the court action would take some time.
If it does I would like to know if the bailiff would have any authority to take goods already under a debenture. If not, what then?

Tight dad?
He has a new Merc. The model they use as the pace car in F1, has a Bentley and a couple other cars. He also has a Smart car. He goes out in this on a Sunday and finds the cheapest petrol station around then drives his Bentley out to top it up. He has NEVER even moved the Merc since it was delivered a few years ago. It's still on the front drive, covered in leaves and hasn't even had the engine turned over. It probably won't now anyway. Probably rusted to hell.

He wouldn't help her anyway since he would take that as an admission of failure, and I know she wouldn't ask for exactly that reason. Only bright light here is that he's well into his 80's so who knows... some timely intervention from above may come to her assistance.

[Mrs James]

Re: Debentures and legal status

Hi Lynzzer,

I don't know much about this, but have found this

It is also not usually possible for the bailiff to possess or remove goods that do not belong to the company - if you have a debenture the goods therefore are charged to a bank. Whilst this is not possession bailiffs do not (usually!) want to get embroiled in arguments with high street banks. If the goods are subject to HP then they cannot be taken.

Creditors Legal Actions Explained

[SpringerSpaniel]

Re: Debentures and legal status

re her dad: My grandad was a member of the House of Lords and of Margaret Thatcher's cabinet. He gave a very small amount of help to my mum, who is seriously disabled, but none to any other family members,

When he died he left £4million pounds to a university where he had never studied and never taught. He left me a token amount, the same sum as he left his cleaning lady.

I don't own my own home, I currently work part time and live in a static caravan. I live with disability, although much less severe than mum's. My family say that disability is a punishment from God and they should not help at all, as they would be hindering God from giving me the punishment I must deserve.

It isn't true that families always help !

[labman]

Re: Debentures and legal status

Below are two sites which may help to give you a slightly clearer insight into things:

Tax and other debts owing to HM Revenue and Customs : Directgov - Money, tax and benefits

and

http://www.everymanlegal.co.uk/wpcms...tructuring.pdf

Any issue relating to HMRC necessitates her maintaining communication with them. If she has been avoiding talking to the, I would strongly recommend making contact. They are very understanding normally when people communicate with them, but absolutely ruthless about getting their money. If they can see a way to get their money without the drastic action outlined above (possibly by way of a business plan and summary of previous years' performance), then they may be more willing to compromise over the severity with which she is being treated.

[Lynnzer]

Re: Debentures and legal status

re her dad: My grandad was a member of the House of Lords and of Margaret Thatcher's cabinet. He gave a very small amount of help to my mum, who is seriously disabled, but none to any other family members,

When he died he left £4million pounds to a university where he had never studied and never taught. He left me a token amount, the same sum as he left his cleaning lady.

I don't own my own home, I currently work part time and live in a static caravan. I live with disability, although much less severe than mum's. My family say that disability is a punishment from God and they should not help at all, as they would be hindering God from giving me the punishment I must deserve.

It isn't true that families always help !

Her dad certainly isn't in the House of Lords but has net worth far exceeding the £4M mark I reckon, although she may not find out for some time.
Whether or not God has a part to play in this is beyond me. I ain't a Christian myself and am in fact a true non-believer. Science is unable to validate any such superstitions.
I won't get into that at Xmas though as I do respect those who do have some sort of religion.
Anyway, if there's either a Santa or a God, I know someone who would be grateful for a visit right now.
Let's hope neither of them work part time for HMRC.

[labman]

Re: Debentures and legal status

Whatever the rights or wrongs of it, can I respectfully request religion is left out of this please? Nobody wants anyone offended. :26:

[Celestine]

Re: Debentures and legal status

Agreed, can I start on the Royal family then?!

Happy Christmas to all those struggling at this dreadful financial time xxx

[Lynnzer]

Re: Debentures and legal status

OK then,
things are escalating it seems.
She made a request to pay the outstanding amount, around £17K by weekly payments from the 1st week in January and giving them a complete synopsis of the company history insofar as past turnover and sales etc.

In the meantime she has made the payments suggested and even an increased payment to help clear it quicker.

Nothing was heard until last Friday when she was sent a Notice of Intention of Distraint Proceedings and wouldn't accept anything other than immediate payment to be paid by this Monday gone. The letter was received on the 20th but was dated on the 13th. So a week to get there. And not only that the payment date was the coming Monday. Very useful if another route could have been found such as bank loan. I can see that being sufficient time to arrange on a Saturday and Sunday.......

So, on the Friday a long letter was sent out putting the case fully for her and advising them that Distraint couldn't be carried out due to the debenture.
She also asked about the logic of further action rather than accepting a payment term as a County Court action would immediately cause suppliers to drop her or instigate immediate payments for any invoices not already cleared. It would not have any useful effect either as any enforcement action by baillif would be thwarted by the same debenture.
If they went higher than that, ie for a winding up order, it would result in an immediate freezing of the bank account thereby denying any further payments to them from it. It would effectively shut the business as soon as the bank froze the account, even before any finding in favour the winding up order. If it was wound up then the same conditions would apply. ie, the bank would still be covered with the debenture thereby stopping any sale of goods on liquidation for the benefit of HMRC,.

All it would do would be add costs to HMRC for an outstanding bill that would probably have been cleared if they had agreed in the first place to the payment plan.

I know they have targets for recovering outstanding taxes. I would doubt if having to write off any amount would sit comfortably in their annual figures.

All that aside, she spoke with them on Monday (something not already mentioned) they said they'd wait and see what the letter said before any action was taken but if they found themselves unable to take distraint action they'd probably go straight to a winding up order.

So that's where she is right now, It's a waiting game at present but in the meantime she's still making payments of the amount she promised initially.
So what she needs now is information on time-scales if a winding up order is made.
Would there have to be prior notification of intent to her first or do they just get on with it regardless.
If they do just get on with it, what sort of timescale applies for a hearing to be brought. Does the order get advertised immediately or 2 weeks before the hearing, something I think I've read somewhere.
Can she apply for an injunction to stop the advert going out. As I said, such an advert would be picked immediately by the bank and immediate closure of her account would be taken.
Given that she's showing good faith in making her payments, and will also be paying any further amounts in full as they fall due, ie, this last quarters VAT bill, would this be of any interest to a court to have them refuse the winding up order.

From what I see, a CVA would stop them in their tracks but this a sledgehammer approach which would still raise alarm with her suppliers and probably stop any further supplies, again effectively closing the business.

Addtion to original: Just for the record, the company assets far exceed her liabilities at proper retail prices, and perhaps even at invoice price. SO what's going on here is a cash flow problem due to the waterboards action. Would this asset v liability situation be useful to persuade a court not the allow the winding up.

Lots of questions here folk.
Now all she needs is answers.

Oh, she rang me yesterday and said the water board have told her they won't re-open the road until July now. She has a claim against them going through the motions but this won't be quick although it will accepted by them, as they advised all affected businesses, when the work began, but will probably be disputed in the amounts claimed as time goes by. In the meantime she's decided to open in another shop in a town centre so she can at least pick up some business, until HMRC close her down if that's what they feel like doing.

[CleverClogs]

Re: Debentures and legal status

My family say that disability is a punishment from God and they should not help at all, as they would be hindering God from giving me the punishment I must deserve.

I would wish those twice-born twerps a speedy onset of the painful and somewhat embarrassing disability of ingrowing bum hairs.