Insolvency Update : March 2025
Introduction?
When one reads the proliferation of economic assessments about what can be done to stimulate growth, there always seem to be conflicting reports about whether the Bank base rate should be increased (in order to try and stem inflationary pressures) or decreased (in order to promote cheaper borrowing and create a propensity amongst individuals to spend because, for example, they are not using so much of their income to service mortgage and credit card obligations).??
Does the MHA insolvency team see many individuals in financial trouble and scared to spend? Yes we do.
Recent statistics produced by the Accountant in Bankruptcy reflect between 1,800 and 2,000 individual insolvencies in Scotland on a quarterly basis. Of these, about one third are bankruptcies and two thirds trust deeds. Such level has not changed much since July 2023. Perhaps one might be forgiven for suggesting that, whilst there is a core level of individual insolvencies deemed acceptable, because there will always be some individuals who find that a formal insolvency process is necessary in order to regularise their personal financial affairs, there is a much higher number waiting to feel more comfortable about the economy in order to loosen the purse strings.
?Conclusion : reduce interest rates and seek to encourage spending in order to promote growth.
?Common liquidation questions?
A recent suite of MHA insolvency articles listed a number of questions that feature in many initial interviews with directors e.g.?
1.???? Can I buy the company’s assets if it goes bust??
2.???? Is liquidation a court process and do I have to appear in court??
3.???? How quickly will the liquidation start if I wish to appoint a liquidator??
4.???? Is there a public advert in the local newspaper so that everyone will know about the liquidation?
?5.???? Will the liquidator close the company immediately and sack everyone??
6.???? Will I lose control over the company if a liquidator is appointed??
7.???? Will I be automatically disqualified from acting as a director if the company is liquidated??
8.???? Can I start another limited liability company immediately?
?9.???? Will I have to resign from other companies of which I am a director if the main company is liquidated??
10.? Can the company pay local suppliers before liquidation incepts??
11.? Who will pay my staff if there is no money in the company to do so??
As with all insolvency consultations (which are naturally wholly confidential) the answer will vary according to specific circumstances and explains why there is no obvious website or book that can be consulted.
?An experienced licensed insolvency practitioner will always be able to place the questions into context and provide practical answers. It is never too early to ask for assistance if it is thought that financial trouble lies ahead.
?Directors : remember to keep proper accounting records?
At the end of last year, a Scottish court agreed with the view that the responsibility lies with directors to maintain proper accounting records in order to explain financial transactions.? In the absence of such records, a liquidator’s enquiries may result in an allegation of misuse of company monies, leaving the director with limited ability to defend the position because there is insufficient proof. That matters because of the risk that the director may be found personally liable for company debts, end up with a large overdrawn account that has to be repaid, or risk being disqualified from acting as a director of a UK limited liability company. In the recent court judgement, it was noted that statutory accounts had not been lodged for a number of years, exacerbated by the fact that VAT returns had not been submitted and there was no obvious basis to support the bounce-back loan obtained by the company.
?Excuses for not maintaining (or being able to provide) proper accounting records such as “the dog ate them” or “I cannot find them” are likely to be frowned upon even more heavily when a director is being pursued in court.?
Don’t let that happen to you because the consequences are likely to be unwelcome.?
Slightly more for the creditor when chasing a debt from someone in employment?
Schedule 2 of the Debtors (Scotland) Act 1987 was updated last month and allows a creditor to obtain a little more cash from an individual if the creditor is able to identify that person’s employer.? Deductions available from net earnings, which an employer must retain from an employee and pass to the creditor once appropriate legal authority has been obtained, are :?
Net weekly earnings
Deduction??
less than ￡150.94
nil?
between ￡150.94 and ￡545.57
￡4 or 19% of earnings exceeding ￡150.94, whichever is greater?
exceeding ￡545.57 but less than ￡820.21
￡74.98, plus 23% of earnings exceeding ￡545.57?
In excess of ￡820.21
￡138.15, plus 50% of earnings exceeding ￡820.21
?
Net monthly earnings
Deduction?
not exceeding ￡655.83
nil?
between ￡655.83 and ￡2,370.49
￡15 or 19% of earnings exceeding ￡655.83, whichever is the greater?
exceeding ￡2,370.49 but less than ￡3,563.83
￡325.79, plus 23% of earnings exceeding ￡2,370.49?
in excess of ￡3,563.83
￡600.25, plus 50% of earnings exceeding ￡3,563.83
A daily net earnings table exists but it is barely cost effective to be used other than in very specific circumstances.?
There are cases where a wage deduction can tip the balance into being unable to pay essential outgoings but equally, it is also a sign that a person may be living beyond their means.? Time to review one’s personal budget and seek advice.?
Who is handling my case??
The MHA Aberdeen insolvency team has experience of a wide number of cases, both formal and informal and Laura Dunn is an integral part of the team.? She joined in January 2024 and will be sitting her Certificate of Proficiency in Insolvency (Scotland) exam this year.? Let’s get to know her :?
Best bit of advice that you have received so far : Take every opportunity that comes your way.?
Best bit(s) about working for MHA : Supportive towards further learning to improve my career.? MHA is very social with team/office activities.
?Any unusual hobbies : No unusual hobbies, my mundane hobbies are reading and walking.?
Where were you born : Aberdeen, Scotland.
?Educational profile : I will have completed my law degree through Open University by June and am currently studying for CPI.?
Would you advise others to become involved in the insolvency sector? : Yes, it is very dynamic and engaging due to the wide variety of cases.?
Fun fact about you : I keep pet chickens.?
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Conclusion?
This Update is provided for general interest purposes and does not purport to offer definitive advice. Thank you for taking the time to read this Update and feel free to pass it to anyone who you think might be interested in reading it.