From 22nd May, 2024, any money claims up to £10,000 must undergo a free one-hour mediation session through HMCTS’ Small Claims Mediation Service. This means small claims mediation is now mandatory.

This new requirement aims to reduce the number of claims reaching court, freeing up to 5,000 judicial sitting days annually to focus on more complex cases.

Key Benefits of This Change:

• Mediation sessions are usually organised within 28 days, much quicker than waiting for a court date.
• There’s no hearing fee for mediation, making it a cheaper alternative to court proceedings.
• Mediation provides a calm, non-judgemental environment for parties to resolve disputes, avoiding the stress of a court battle.
• HMCTS has more than doubled its mediators from 25 to 64, ensuring ample support for this initiative.

The change will also apply to small claims issued via OCMC (Online Civil Money Claims) but at a later date.

You can read more about this change here https://www.gov.uk/government/news/faster-resolution-for-small-claims-as-mediation-baked-into-courts-process

If you currently have any debts owed to you, Top Service offers a No Win, No fee debt recovery service, exclusively for businesses within the construction sector. Please get in touch on 01527 503990 to speak with one of our advisers to find out more about how we can support you!

A Winding-Up Petition can have a detrimental Impact on a company and with the number of Compulsory Liquidations rising it’s important to understand the processes, risks and consequences of Winding-Up Petitions, we explain these below.

What is a Winding-Up Petition?

A Winding-Up Petition is a document filed at the courts usually by a trade creditor, financial institution or HMRC advising of the intention to force a company into compulsory liquidation, as a result of the company’s inability to pay its debts as and when they fall due and consequently the company is believed to be trading insolvent.

When can a Winding-Up Petition be filed?

A Winding-Up Petition can only be filed for an overdue balance over £750.00 and only if the company does not already have an existing Winding-Up Petition or Moratorium in place protecting them from legal action. If the balance owed has a dispute on the account then the creditor can issue a winding up petition on the undisputed balance, if that balance is over £750.

Issuing a Winding-Up Petition

Issuing a Winding-Up Petition not only comes at a cost but can dramatically impact the debtor company once filed, it is important to first gain an understanding of whether the debtor company won’t pay or can’t pay. The Winding-Up Petition process can be complex and it is crucial that every step is followed correctly as an incorrect step could result in the petition being dismissed by the courts. For this reason, seeking the assistance of a solicitor is strongly encouraged. Once the Winding-Up Petition has been filed with the courts, the courts will decide when and where the petition hearing will be heard before sealing the petition and returning copies of the papers to the petitioner’s solicitor to serve on to the debtor company at their registered office address. If the company is not available at this address, the papers can be served to a company director, secretary or the company’s last main place of business. At least seven days prior to the petition hearing date (and no sooner than 7 days after the petition has been served to the debtor company) the petition needs to be advertised in the London Gazette. Once a winding up petition has been filed, businesses tracking the financial information of the debtor company will start to be informed, likely resulting in the restriction of credit facilities and business bank accounts.

The Winding-Up Petition Hearing

On the day of the hearing, the courts may decide to;

Dismiss the petition – There are a few reasons as to why a petition may be dismissed such as; Full payment has been received, If it is believed that the petitioner has incorrectly issued the petition, if the company is able to pay a large amount of the debt owed, for instance if a CVA is proposed than the judge can leave the creditors to decide on whether to decline or accept.

Adjourn the hearing – The hearing is adjourned to be held at a later date, this may be due to the petitioning creditor receiving repayments and the debtor intends to make payment in full or the debtor may request more time to enter into a CVA.

Withdrawn – A Winding-Up petition can be withdrawn before the hearing by the petitioner. This will usually happen if payment has been received or a satisfactory agreement for repayment has been successfully negotiated with the creditor.

If a Winding-Up Order is made, an Official Receiver will be appointed and the company will enter into Compulsory Liquidation.

A winding-up order being “rescinded”

A winding-up order being “rescinded” refers to the reversal or cancellation of the order by the court. This typically occurs when new evidence or circumstances arise that warrant the reconsideration of the initial decision to wind up the company.

For example, if the company can demonstrate that it has settled its debts or has a viable plan to do so, the court may rescind the winding-up order. Alternatively, if there were procedural irregularities or errors in the original winding-up process, the court may rescind the order to rectify the situation.

Essentially, when a winding-up order is rescinded, it means that the decision to wind up the company is reversed, and the company is no longer subject to compulsory liquidation.

Supporting the Petition

Another creditor can choose to support the petition for a small fee, however again this is not without its risks. Should the petition fall down to the next supporter, this supporter is not guaranteed payment, even if the previous petitioner was paid in full. The supporter may also incur costs for the petition. The courts do not reveal who the supporters are, how much they are owed or how many supporters there are.

Risks of issuing a petition

Whilst Winding-Up Petitions can be very powerful, there are also risks for those issuing a Winding-Up Petition. Issuing a Winding-Up Petition may not result in payment. Unfortunately, if the company does not have any available funds or assets to sell in order to make payment, the company may enter into Compulsory Liquidation, resulting in the petitioner spending “good money after bad”. Additionally, if the petition becomes public knowledge, it may attract supporting creditors who are also owed and as a result the Directors may decide to enter into Voluntary Liquidation with the knowledge that they are not able to pay all supporters. A Winding-Up Petition does not make the petition a secured creditor. If the company enters into insolvency via either Voluntary Liquidation or Compulsory Liquidation, the petitioner may be considered an unsecured creditor and therefore any remaining assets will be shared equally among all unsecured creditors.

Creditor Payments whilst a petition is in place

If a creditor receives payment whilst a petition is in place, this may be viewed as preferential treatment of creditors if the company enters into Liquidation following the Winding-Up Petition hearing. The Insolvency Practitioner can order that these payments are returned in order to fairly distribute the remaining funds amongst unsecured creditors.

The Insolvency Service has released the latest figures for March 2024, shedding light on the insolvencies in the UK. Here’s a breakdown of the numbers:

Registered Company Insolvencies Breakdown:

In March 2024, a total of 1785 company insolvencies were recorded, with the following distribution:

• 1436 Creditors Voluntary Liquidations
• 228 Compulsory Liquidations
• 112 Administrations
• 9 Company Voluntary Arrangements

Yearly Comparison of Insolvency Types:

Comparing March 2024 with the same month in the previous year reveals a notable decrease. There’s been a 28% fall in insolvency cases, with March 2024 witnessing 685 fewer cases than March 2023.

Changes in Insolvency Types Year On Year:

• Compulsory Liquidations: Decreased by 25% 📉
• Creditors Voluntary Liquidations: Decreased by 29% 📉
• Administrations: Decreased by 23% 📉
• Company Voluntary Arrangements: Decreased by 31% 📉

Month-on-Month Comparison:

In March 2024, there was a 17% fall in insolvency cases compared to February 2024, marking a significant decrease of 322 cases.

Month-on-Month Changes in Insolvency Types (February to March Comparison):

• Compulsory Liquidations: Decreased by 3% 📉
• Creditors Voluntary Liquidations: Decreased by 18% 📉
• Administrations: Decreased by 30% 📉
• Company Voluntary Arrangements: Decreased by 25% 📉

Upcoming Insights:

The industry-specific insolvency statistics for the construction industry in March will be released next month. However, for the month of February, 350 insolvency cases were registered across all industries.

Although the statistics show a positive decline in the number of insolvencies, it is still just as important to keep monitoring and reacting to changes within your customer database. In today’s dynamic business environment, staying proactive in monitoring and addressing potential risks is essential for sustaining long-term success. 

If you wish to discuss how our prevention toolkit can support your business, then please call our member support team on 01527 518800 

Our specialised focus on the construction industry and access to exclusive trading experience data make us an invaluable resource for companies operating in this sector.

Offering real-time trading experience data shared by our members, updated minute by minute Top Service delivers the most relevant and insightful information to help you understand potential customers’ payment behaviour. Enabling you to make the best & most informed credit decisions for your business.

Our data provides valuable insights including: whether you can expect to be paid on time, late, not at all or even whether you should expect disputed claims. Or crucially if your potential customer is approaching your business because they are on stop elsewhere.

This is the real life experience from Louise Cain, Credit Manager at Sydenhams Timber & Builders Merchant:

“Recently, when assessing a potential customer seeking a credit account, our primary provider’s data seemed satisfactory at first glance. However, upon cross-referencing with Top Service’s industry-specific insights, a completely different picture unfolded. This led us to decline the credit account, potentially saving our business £10,000. This is why we love using Top Service. Their unparalleled industry-specific information enables us to make well-informed credit decisions, safeguarding our business against bad debt risks.”

We have been protecting the Construction industry and minimising our members exposure to bad debt for over 30 years!

Pre-pack administration is a formal insolvency procedure that enables the quick sale of a struggling business as a going concern. 

In this process, the sale of the business is agreed prior to the administrators formally being appointed. While the buyer can be a third party, it is not uncommon for the existing director/directors to operate under another limited company. 

While pre-packed administration aims to preserve the value of the business, assets, jobs, and work in progress, it’s not always favoured by creditors. Some perceive it as directors retaining assets without fulfilling creditors obligations.

For Creditors, pre-packed administration presents a mixed picture. While it offers a swift resolution, some may feel excluded from the process and have limited opportunities to contest it.

Once a decision is made to pursue a pre- pack, an insolvency practitioner will assess the company’s asset’s value and ensure the buyer has the necessary funds. The business is then put up for sale, with creditors being paid from the proceeds.

Despite controversy, pre-packed administration can be a lifeline for struggling construction businesses. However, it’s imperative for all involved parties to adhere to regulations and maintain transparency to ensure fairness.

A “going concern” denotes a business assumed to meet its financial obligations without imminent liquidation. It typically refers to a foreseeable future period, usually at least the next 12 months or the specified accounting period.

A message to Top Service members from Emma Reilly FCICM, CEO at Top Service Ltd & Credit Expert

A phoenix company is described by the Insolvency Service as the practice of carrying on the same business or trade successively through a series of companies where each becomes insolvent in turn. Each time this happens, the insolvent company’s business (but not its debts) is transferred to a new, similar ‘phoenix’ company. The insolvent company then ceases to trade and might enter into formal insolvency proceedings. 

Companies fail for many reasons and it is not always due to misconduct. For this reason the law allows business owners, directors and employees to set up new companies and carry on a similar business. 

Phoenix companies are not usually favoured by trade creditors and it’s easy to see why. It may seem that a director is walking away from an insolvent company to a new company free of the burden of any debt and the creditor may receive little return once the insolvency proceedings are over. 

In some cases creditors may benefit from the sale as a new healthier company eager to trade successfully and may pick up the contracts the insolvent company left behind, potentially forming a stronger trading relationship with creditors. 

Without doubt the phoenix company process can be exploited and we spoke to James Linton, Head of Creditor Services PKF Littlejohn Advisory who explained the potential penalties to directors found guilty of misconduct in relation to a phoenix company. “If a sale takes place to a successor company prior to and outside of a formal insolvency procedure, then the Official Receiver or an insolvency practitioner will have a duty to investigate it. If they find assets transferred / sold at an undervalue or director misconduct, then they have the powers to undo and reverse transactions, look to reclaim assets, and look into the conduct of the directors who may then become personally liable for the company debts.”

There are certain rules in these circumstances that should be followed and they include:

What’s crucial to note is that this process is not illegal as long as certain rules are followed:

• Director Qualifications: The director must not be disqualified or bankrupt.
• Fair Asset Valuation: Assets must undergo professional valuation, and a fair market value must be paid.
• Personal Funds: Assets must be purchased with the director’s personal funds.
• Transparent Marketing: A variety of marketing methods must be employed to advertise the pre-pack sale.
• Creditor Notification: Creditors must be informed of the pre-pack sale in a timely manner.
• Full Disclosure: The insolvency practitioner must provide a full disclosure of all actions taken.
• Director Investigation: Directors must undergo a thorough investigation to ensure transactions were in the interests of creditors.
• Company Name: The new company name must not mislead the public or creditors.

For more information on phoenix companies, check out this link provided by the Insolvency Service. Phoenix companies and the role of the Insolvency Service – GOV.UK (www.gov.uk)

The Director Monitoring Service allows you to keep track of who is running the companies you are dealing with. You will receive alerts when a director resigns or is appointed at another company, providing valuable insights into leadership changes within your business network.

When a director resigns, it can present challenges such as knowledge loss and transitional risks, but it also offers opportunities for fresh perspectives and new leadership that could benefit the business in the long run. 

Understanding both the positives and negatives of such transitions is crucial for assessing their impact on a company’s operations and future prospects.

Changes in leadership can sometimes result in alterations to credit limits, impacting the financial stability of the business.

Resignations and new appointments aren’t always a trigger for something negative happening. It’s essential to consider the history and background of the departing director. 

If the Director has been associated with companies that have faced insolvency or financial difficulties in the past. This may trigger a potential risk warning that should be investigated. 

Equally directors with a successful track record and experience in managing long-established businesses can bring stability and credibility to an organisation.

Monitoring services provide valuable real-time information that can assist businesses in making informed decisions, mitigating risk, and maintaining healthy business relationships within the construction industry. 

This service is designed to help businesses stay proactive in managing credit risk and staying up to date about critical changes that will impact their trading relationships .

Company monitoring – Top Service members have access to unlimited company monitoring.  Alerts are sent to members detailing changes & updates to key information within a subject company’s credit information. Using this service element along with the combination of credit checking & access to construction industry specific trading experience is a winning combination to minimise risk. 

The monitoring service alerts members by email when specific events occur, such as:

• New trading experiences have been reported
• Changes to in suggested credit limits
• Formal insolvency filings such as winding-up petitions and administration orders,
• New County Court Judgments registered against a limited company
• Changes to the company name
• When a company files new accounts

Thank you to Jo Stevens at Tarmac for your kind words.

Top Service provide Tarmac with an invaluable support for new customer trading history, and early fraud detection. The trading histories enable us to avoid potential late payers, or to identify that a customer has cash flow difficulties

Tarmac, is the UK’s sustainable construction materials, road contracting and building products business. UK supplier of Aggregates, Asphalt, Concrete, Cement, Blocks, Mortar, PAVE Contracting & Recycling Service. Tarmac joined the Top Service community in March 2020  to help manage risk, minimise debt & maximise cash. 

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The unique credit information we gather and our specialism in the construction industry gives our members a competitive advantage over those using one of the generic credit reference agencies.
 
Our insider intelligence is the most relevant credit information available to the construction industry.
 
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