We consider it mandatory whenever credit facilities are requested, that a Credit Application Form is completed, and if credit is granted, your Terms and Conditions be forwarded to the applicant with a covering letter informing them that credit is granted for “X” amount subject to the Terms and Conditions. We can assist in formulating an Application Form, and recommend some solicitors who specialise in Terms and Conditions, pursuant to your business.
* The Articles that follow have not been prepared by S J Collections Ltd. and do not necessarily reflect the views of S J Collections Ltd. Neither S J Collections Ltd. nor any of its employees can be held liable for any of the views expressed in the articles, or any acts of omission arising from them.
Here is the top ten list of common excuses
- I didn’t get the paperwork
- I’ve sent a cheque
- It’s going back to court
- I thought it had been paid
- None of these things belong to me/the business
- All of these assets have been sold to someone else (usually the day before)
- The person you’re after has moved
- That’s not me
- My wife owns everything
- I sold it this morning
Articles on debt recovery
Do you really control credit?
Statistics show that more businesses than ever are being paid late and not within the credit terms originally agreed, and debt is increasing in volume and value. The cost to firms trying to collect outstanding accounts is rising inexorably.
It is important that you do not completely rely on your credit control department, but monitor your accounts receivable ledger on a regular basis as poor credit management practices are impacting on insolvencies.
When referring to the recovery of accounts receivable, we cannot say that there is only one way or even one best way to do it. It will always depend on the type of business we are talking about; particularly these days in the context of financial and economic restraints.
We must pay strict attention to all the situations that face our customers and clients and the various indicators that govern our own cashflow.
It is always important to put into practice recovery actions both before an account is in difficulty and when it is paying late. It would be advisable to send an e mail or fax, or even call, before the due date of the bill, as a reminder. This practice could also be used when it is time to renew a contract.
However, it makes sense to call in someone who is a specialist when it comes to collection of a difficult debt. Not only because they are specialists, but it is usually makes commercial sense as many work on a contingency basis.
Bankruptcy and Disqualification
Picture yourself running your own company and naturally you know the business inside out, and it’s been your business and baby from the start. The business has been good, although recently you find yourself in some personal financial difficulty. Naturally, you try your best to deal with the situation yourself, but things get out of hand, and eventually you find yourself the subject of a bankruptcy order.
You may think that “at least it’s brought things to a head”, you can now concentrate on the business and you will be released from bankruptcy in a year with an automatic discharge, all debts written off and forgiven – no harm – no foul, right?
Not quite as it seems. It is a criminal offence to act as a director of a company (that is to be directly or indirectly involved in the management, formation or promotion of a company) while:
an undischarged bankrupt – subject to a moratorium period under a Debt Relief Order or – subject to a Bankruptcy Restrictions Order or Debt Relief Restrictions Order.
You may also be personally liable for the debts of the company while you have acted in contravention of the ban. It is possible that anyone (not necessarily a formally appointed director) involved in the management of the company who acts or is willing to act upon your instructions, knowing your new status, may similarly be personally liable. Finally, this would be grounds for disqualification as a director for a longer period under the Company Directors Disqualification Act 1986.
What can be done about it? You must resign from the company immediately, filing the correct form at Companies House. You can apply to the court for permission to act as a director but while that application is pending and in case it is unsuccessful, you must distance yourself from the business. If you do apply, you must give notice to the Official receiver. If the Official Receiver is of the opinion that it is against the public’s interest for your application to succeed, it could be opposed.
The court’s interest will, in part, be in the preservation of the business and jobs connected with it. But that is only one consideration. Firstly, the court will examine the circumstances leading up to the bankruptcy and the reasons for it. If the court considers that you are in any way culpable for the bankruptcy and the levels of debt involved, the court will be slow to make an Order in your favour.
Assuming you were the only director, either a new director will need to be appointed or the company will have to cease to trade pending the outcome of your application.
While you can, of course, be employed by the company, you must remove yourself from a position whereby you are directing the business. You must make sure that other directors and employees understand that they must now take up the reins and cannot look to you for decisions that you would have made as a director.
Directors Responsibilities in Insolvency
A fact sheet relating to these can be supplied on request.
Did you know that a bailiff chasing council tax arrears is not allowed to force entry into your home, but one collecting an unpaid parking fine is? Did you know that a bailiff collecting council tax arrears is allowed to enter your home through an open window, but not through a closed one, even if it is unlocked? The answers are probably no, and it’s no wonder when the rules (some of them feudal and archaic) governing the conduct of bailiffs are so opaque. Needless to say, there are some bailiffs ho exploit this ignorance to act with impunity. However, most complaints are that bailiffs are rude and prone to large fees for small debts. They also exaggerate their powers to intimidate people into payment. To be precise, they ignore the rules on a large scale.
Needless to say, before considering the issue of legal proceedings, one must ensure that there is a paper trail and all the information in that trail is accurate. These must include accurate billing and you have acted within the constraints of your credit terms, and that the debtor has not. A “seven day before action” letter is always sent by us prior to proceedings, and always ensure that no further goods or services are supplied; and that the debtor now contacts us direct and not you. Debtors have a habit of playing their creditor and debt collections agencies against one another. Legal claims for money in courts only fail, because they have been built on weak foundations.
Legal Aid and Squatters
The right for legal aid for squatters to fight home owners trying to evict them from their properties loophole is to be closed, under proposals set out in the Sentencing, Legal Aid and Punishment of Offenders Bill. This is not before time.
Thinking Of Renting Out Your Home?
With the current unpredictable state of the housing market, many homeowners are considering renting their homes out instead of selling. While this sounds like an ideal solution, homeowners need to be wary. Many may be breaking the law if they are not aware of the regulations governing renting out a property. It is critical that you know the relevant laws or you could end up in trouble. The following will help you to go down the correct legal road if you do decide to rent.
- Speak to your lender as the mortgage lender needs to know that you are renting out your home. Some lenders allow it, but many won’t. Speak to a buy-to-let mortgage broker who can help you. Change your mortgage over to. a buy-to-let mortgage to be on the safe side.
- Insurance – You need specialist landlord’s insurance for your property when renting it out to tenants. You also need buildings insurance and also contents too, should you rent it furnished.
- Tenancy deposit scheme – This is now a legal requirement. For all tenancy agreements that started on or after the 6th April 2007 landlords are required to protect their tenants deposit using one of the government authorised schemes. Within 14 days of receiving the deposit, the landlord is required to inform the tenant of how it is protected. There are three schemes to choose from. For more information go to: www.direct.gov.uk/en/Tenancy/Deposit
- Gas Certificate – This is a legal requirement. You will need a new Corgi certificate each year. A Copy must be left with your tenants for their records. Contact a certified Corgi registered gas engineer.
- Energy Performance Certificate – Effective from 1st October 2008, landlords will have to make an energy efficiency performance certificate (EPC) available to prospective tenants as part of the letting process. The certificate, which will be valid for 10 years, rates the energy efficiency of a property on a scale of A-G and makes recommendations for improvement. The most energy efficient homes are in Band A. Landlords will not be under any obligation to follow any recommendation in the EPC or carry out work to improve the energy efficiency of their property. However, it is worth considering that tenants may use the certificate to help them choose which property to rent, making higher rated properties more desirable. The EPC is required by law when a building is constructed, sold or put up for rent. EPC’s can only be produced as a result of a survey by an accredited Domestic Energy Assessor, They are used to collect standard information on the property including its size, how it is constructed and its hot water and heating systems.
- Tax return – As a landlord you are now running a business, you will need to complete a tax return and any good accountant should be able to advise you and help you with the paperwork involved. The Revenue & Customs can track you down years after you may have stopped renting the property or even sold it, so don’t forget this tip.
- Join a Landlord Association – These organisations are a lifeline to any landlord. If you have any tenant problems or questions then landlord associations are a great helping hand. You can find your local one using the internet.
Mortgage lenders will have their rights to repossess rented properties with an incumbent tenant restricted under new legislation. The Mortgage Repossessions (Protection of Tenants) Act will give greater powers to the tenant where the landlord has let out a property without the mortgage creditors consent and then failed to keep up mortgage payments. If the mortgage lender wants to take possession, the tenant can apply to the court for this action to be effectively delayed for two months. The court will take into account whether the tenant has complied with the terms of the tenancy, such as if they have been paying their rent, and it can make it a condition that the tenant must pay the rent to the lender during the period of delay. Such an agreement will not create a tenancy or right for the tenant to occupy the property longer term. To ensure that the tenant is made aware of pending enforcement action, the lender will need to give notice at the property about the order and what happens next.
Confidence among landlords is high, with three in five planning to expand their portfolios over the next six months, according to specialist mortgage broker Mortgages for Business.
While the majority of investors (63%) will need to remortgage existing properties to fund their expansion, a similar proportion (62%) believe lenders are not doing enough to support landlords and property investors.
The results come from a Mortgages for Business survey of 185 landlords.
One in five (20%) feel that lenders should reduce their fees, while 18% believe lenders should increase LTVs and 15% feel that lenders should make lending decisions case by case, rather than rely on computers and credit scores.
Four-fifths (81%) of property investors intend on investing in vanilla – or ordinary – buy-to-let property over the next six months.
However, 22% plan on expanding their portfolios with Houses in Multiple Occupation, 15% with multi-unit freehold blocks, and 14% with commercial or semi-commercial property, all of which provide higher average yields for investors.
David Whittaker, managing director at Mortgages for Business, said: “Although overall mortgage and lending to first-time buyers is finally starting to increase, landlords remain confident about the future of the private rental market and plan to expand their portfolios over the coming months.
“However, more and more investors are exploring which options will give them the best returns on their investment.
“While vanilla buy-to-let properties remain popular, more complex deals are offering higher yields on average and are growing in popularity, particularly because of the shortage of housing stock currently on the market.”
Landlords – Important changes re: Deposits
Landlords should be aware of the new rules on tenancy deposit protection which are being implemented on April 6, and if necessary act immediately.
The warning has come from the Residential Landlords Association, which is telling its members that the new rules will also affect existing tenancies where the deposit has not been properly protected.
The RLA is advising its members to act right now if that is the case, as the new rules will affect deposits which have already been taken but not yet protected.
Under the new rules, deposits under assured shorthold tenancies must be protected within 30 days of receipt (as opposed to 14 days at present). The tenant must also be given the prescribed information within 30 days.
Failure to comply with the 30-day rule means that landlords could have to pay a penalty of between one and three times the amount of the deposit.
Failure to protect the deposit within 30 days will also mean that landlords cannot use the Section 21 procedure to evict a tenant unless there has been a court order dealing with the deposit or unless the deposit has been returned.
The ban on using the Section 21 procedure also applies to landlords who have protected the deposit but not given the prescribed information within 30 days.
Landlords should also be aware that they will still be liable for penalties up to six years after the end of a tenancy if they haven’t done things by the book.
The new rules will apply to deposits which landlords are already holding when they come into force. You will be allowed a 30-day period of grace from the start date to protect these deposits and/or give the prescribed information if you have not done so already.
Failure to comply will mean that the new penalty and Section 21 rules will apply in exactly the same way as they do to new deposits.
This is a fairly worthless source of credit checking and if it doesn’t put you off
As part of the account opening process, the credit application form includes a reminder that bank references may be requested from time to time. It can be useful to obtain a credit reference on a new customer when starting a trading relationship.
A bank reference, known within banks as a ‘status enquiry’, is a bank’s opinion as to the ability of one of its customers to meet a specific financial commitment. A bank will only give a reference if it has the written permission of its customer and normally require a new authority to reply to each and every enquiry. There is a fee for providing references which is typically met by the business making the enquiry.
Businesses should use the following steps to request a bank reference:
Complete a request and consent form as fully as possible.
Send the whole form to the customer and request they complete the consent section and return the form to you.
Send the form directly to the customer’s bank using the attached letter.
The bank will base its reply on its knowledge of the financial standing of the customer in question and may also advise enquirers that they should not rely solely on the bank’s reply when making their decision. Banks use only standard phrases (e.g. ‘undoubted for your figures’, ‘respectable and good for your figures’, ‘customer not known to us for long’, ‘capital/resources fully employed’, ‘cannot speak for your figures’ etc.). Anything less than ‘good for your figures’ is a guarded warning.
Bank references should be used only for small value decisions or to support other reports. Remember that a bank’s loyalty is to its customer, not the enquirer.
Requesting references from other professional advisers to a potential customer could be considered e.g. their accountant. Again, the customer will need to give permission.
Personal Guarantees are most commonly requested by banks to secure overdrafts, particularly from company directors for a business overdraft.
However, they are also commonly used by landlords for rental property, both commercial and residential, and may be requested by a supplier of goods or services as part of the contract.
Whilst some high value guarantees to a bank may be secured by the guarantor’s property, this is far less common for guarantees to landlords and suppliers.
Personal Guarantees for property
This situation would arise when the landlord is concerned about the risk of rent arrears and wants to ensure that a person, the guarantor, can be obliged to pay any arrears the tenant incurs.
In the case of a business renting commercial premises, the landlord is likely to ask for a personal guarantee from one or all of the directors of the business.
In the case of residential accommodation, it might be that the landlord insists on a guarantor for someone with little or no credit rating, for example a student or someone moving from overseas.
With a limited company, the limited liability means that the directors have no personal liability for the debts of the business. However, when they sign a personal guarantee, this is permission for the creditor to pursue their personal assets to obtain payment.
It is becoming more commonplace for companies to ask for personal guarantees from company directors when supplying goods or services. They may include this as part of the contract (the contract should request that the director sign their agreement to that part specifically for it to be valid) or as a separate agreement.
As the supplier, you may choose to give your customer the option between a deposit and a personal guarantee. If asking for a guarantee, I strongly recommend taking legal advice to ensure the guarantee can be enforced if required.
Enforcing a Guarantee
Should you need to enforce the guarantee, you will need to sue both the debtor and the guarantor. For a landlord this would be the actual tenants and the guarantor; for a company, you would need to sue the company itself and the guarantors, normally the directors.
Having sue both entities, you will receive your Judgment, which you can then enforce via a Writ of fieri facias (fi fa), through the High Court Enforcement Office (there are many).
Alternatively, there are other methods which we will be please to inform you of, if and when necessary.
The Bailiff Service
The long awaited “consultation on bailiff action” has been launched by the Ministry of Justice and is open until 14 May 2012. The aim is to stop improper action by a minority of bailiffs and make the entire enforcement process easier to understand for all involved.
This consultation follows on from the recently published updated National Standards for Enforcement Agents (certificated bailiffs, bailiffs, and High Court Enforcement Officers) and builds on these by transforming elements of the voluntary code into a legally binding regime.
The consultation paper also needs to be read in conjunction with Part 3of the Tribunals, Courts and Enforcement Act 2007 (the TCE Act). This is yet to be implemented and will unify the existing law relating to seizure and sale of goods for most purposes. It prescribes the new procedure to be followed by enforcement agents when seizing goods, which is to be known as taking control of oods.
The Act will also abolish the current common law right to distrain for commercial rent.
This has been long overdue to clarify an industry that is often confusing and ambiguous, with some legislation being hundreds of years old. It will also attempt to set a fee structure fit for the 21st century.
However, there are concerns in various areas which could possibly have a potential negative impact on creditors and their ability to obtain payment; and there are many aspects that would require applications to the court which would no doubt incur a time delay.
TERMS and CONDITIONS
Is your Company properly protected?
Many businesses still do not have standard Terms and Conditions of trading, “T’s and C’s”; and many that do may get a nasty shock when they try to rely on them.
All businesses should have adequate T’s and C’s, not only to increase certainty over your relationship with your customers and to make ure that this relationship is as beneficial as possible to you, but T’s and C’s also make your business appear professional and well organised. It is important that your T’s and C’s fit with the way you run your business in practice and are incorporated into the contract with your customers when they should be.
One of the main mistakes businesses make is to put their T’s and C’s only on the back of their invoices. This is too late – by the time your customer receives your invoice, the contract has already been performed and you won’t be able to rely on your T’s and C’s retrospectively.
If you don’t have Terms and Conditions, you could be missing out on the opportunity to limit your liability under the contract, to some extent, through the use of a carefully drafted clause in your T’s and C’s.
Terms and Conditions are a real investment for your business and reduce the risk of litigation saving you a lot of time and expense later. For those of you who have Terms and Conditions, do make sure that you have them reviewed regularly by your solicitor to keep up to date with changes in the law and changes in the way you run your business.
For those of you who do not have Terms and Conditons, make it a priority to have them drafted. If you require, we can refer you to solicitors who specialise in this; but nevertheless, have them drafted before it is too late.
How can directors ensure they do not get in hot water if their company is facing financial difficulty?
When a company is solvent a director’s duty is to “promote the success of the company.” But what if the company is insolvent? Writes Jamie Playford, a director and licensed insolvency practitioner with Parker Andrews Ltd.
It is important that a director understands what “insolvent” means.
The Insolvency Act 1986 contains three texts which broadly are:
- Balance sheet –if a company’s liabilities exceed its assets
- Cash Flow – if a company cannot pay its debts as they fall due.
- Legal Action – if a company has an unsatisfied CCJ or Statutory Demand.
If insolvency occurs, a director’s duty is in the general body of the company’s creditors rather than the shareholders or the company generally.
A director should take an objective view as to whether the problems the company is facing can be overcome. The reasons should be carefully documented at regular board meetings. This should continue until the company is out of difficulty.
If a director fails to do this and the company does enter liquidation or administration, a director could find they are facing a “Wrongful Trading” claim and can be held personally liable for any debts incurred during a period of reckless trading when the director had no reason to believe the company could survive.
There are two other, perhaps more obvious, claims that a director must avoid.
“Preference payments” are where a director allows the company to repay one of its creditors ahead of the others. The director may face having to repay this money. The most common are the repayment of a company debt which a director has personally guaranteed, or
the repayment of sums owed to a director.
A “Transaction at an Undervalue” is where a director allows the company to sell an asset for significantly less than its true value. Again, a director may be asked to repay the difference.
If a company is facing difficulties, the top tips for directors to help protect themselves are:
- Objectively review the business on a regular basis. This could be monthly or even weekly.
- Document reasons that support trade continuing, such as payment plans agreed, new customers, or overdraft extension.
- Ensure financial management information is kept up to date to help rebut any claim of recklessness.
- Do not incur credit if it is unlikely to be repaid.
- Do not accept deposits for orders if they are unlikely to be fulfilled.
- Take professional advice as soon as possible. Most insolvency practitioners will also offer the first few hours of advice free; and we are able to recommend some.
- “A new life on Leases”Signing a Lease on a property is a huge commitment. It is essential that the contracts match the business’s requirements and that all the terms and conditions are fully understood.This situation, together with a desire to attract small businesses into vacant high street properties, has led the Royal Institution of Chartered Surveyors to launch a new type of lease in collaboration with the British Retail Consortium (BRC) to simplify what is frequently a complex and time consuming process associated with commercial property leases.The new lease document has been written in plain English and provides flexible terms for a short term lease of up to five years with no rent review.The Director of business and regulation at the BRC explains that while the high street is a much loved institution, it can be a tough place to trade and property costs present a significant challenge.“Negotiating the complicated and costly process of getting the first lease for a shop is a sizeable hurdle which this particular lease removes.” He goes on to say “The template of this lease will help the successful retailers of tomorrow take up their places in town centres across the country.”BRC statistics published in the summer 0f 2012 show that more than 11 per cent of town centre properties stand vacant. “As well as assisting individual retailers, this new lease will make it quicker and easier to get those empty units back into use, preventing them from acting as a drag on the performance of an entire area.”The creation of the new lease comes at a time when an increasing number of retail property landlords are offering incentives to let their premises.
Two versions of the lease, together with other useful guidance documents are available at www.rics.org/smallbusinesslease.