How We Saved a Chartered Accountancy Firm from Going UnderJuly 2, 2018
This case study proves that all businesses can end up in financial distress — even businesses designed to help other people with their finances!
Our client, a chartered accountant who ran his accountancy practice as a sole trader, approached 180 Advisory Solutions with very significant debts, including disputed tax debts subject to an ongoing court case in England.
Due to health issues, the practice's profitability had dropped significantly and our client was not in a position to repay the seven-figure sum owed to his creditors. The vast majority was owed to HMRC.
Further to this, the sums being claimed were disputed and subject to an ongoing court action. Despite the court action not yet being resolved, HMRC was petitioning for sequestration for the full amount.
Our client was facing a sequestration (bankruptcy) court action by HMRC with the warrant to cite having been issued prior to our involvement. This is a very advanced point in the sequestration process.
Potential Outcome - Sequestration
If our client had been sequestrated, he would have lost his licence to practice as a chartered accountant, which would have resulted in the immediate closure of his accountancy firm and the loss of a dozen or so jobs.
Additionally, without the ability to earn a decent income, our client would have been unable to service the mortgage on his home and he would have lost this too.
It’s also worth highlighting that the likely dividend to creditors in the sequestration would have been significantly below 20p in the pound.
Candidly, the outcome didn’t look good and our client’s options were severely limited.
So, in summary, if our client had been sequestrated, it would have resulted in:
- over a dozen redundancies
- the closure of a business
- the loss of the family home
- creditors receiving a paltry dividend
Actual Outcome - Debt Arrangement Scheme
Upon our appointment, we immediately put in place a moratorium, which in return bought us a six-week stay on creditor action.
With the help of our client's solicitor and the patience of the sheriff, we obtained a number of continuations to the sequestration process. This gave us enough time to try and put a Debt Arrangement Scheme (DAS) in place, in order to avoid bankruptcy.
We worked quickly to design a DAS proposal and present it to our client's creditors. The proposals included the sale of the business premises. In addition, family creditors agreed to stand aside, which allowed the full funds to be paid to HMRC and a number of smaller creditors. Even if our client lost his tax case in England and the full liabilities became due, the DAS proposal would ensure that creditors would receive all their money back in a little over seven years.
We also liaised with our client's professional body, which had previously allowed a chartered account to continue in business while in a DAS, to ensure that he could continue to practice. In a sequestration, this simply would not have been allowed.
A number of major banks consented to the DAS proposal but HMRC, the largest creditor in the DAS, did not. Despite our best efforts, we could not get HMRC to change their mind.
Consequently, the Accountant in Bankruptcy (AiB) had to make a decision on whether to overrule HMRC’s objection on fair and reasonable grounds and approve the DAS. After a number of weeks of deliberation, the AiB refused to overrule the objections.
We requested a formal review of the AiB’s decision, arguing that the grounds given by the AiB were not reasonable and the DAS proposal was a fair and reasonable one when all the facts were considered.
After further deliberation, the AiB upheld our review arguments and approved the DAS.
With the DAS in place, our client was able to:
- keep his license
- keep his business
- keep his home
- continue his court case arguing his tax liabilities are lower than HMRC are demanding
What’s more, since our client was able to save his business, all of his employees got to keep their jobs.
As in sequestration, our client’s creditors will receive the equity in his business premises but they will also receive the significant majority of the business' profits for many years to come. Again, this would not have been possible had the business folded.
As you can see, the DAS was the best outcome for all parties and not just our client.
Could a DAS Help You?
If you have unmanageable debts and are under pressure from your creditors, a DAS may be able to help you avoid insolvency. If you are a sole trader or a partnership, it could help save your business too.
A DAS will freeze all interest, fees and charges related to your debts and give you an extended time to repay what you owe. It will also protect you from the hassle or threat of legal action from your creditors, which is immensely reassuring.
To apply for a DAS you must use an approved money adviser, who either works through an approved state organisation like a Citizens Advice Bureau or an FCA authorised insolvency firm like 180 Advisory Solutions. If you require a business DAS, only an FCA authorised insolvency firm can help you.