The cost of new insolvency regulation proposed by Government will outweigh the benefits to business and reduce creditor returns, according to insolvency trade body R3. Concern has prompted R3 and senior Insolvency Practitioners from the ‘Big Four’ accountancy firms (Deloitte, PwC, KPMG and Ernst & Young) to write a joint letter to the Insolvency Minister, Ed Davey MP, requesting an urgent meeting.

R3 President Frances Coulson commented:

“There is a strong consensus that something is wrong here. We support measures to give unsecured creditors more of a say, but the degree of increased regulation proposed is disproportionate and counter to Government policy to reduce red tape. The proposals are likely to reduce returns for creditors, while undermining what is good and sensible in the current system.”

R3 and the ‘Big Four’ are concerned that the proposals will discourage creditors from engaging during the insolvency process, while inviting them to complain after a case finishes – at a cost to other creditors.

Frances Coulson continued:

“Under the new proposals, Insolvency Practitioner (IP) fees can be agreed by the majority of creditors but then challenged at the end by a minority creditor or angry director. The cost of making a complaint is free to the complainant, and if the complaint is not upheld it will be paid for out of the insolvent estate.These new proposals give the green light to malicious complainants to hold up the process and leave unsecured creditors with nothing.”

R3 propose that unsecured creditors should be given greater powers over the choice of IP and that IPs should be forced to be more transparent about their fees. Fewer regulators and more independence and consistency in the regulatory regime are also supported by the profession.

Frances Coulson added:

“Some change would be beneficial, but it must be proportionate. The OFT report that prompted the Government to act found that the insolvency market and regulatory regime works well in the majority of cases but could work more effectively in a minority. The proportionate response would be to make improvements, rather than wholesale revision.”

R3 also believes that government departments, including HMRC and the Insolvency Service’s own Redundancy Payments Service, should use their huge bargaining power as repeat creditors, accounting for roughly a quarter of unsecured debt, to the benefit of the general body of unsecured creditors.

Coulson concluded: “It is within the Government’s gift to harness the market power of unsecured creditors – not by legislating, but by doing their jobs as large and repeat unsecured creditors.”

Submitted by R3

“Typically many businesses will be caught out by the P35 deadline on 19 May, having been ‘getting by’ and not submitting the full amount of PAYE they owe each month. This deadline is traditionally a time when HMRC uncovers any shortcomings in the payments due and the payments made in terms of PAYE, as well as those businesses which do not file at all.

“I suspect this will lead to an increase in actions by HMRC in a couple of months time, as well as pushing up corporate insolvency numbers towards the end of the year.

“One in four (24%) businesses are concerned about their debts, according to the R3’s latest Business Distress Index. Of this group, 37% are worried about Crown debts and this deadline will be a test for them. Seeking professional advice as soon as possible is the best way to allay those fears.”

Submitted by R3

Ministers extend a voluntary partnership between Jobcentre Plus and Insolvency Practitioners today that has so far helped 32,000 employees facing redundancy to find new employment, claim benefits and access training.

The ‘Memorandum of Understanding’ is an information sharing initiative initially set up by Phil Wilson, MP for Sedgefield. It facilitates close working between R3, the trade body for Insolvency Practitioners and Jobcentre Plus. Under the initiative, Insolvency Practitioners give ‘early warning’ of impending redundancies to Jobcentre Plus wherever possible, which helps the agency provide support to affected employees.

The Memorandum was originally signed in 2009 by Jim Knight and Ian Lucas, the Employment and Business Ministers at the time. There has since been routine information sharing and liaison between Jobcentre Plus and Insolvency Practitioners. A new Memorandum, aiming to foster yet closer working between partners, will be signed by Chris Grayling, Minister for Employment and Edward Davey, Minister for Employment Relations, Consumer and Postal Affairs.

Phil Wilson MP commented: “Losing a job is one of the most difficult situations people can face in their lifetime. It’s essential that they receive the right information at the right time to help them access training, claim benefits and find new employment. The Memorandum has already helped support thousands of individuals and, with many businesses continuing to struggle, it will play a key role for some time to come. With cross party support and with the recognition of the new Government, the joined up working between Jobcentre Plus and Insolvency Practitioners can go from strength to strength, to the benefit of the employees that sadly pay the price of business failure.”

R3 President, Frances Coulson added: “The insolvency profession sees the human cost of business failure on a daily basis. The Memorandum helps us to work with expert government agencies to ensure that those facing redundancy are given as much support as possible at a very distressing time.”

Submitted by R3

Figures published today by the Council of Mortgage Lenders (CML) show that the number of repossessions in the first three months of this year reached 9,100 – up 15% from 7,900 in the last quarter of 2010 but down 10% from the same period a year ago. Levels of mortgage arrears were also down over the same period.

Bev Budsworth, managing director of multi award-winning debt management company, The Debt Advisor, warned: “Today’s figures do not come as a shock. Although it’s good to see repossessions down on 12 months ago, unfortunately, like inflation, I expect things to get worse before they get better as people feel the financial squeeze in this increasingly volatile economy.”

She explained: “Lenders just aren’t as confident as they were last year that they will be able to lower arrears and repossessions. According to the CML, total repossessions in 2010 were 36,300 – down from the initial forecast of 53,000 and revised forecast of 39,000, and a significant reduction from 2009 figures of 47,700. It is forecast that repossessions in 2011 could reach around 40,000 – a similar figure seen in the height of the credit crunch.

“A 2010 CML report warns that the economic recovery remains weak and cuts in government spending, tax increases, higher inflation and the prospect of rising interest rates are all likely to bear down on borrowers’ finances.

“According to Association of Mortgage Intermediaries (AMI), there is a direct correlation between unemployment and mortgage arrears. It further reports that the number of mortgages in more than 12 month’s arrears has quadrupled since 2007.”

The Homeowners Mortgage Support Scheme which was created to help borrowers deal with financial hardship and a sudden loss of income was closed on 21 April 2011. According to an interim report by the Department for Communities and Local Government, in the year up to March 2010, only 32 borrowers were entered onto the scheme.

The Mortgage Rescue Scheme is still in place and allows families to get an equity loan to reduce their mortgage or sell their home and remain as tenants. Up to March 2010, the scheme had helped 629 people.

Bev has seen a number of clients benefit from these schemes, she continued: “We have come across a number of cases where individuals with arrears have been able to sell their property for 95% of the current market value and then rent the property at less than market rates. This has allowed families to free up income to cover reasonable living costs and make a contribution to their unsecured debt.

“The continued decline of house prices since March 2010 means that there is an ever-increasing stock of houses appearing on a stagnant housing market. Therefore, for individuals in debt and with arrears, selling their property quickly is far from certain.

“As long as people can hold onto their job, dealing with the mortgage arrears is first priority followed by dealing with unsecured debt. That’s exactly where Individual Voluntary Arrangements (IVAs) and debt management plans can help as they automatically prioritise payments to secured lenders, which includes provision for clearing arrears. It is then relatively simple to get unsecured loans on reduced payments until the individual can increase their income.

“The problem really arises when individuals lose their jobs and there is little or no income for the household. This is likely to become a real problem for many more people as we move through 2011.

“Effective budgeting is vital if you are struggling with your mortgage arrears. When you know what your surplus is, you can go back and add a provision for mortgage arrears in order to clear your arrears over a reasonable period of time – usually between two and four years, however, this can be extended to the remainder of the mortgage.

“However, if you are facing repossession and you are in a position to pay your normal mortgage payment but your lender is reluctant to agree a more reasonable repayment period, you should seek legal advice. There is very helpful information on the direct.gov website which includes how to get free legal representation.

“Finally, don’t forget your unsecured debts. There is no sense agreeing to a payment plan that leaves you without enough money to live on or without the minimum payment for any credit cards or loans. If neglected, these creditors will ultimately opt for judgements and charging orders which could compound the problems even further.”

R3 President, Frances Coulson commented:

“While examining proposals for a restructuring moratorium in CVAs, the news that Government will now tackle the issue of termination clauses – whereby suppliers can cancel essential contracts on insolvency – is extremely welcome.

“R3, the insolvency trade body, has been campaigning vigorously on this issue as part of its ‘Holding Rescue to Ransom’ campaign to stop suppliers taking unreasonable actions during an insolvency, thus sabotaging any potential rescue. We estimate around 2,000 more businesses could be saved annually as a result of tackling these practices, as well as preserving more jobs and boosting returns to creditors. Maintaining a functioning insolvency regime and rescue culture is an essential part of economic growth.

“R3 looks forward to contributing to further discussions following today’s announcement, and building on support already shown from some MPs and business organisations.”

Submitted by R3