King of the creditor jungle

King of the creditor jungle

The taxman's pursuit of unpaid taxes may mean it is getting the lion's share of money owed to creditors

In April 2007, HM Revenue & Customs created a specialist unit called the
Insolvency, Compliance and Securities team (ICS).

The primary objective of the unit was to maximise the recovery of unpaid
taxes while ensuring a level playing field for trade creditors and employees.
The ICS team targets formal insolvencies and abuses by directors of those
businesses where tax is not paid and the Crown suffers as a result.

When the government initiative was launched, there was a lot of speculation
among insolvency practitioners as to its implications. Was there going to be a
drastic change in the approach taken by this government taskforce when dealing
with companies that had fallen into formal insolvency?

And the new unit has led to much change. The ethos of the ICS team now
reflects a proactive, robust approach to retrieving monies due to the Crown. The
targets are companies where Crown debt exceeds £10,000 and has a successor
business with the same management.

The ICS team members have in-depth insolvency and intervention expertise and
can (and do) take a firm line on persistently bad payers and those owing
substantial amounts. But the difference now with ICS is that it is flexing its
legal rights under the insolvency legislation, rather than through direct
recovery powers.

Indeed, on appointment, ICS team leader Bob Le Cross said that the team would
not shy away from pursuing directors under the Insolvency Act or issuing
personal liability notices on directors in appropriate circumstances.

Over two years later, the ICS team’s objective of participating in corporate
insolvencies to maximise recoveries has had a significant impact. There is
however a concern that there may have been a detrimental effect on other general
creditors.

The ICS model has also potentially given rise to uncertainties in relation to
the appointment of insolvency practitioners. IPs have expressed concern in
relation to the idea of any informal system operated by ICS, as this can leave
the appointees open to criticisms of not being independent.

It is also clear that if ICS works to its own mandate, there may be conflict
between the Crown and other creditors.There are concerns that that IPs appointed
by the unit could face challenges in relation to their independence and acting
in the interest of all creditors.

Under ICAEW rules, the insolvency profession is discouraged from obtaining
more than 25% of its work in any one year from the same source, barring notable
exceptions, such as large scale assignments.

This restriction is set out with the objective of preventing IPs from
becoming financially dependent on the introducer.

This leaves the position where there is an engaged and knowledgeable
creditor, with time and resources to support the application of the full effect
of the insolvency legislation in appropriate cases.

It does however open concerns about a dominant position in the marketplace,
and how that issue still ensures better returns to all creditors, while
vigorously championing the pursuit of errant directors.

Tony Murphy is a partner at Bridge Business Recovery

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