Urgent Opinions please

[pennyfortheguy]

Dear all - although I have been reading your forums for quite some time, I have finally plucked up courage to register & this is my first ever posting and I apologise in advance for a lengthy note, but I feel I have to put as much explanation in as possible for best advice.

I have proposed a F&F IVA based on £50k settlement for approx £100k debt - resulting in 43p in £. One of the creditors is HMRC for income tax underpayment. From Day 1, my IP was advised this had to be a very-short term fix as I am a Company Director and the exposure of being on Insolvency Register too long could prove very costly to the business if I was discovered to be in IVA (due to my line of business).

Although I agreed to have a max 12 month limit on the IVA, the IP was confident he could pay off creditors within say 6 months and I would be off the Ins Reg 3 months thereafter (say march/April 2009).

One day before the creditors meeting, IP phones me up & says HMRC want a 20month max IVA to allow for self assessment for 08/09 to be filed. Bang goes the short term fix and my exposure to Ins Reg is now 23 months!

The other creditors all appear to have agreed to IVA (43p in £) subject to modifications, but due to HMRC issues the creditors meeting was adjourned hence why I am requesting urgent guidance & opinions.....

The majority of the mods proposed by other creditors are generally OK although some have obviously not read the Proposal eg referring to equity release clause when its proposed as a F&F short settlement, car lease balloon payments when I don't have a personal lease plus a few other quirky ones.

The IP is unhappy because some of the creditors wish to reduce his nominee fee from £2744 (incl VAT?) to £1500 in 1 case (Q. I presume that is for him to agree to?).

The HMRC state that they are unable to give final figures until I have provided them with Self Assessment (SA) for 08/09, which means IP cannot issue dividends until say April/May 09. However, the final SA can't be submitted until Jan 2010 so HMRC have asked for 20 month IVA.

My friend who is putting up the £50 lump sum has a vested interest in my business and is unhappy at the increased length of IVA term and my exposure to Ins Reg for possibly 23 months (as of course, I am!). So, some questions please:

Q1. we feel the IP has been negligent in suggesting he could conclude a short term IVA and proposing the max 12 months proposal as he should have known HMRC would come up with these mods & in fact the Protocol terms he has enclosed within the Proposals include these terms (I had not realised the implication of them at the time - but do now!). Is he negligent? does he deserve all his fee if the agreement does not go ahead?

Q2. Is there any way I or the IP can get HMRC to agree a side agreement to pay them a sum of money (monthly or lump sum) to get quick conclusion to IVA for all other creditors and what I owe HMRC up to now, thereby concluding IVA much earlier? [Friend will put up money to HMRC as required]. We get IVA out of way, SA is completed as proposed short timetable. Is this possible, or some other idea please?

{my salary is PAYE so amount owing to HMRC come end of year will be very minimal or nil. HMRC may even owe me as I am changing to a cheaper [better CO2] company car next month & this will reduce my tax burden).

Q3. I am worried that once all other creditors see HMRC mods & requests for 20 month IVA and they won't get a dividend until next year (according to IP) that this may also ruin what appears to otherwise be an agreement all round? any views?

Q4. IP has stated I have 2 options: (1) continue with IVA & accept mods as appropriate at next [final] creditors meeting; or (2) not proceed with arrangement leaving creditors to pursue recovery of their debts. But where would option 2 leave me? Bankruptcy not an option as Company Director & now that creditors know my financial position, I guess DMP not an option either?

which leads to my next question........

Q5. is ther any merit in coming out of IVA, paying off HMRC what I owe them at present day, then offering all other creditors 40p in £ as F&F deal. If friend withdrew funds, I would have to resign from business and go bankrupt which IP works out as 3p in £. I loose my job and so 5-year IVA not an option, hence original instruction to IP that I needed a quick-fix short period IVA!

Q6. If the idea in Q% is not thrown out by the experts on the forum, can I ask the IP to offer the 40p in £ so they get all their money now (except HMRC who will be fully paid outside the arrangement). I am however concerned that I am making HMRC preferential creditor but if other creditors agreed, is this such an issue?

I hope you can all see my predicaments and I again aplogise for such a lengthy note. I just hope that the scenarios and forum responses will assist others in the future.

My situation is urgent due to the clock ticking before next creditors meeting so thank you all in advance of your anticipated urgent replies? Thanks for a great forum!

[kallis3]

Hi, and welcome to the forum.

I am not an expert, but I am sure one will be along to advise you shortly.

[pennyfortheguy]

Thanks Kallis3!

[Adam Davies]

Hi
This is one for our professional IPs and I will email them directly so that they can respond to your question
Regards

[pennyfortheguy]

Thanks Andy! that's very good of you - much appreciated.

[MelanieGiles]

Hi there

As an IP and forum expert is is difficult to give specific advice to you regarding your case, as I do not have detailed knowledge of your background or reasons for financial difficulties. And of course you are being guided by your own IP at present.

However from the facts that you have presented I would comment as follows:-

1 It is widely known in the insolvency profession that HMRC are unable to finalise their self-assessment claims in a speedy timescale, and certainly not within six months from the date of acceptance of an IVA. They have a fairly rigid system, and it is unlikely that you will see your IP persuading them otherwise - especially if there is a history of non-compliance with personal taxes. I fear that you will have to sit this one out and wait. I do not think that your IP has been negligent, but I feel that he ought to have advised you better of the workings of HMRC's system of dealing with tax matters under IVA proceedings.

2 I have dealt with this in the past by specifically dealing with the tax for the current year and seeking to exclude this from the IVA - thereby you would need to make a full payment for all tax due for 2008/2009 as soon as that liability crystallised. This has worked in the past - and potentially gives HMRC a better return as they get paid in full for that year rather than receiving a dividend, although it has to be explained to the other creditors within the IVA proposal as potentially this means that a creditor is getting preferential treatment. Presumably your IP has provided for tax payable for the 2008/2009 year as a claim in the IVA - although you do say that this may be negligible? It may be possible to broker such agreement now with HMRC, but they will not be sympathetic to your reasons - ie a quicker closure of the case and therefore quicker removal from the insolvency register.

3 The timescale stipulated by HMRC is unlikely to affect the rest of your creditors, but this will need to be brought to their attention by your IP.

4 If you decide against accepting the IVA, why not try and broker deals directly with the creditors? I think that you will find this difficult with HMRC, who as a government body cannot be seen to be accepting short payments without the background of formal insolvency proceedings, but it could be worth a try. At the end of the day you are only offering 43% of the amount you owe to creditors, so I would have thought even being on the register for eight months longer could still make the IVA worthwhile - although I accept that the funding is coming from a third party and that this may jeorpardise the offer to you.

5 How could you pay HMRC in full and your other credtors 40p - if you are offering 43p to all of them at present. There is nothing to stop you doing this, but professionally I would have to advise you that it would be wrong to prefer one creditor in this manner over the others - unless the preference is specifically explained to creditors within the body of the proposal as I have outlined above.

You will have to decide what is best for you personally and your business moving forward into the future. If I were acting as your IP, I would be advising you that the extra eight months is unlikely to make too much difference, and that you are getting the benefit of a 57% write off, but if your funder is not prepared to fund on that basis, the whole issue could be academic at the end of the day.

[pbeck]

Hi

Melanie has answered this topic comprehensively and I agree with her opinion.

[pennyfortheguy]

Melanie - thanks for the advice & pbeck for your comment. The financial difficulties are personal and not busines related and stem from ease of getting credit and subsequent ill-health issues.

One Q that was not addressed in your replies is who decides the issue of the reduced Nominee fee please? the IP or me?

Melanie - re your reply in Q2,the reason for the short IVA is mainly due to the possible business impact if someone finds out I'm on the Ins Reg - I have seen other posts where there are people with businesses who have been "googled" and found easily on the Ins Reg. I keep reading about HMRC wanting to be sympathetic towards businesses & want to help so I would have hoped they could be sympathetic, especially if there is a chance of loosing the funding & 43p in £ now as opposed to potentially 3% in BR.

I do like the answer in Q2 which provides a positive counter-proposal for HMRC to get all due to them for 08/09 if 08/09 is left out of the IVA. Thanks for that! Where do I stand if the other creditors do not agree to the HMRC mods? does the HMRC over-rule everything else?
Thanks

[MelanieGiles]

The Nominee's fee has been reduced at the will of creditors - and I suspect that you owe money to creditors represented by KPMG who have recently introduced this reduction. As you can imagine it is very unpopular with IPs, and personally I cannot see how we can do a proper job for such a low reward - but this is a matter for your IP to discuss with the creditors' representative to see if they can broker a larger sum if necessary.

I note your requirement for a short IVA, but I am afraid the minor level of publicity this process currently affords, which in my opinion is completely unecessary, it relatively modest compared to the ability you have to write off a substantial portion of your debts. Although there has been a little frenzy about this register on this site, the vast majority of the general public and business men/women alike do not know of its existence, and even if the register was taken off Google an interested party could still obtain the information about your IVA by applying to the Insolvency Service directly.

The HMRC vote may be critical in you getting an IVA approved. How much do you owe to this creditor in total?

[pennyfortheguy]

Thanks for your further comment. HMRC are 7.6% of the total.

[MelanieGiles]

Then, so long as your IP works hard to pull in votes from other creditors, it is likely that these modifications can be outvoted in any case.

[pennyfortheguy]

From info provided so far by IP, it seems I have 65.5% (excluding HMRC's 7.6%) of the 100% already looking like they have accepted subject to modifications. Are you saying that if all other creditors reject the HMRC proposal for 20 months the IVA may still be able to go through at the original max 12months as proposed? If yes, what is the number of yes votes needed at next creditors meeting please and how does the IP calculate the dividend if HMRC say they can't work out the final amount I owe them until I submit 08-09 self assessment? (assuming IP cannot convince HMRC & other creditors to go for the idea you had above to exclude 08-09 from the IVA proposal? ).

[MelanieGiles]

Your IP needs to get a majority of 75% of the votes from creditors supporting the arrangement to outvote HMRC's modifications - but in theory this may not help as he/she still cannot close your case until they have an agreed final claim from HMRC - which will take longer than the 12 months suggested unless he can speed up the HMRC process.

[pennyfortheguy]

Thanks Melanie. Sorry I couldn't respond last night.
Regards

[pennyfortheguy]

Melanie - thought I would give an update following your brilliant suggestion above for this tax year to be excluded from the IVA. Persuaded IP to call them with the idea (ie HMRC agree to exclude 08-09 tax year from IVA, thereby they get 100% debt repaid and F&F IVA gets completed early).
The IP has been back to me to say that HMRC are following their "policy" (???) and will not exclude current tax year. The HMRC man said they would take the point further if I could get an accountant to confirm that I have paid tax for 07-08 and that my tax code for 08-09 is being reflected in PAYE tax coding. It is a shame that HMRC clearly have staff that do not appreciate that those in financial difficulties are not easily able to find more money to pay accountants to do this, when clearly I have a P60 which confirms the tax paid for 07-08 and current payslips showing the tax that is being paid monthly. I wonder if you have a view on this rather harsh and uncommercial approach by HMRC?