News

HMRC is often the primary creditor in many insolvency cases and will often play a vital role in deciding whether a Voluntary Arrangement will be successful. For an arrangement to succeed it must achieve the support of 75% of voting creditors.

This article provides an update on current trends and views of HMRC in considering proposals.

Pre-appointment consultation

Insolvency Practitioners often seek the view of creditors before full drafting of a proposal is undertaken. This can save time and expense of drafting full proposals and is encouraged throughout the profession. HMRC has advised that they do not have the resources to deal with this approach.

Is it a commercial decision?

The short answer is NO; HMRC’s key concern is compliance history, creditability and honesty of the company or individual proposing the arrangement. The decision isn’t just about offering a better return but will focus on what has genuinely changed to ensure future compliance and delivery of the arrangement. If this can’t be proven then a proposal is likely to be rejected.

Reasons for rejection

HMRC encourage its case officers to consider whether the offer being made is the best in the particular circumstance. This suggests that they don’t simply compare the quantum of the offer to the potential return in Bankruptcy. HMRC could for example suggest cost cutting measures to enhance the return from an arrangement. This could include a suggestion that the debtor moves to smaller / cheaper accommodation.

Some common reasons for objection are as follows:

• HMRC as the only creditor – the Crown does not accept that taxes should be treated any differently than other business expenses. A dim view is taken of anyone who funds losses from retention of Crown monies.
• In Corporate cases Director’s Disqualification issues could trigger a rejection. In a CVA the Insolvency Practitioner does not have to submit a Disqualification report on the conduct of the Director’s. Therefore a successful arrangement could help a Director avoid a Disqualification.
• HMRC will reject arrangements of serial offenders, this includes repeated issues with filing returns or keeping up with Time To Pay arrangements.

HMRC considers each case on its own merit, compliance history and credibility often outweigh the commercial considerations.

This can be frustrating for clients and also other creditors who may for example prefer a chance of 10 p/£ against nil return in Bankruptcy.

Next steps

Given the focus on history and compliance it is important to file returns with HMRC on time. If arrears begin to build up seeking Insolvency advice early will boost the chance of rescue. As outlined failed Time To Pay arrangements may buy time but they could erode any chance of rescue if a formal voluntary arrangement is proposed down the line.

If you or your client is facing financial pressure particularly from HMRC and wants to consider a Voluntary Arrangement please do not hesitate to contact our team on 028 8775 2990.