"It took more than an argument to abolish the institution of debtors’ prison. Parliament didn’t ban the imprisonment of debtors until 1869. Imprisonment for debt was abolished in New York in 1831; the rest of America soon followed. What was already replacing it in the late eighteenth century was something that has become a mainstay of American life: bankruptcy. Eighty-six hundred Americans filed for bankruptcy in 1946; nearly three hundred and fifteen thousand filed in 1980; and more than a million filed in 2008. As many as two out of every three Europeans who came to the American colonies were debtors on arrival. Some colonies were, basically, debtors’ asylums. By the seventeen-sixties, sympathy for debtors had attached itself to the patriot cause. The American Revolution, some historians have argued, was itself a form of debt relief. In 1787, just before the Constitution was drafted, New Yorkers formed the Society for the Relief of Distressed Debtors. They launched an investigation and found that, of 1,162 debtors committed to debtors’ prison in New York City in 1787 and 1788, 716 of them owed under twenty shillings. In 1758, New York’s debtors were moved to New Gaol, near what’s now City Hall Park. Describes the horrible conditions in New York’s debtors’ prison. In 1791, John Pintard, a state legislator and stockbroker, fell for William Duer’s financial scheme, which helped trigger the Panic of 1792, the nation’s first stock-market crash. Pintard eventually landed in debtors’ prison in Newark. The idea that debt is necessary for trade, and has to be forgiven, is consequent to the rise of a market economy. Americans fought to provide the same debt relief to everyone because we believe in equality and because bankruptcy protection makes taking risks less risky. Our willingness to forgive debt lies behind a good part of our prosperity. Pintard got out of jail in 1798, and he filed for bankruptcy in 1800. He went on to found the New-York Historical Society in 1804, and to help open the New York Bank for Savings in 1819. Mentions Joseph Dewey Fay. In 1841, Congress passed a sweeping federal bankruptcy law that offered bankruptcy to everyone. Meanwhile, in 1831, the New York State Legislature abolished imprisonment for debt. Other states soon followed. Debtors’ prison was abolished, and bankruptcy law was liberalized, because Americans came to see that most people who fall into debt are victims of the business cycle, and not of fate or divine retribution."
Sunday, 31 May 2009
Saturday, 30 May 2009
"Celebrity chef John Burton Race has declared himself bankrupt.
His estranged-wife shut their restaurant, the New Angel in Dartmouth, Devon, in 2007 while he was filming a reality TV show in Australia.
Mr Burton Race, 52, later sold the restaurant to a friend who currently employs him as head chef.
The Insolvency Service said Mr Burton Race declared himself bankrupt at Torquay County Court in March. His agent has yet to comment.
The bankruptcy order granted at the court means Mr Burton Race's assets are frozen and creditors will have to apply to an insolvency practitioner to be paid.
The New Angel, bought by Mr Burton Race in 2004 for £500,000, had total debts of more than £1.1m when it closed in November 2007, administrators Begbies Traynor said.
Mr Burton Race has appeared on a number of television programmes including Britain's Best Dish.
In 2004 he moved to Devon with his family and their adventures in setting up a restaurant were documented by Channel 4 in Return of the Chef."
Thursday, 28 May 2009
Tuesday, 26 May 2009
R3's President discusses levels of personal indebtedness - Unseen debt levels in the UK - the reason for DROs?
"Almost a million Britons will be technically insolvent by the end of the year, according to a study that threatens to reveal the true state of the nation’s household finances. More than 700,000 cash-strapped customers have been declared technically insolvent by their banks without showing up on any government statistics, the figures reveal.
The thousands of “hidden debtors” have been signed up to a debt management plan with their lenders, rather than forced into formal insolvency proceedings. The study, conducted by R3, the trade body for insolvency practitioners, suggests that the true number of people in severe financial difficulty is about 450% higher than government statistics indicate.
Peter Sergeant, president of R3, said: “By the end of this year almost 1m people will be technically insolvent. The official insolvency statistics are only the tip of the iceberg. The rest of the iceberg is made up by these 700,000 hidden debtors that have been signed up to debt-management plans. “If the government wants to record the true state of the nation’s finances, these plans should be officially recorded.” A debt-management plan is an official agreement between an individual in financial difficulty and creditors. Anyone signed up for such a plan is technically insolvent, according to the R3 report. It is seen as an alternative to bankruptcy or an individual voluntary arrangement (IVA) – a softer form of bankruptcy linked to a repayment plan.
Although the terms of an IVA are set at the start of the agreement, the interest rates and repayments on a debt-man-agement plan can be adjusted over time. The study claims that 64% of individuals who have signed up to these schemes have been asked to increase their monthly repayments since agreeing to the original deal. The figures also show that the number of “hidden debtors” soared 17% in only seven months. Sergeant added: “Every day I come across young people in their early twenties who are earning maybe £15,000 in an office job but have racked up debts of £25,000 on credit cards. "At the other end of the spectrum, I recently met a couple in their seventies who had borrowed more money on their home and the man of the house had spent his share of the cash buying cars and living the high life. We have a huge debt problem in this country.”
Sargent's comments are interesting, but for some reason he fails to mention the new DRO procedure, which will almost certainly cater for a large number of the 700,000 or so debtors that might need to resort to a formal insolvency procedure. His data collection methods with both young and old debtors are also noteworthy - he is out on the ground experiencing debt at the coal face. Why though has the DRO, a major new Government initiative, been missed out from his analysis? The Approved Intermediaries (AI) will certainly see themselves as offering alternatives to bankruptcy, IVAs, and debt management plans. Why does the president of r3 not think likewise?
Monday, 25 May 2009
"The debtor Lieutenant-Colonel R. D. Temple was adjudicated bankrupt on March 2, 1927, in Kingston county court. He had not obtained his discharge in that bankruptcy and his creditors in this country were still unsatisfied. On August 25, 1942, he was adjudicated insolvent in the High Court of Justice, Bombay, the respondent, the Official Assignee of Bombay, being appointed his trustee in that insolvency. On November 20, 1945, the bankrupt was discharged from the Indian insolvency.
On September 10, 1943, the bankrupt's mother died and he became entitled under her will to certain chattels and shares. In 1944 the net proceeds of sale of these assets, amounting to 1,969l. 15s. 1d., were paid by her executors to the appellant, the Official Receiver, as the trustee in bankruptcy under the English bankruptcy. He applied to the Kingston county court for directions as to how he should deal with this sum, asking (inter alia) whether it was divisible amongst the English creditors, or was to be transferred to the respondent, the Official Assignee of Bombay. The learned county court judge held that it was payable to the respondent. The Official Receiver appealed."
Picture Credit: http://www.sacoapartments.co.uk/images/cities/195/k-u-t.jpg
Sunday, 24 May 2009
"How can we effectively quantify our experience in the present without an accurate memory and record of the past? Are we happier? Has society improved its ability to work towards the common good?These are all themes explored in George Orwell's novel Nineteen Eighty-Four, and given the remarks made recently by Fergus Ewing, the minister for community safety, it would appear they are just as important today as they were when the book was first published in 1949.Commenting on the latest quarterly insolvency figures from Accountant in Bankruptcy (AIB), Ewing said he was encouraged by the numbers, which showed a fall in the level of insolvencies from the preceding quarter. However, it appears the minister was not looking closely enough at the whole picture.The AIB said there had been 5,693 individual insolvencies in Scotland in the fourth quarter of the 2008-9 tax year. It said this represented a decrease of 2 per cent on the previous quarter and an increase of 71 per cent on the same period last year. However, both of these percentages obscure the reality.The AIB said 409 applications made during the quarter still had not been processed, while 482 applications had been rejected or returned. While the majority of the applications still to be dealt with will be successful, up to 891 applications may yet be added to the total for the fourth quarter of 2008-9. This would represent a rise of more than 13 per cent on the figures for the previous quarter and blow a hole clean through Ewing's optimism.Ewing said the rise in personal insolvencies this year when compared with the previous year was a result of the introduction of the new Low Income Low Asset (Lila) route into bankruptcy. He said: "When we introduced Lila we anticipated a significant rise in bankruptcy numbers, particularly within the first year."Lila legislation came in to force in April of last year and there was no doubt that it would create a jump in the level of insolvencies that were seen. However, the actual numbers that have materialised are a long way off the estimates that emanated from the Scottish Parliament.Prior to introduction of the Lila rules, the AIB estimated there would be a few thousand Lila bankruptcies during the first year. By the time Lila was introduced, the estimate had risen to 5,000. Now that the AIB has released figures for the fourth quarter, the real number of Lila bankruptcies for the year can be pinpointed at 9,417, 88 per cent more than its estimate of just one year ago.Further, the AIB expected that the numbers would peak early on following the introduction of the new legislation as the various advice agencies dealt with backlogs of cases which could not previously access bankruptcy. There is no sign of any slow down following such a peak and there may even be evidence of growing numbers.At an estimated amount of debt written off per case of about £20,000, the annual cost to the economy of personal insolvency is approaching a staggering half a billion pounds. So when Ewing says the political classes anticipated the rise in insolvencies from Lila, one is forced to question just how clear their vision of the future was.If Scotland is going to deal effectively with the levels of indebtedness that plague so many of its citizens and create a viable and worthwhile support framework to help those who are struggling, the first thing we must do is establish a clear and accurate record of the situation.Trying to put a positive spin on things may create upbeat soundbites for political rhetoric, but it will do little to deal with the underlying problems or help us gauge how well policies are working to improve the situation over the coming months.• Nick Robinson is chairman of Independent Insolvency Practitioners for Scotland, a company operated co-operatively by 25 independent insolvency firms in Scotland."
Saturday, 23 May 2009
In 1935 WH Cork formed a partnership with his newly qualified son Kenneth and another accountant, Harry Gully. After WH's death and a period of war service, Kenneth became the sole owner of the firm and built it up in the 1950s and 1960s to lead the field in the City insolvency work. It handled cases such as the Rolls Razor washing machine company and of Emil Savundra the insurance fraudster."
"Mr. Roger Cork is very junior in his profession. He served four years' articles in the City of London with Messrs. Moore Stephens & Co., passing his final examination in May 1969. During his articles he received a general accountancy training. He was admitted an associate of the Institute of Chartered Accountants in England and Wales in November 1969, and in the same month joined Messrs. W. H. Cork, Gully & Co., a firm which includes a number of well-known and experienced liquidators, among them Mr. Roger Cork's own father, Mr. Kenneth Cork. Mr. Roger Cork became a partner in his father's firm on April 1, 1971."
"Ought an exception to be made in this case? On the one hand, to do so might create a false impression that Mr. Roger Cork was being singled out for favourable treatment because he was the son of his father. On the other hand, I have had evidence, which the registrar did not have, of the impressive and extensive experience which Mr. Roger Cork has had since he joined his present firm in relation to bankruptcies, voluntary liquidations, receiverships and trusteeships of deeds of arrangement, many of them involving considerable sums of money. I am satisfied that Mr. Roger Cork has had sufficient experience of insolvency matters in the last three years or so to match the average chartered accountant's experience of those matters over a considerably longer period, and strictly on his own merits, I propose to appoint him liquidator."
"Sir Roger Cork died on October the 21st 2002 at the age of 55. He was a expert in corporate insolvency work and an ebullient Lord Mayor of London.
In both his professional and civic careers, Roger followed in the footsteps of his formidable father, Sir Kenneth known as "the great liquidator", who was also Lord Mayor. Their firm, Cork Gully in which Roger became a partner in 1970, was the pre-eminent name in insolvency for four decades, and had its finest hour in the property crash crisis of 1973 to 1975, when it backed the Bank of England to prevent a wide spread collapse of "secondary banks", which had lent heavily in the property sector. A scheme to hold at bay the City creditors of the Stern Group - which was Britain's biggest bankruptcy case - while its properties were sold in an orderly manner became known as "Cork's Dam."
Despite his relative youth, Roger Cork worked alongside his father on their most sensitive assignments. In 1973 he had to go to the High Court to overturn a decision that he was too young, at 25, to be a liquidator to one collapsed property company, Ickfield Development. [see Plowman, J's comments above!!] Roger's style was more approachable that Sir Kenneth's, which verged on frightening; but he could be just as effective.
When the two were appointed joint receivers to the former Fisher Bendix factory on Mersyside, it was Roger who negotiated with Tony Benn, as industry minister, an injection of state cash to keep the plant alive as a workers co-operative. "We have just consented to Roger Cork's rather arrogant conditions for refinancing the company". Harold Wilson told Sir Kenneth over lunch "who is he, your uncle?."
Roger Cork became the 669th Lord Mayor of London in 1996 - his father having held office in 1978-79 - taking as his motto "making Britain ever Greater" and declaring he wanted to "restore the pride in being British". Though his wife Barbara had died of cancer only four months earlier he was tireless in his role as spokesman for the City.
He relished the pageantry of Office, but added elements of informality: his daughters acted as hostesses at Mansion House Parties, at which the guest lists included names such as Sir Cliff Richard and Dame Edna Everidge. Nor was he afraid of controversy, making his views very plain on the inadequacy of London's transport infrastructure.
He raised £1.3 million for cancer research during his mayoral year, not least by completing a sponsored cycle ride from John o' Groats to Lands End. He averaged 75 miles a day, no small achievement for one with the proportions of a City trencherman, and called the experience "the best cure for a hangover."
Roger William Cork was born on March 31st 1947 and was educated at Uppingham. In 1965 he joined the firm of Moore Stephens, where he was articled to the senior partner Hobart Moore, a friend of his father, who told him it was better to make useful mistakes away from the family firm. Roger qualified as an accountant in 1969, and moved to Cork Gully the same year...
In 1980, as Sir Kenneth approached retirement, father and son decided to merge Cork Gully into the larger firm of Coopers & Lybrand. High profile failures such as the De Lorean car project continued to come into their hands, but the merger arrangement was not an entirely happy one. After Sir Kenneth's death in 1991, Roger returned to Moore Stephens where he built up the corporate recovery practice and was a partner from 1994 - 1999. The name of Cork Gully was expunged within Coopers, now part of PricewaterhouseCoopers.
Roger Cork followed his father as Alderman for Tower Ward in 1983, and was Sheriff of the City in 1992-93. An enthusiastic member of many City livery guilds he was a past master of the Bowyer's Company and the World Traders Company. He was president of the Institute of Credit Management. He was knighted in 1997.
Having taken early retirement from business in 1999, Cork remained active in support of the Cancer Research campaign and other medical charities, and in City affairs. In May 2002 he presided as Lord Mayor locum tenens at the unveiling of the Guildhall of a controversial statue of Margaret Thatcher, which had been commissioned for the Palace of Westminster.
Roger Cork enjoyed sailing in the South of France. He married in 1970 Barbara Harper who had been a colleague at Moore Stephens: they had a son, Christopher and two daughters: Melissa and Georgina."
"Stephen follows his Great Grandfather who established the specialistinsolvency firm of Cork Gully and his Uncle Sir Kenneth Cork, LordMayor of London, in advising businesses."
Friday, 22 May 2009
Judicial Consideration of Hive Downs, sorry Pre-Packs: In the matter of Kayley Vending Ltd  EWHC 904 (Ch), HHJ Cooke
"The purpose of the extended consideration has been to respond to the invitation made by Mr Morgan to give some guidance to the profession as to the approach of the Court to what have come to be called 'pre-pack' administration applications, in the light of the recently promulgated Statement of Insolvency Practice 16 entitled "Pre-Packaged Sales in Administrations".
"...The principal advantages of a pre-pack are well-known; they are that the process enables a business to be sold quickly, with the minimum possible adverse impact from either the public knowledge of its insolvency or the restrictions imposed by the insolvency process itself. Employees can be retained who might leave, or have to be dismissed, once a formal insolvency starts. Continuity of customer and supplier contracts can be maintained. Even if a going concern sale might be achieved by an administrator, the period of trading in administration whilst it is negotiated requires to be funded and may in any event result in a damaging leaching away of business."
"i) it may not achieve the best price for the assetsii) credit may be incurred inappropriately in the pre-appointment periodiii) they are deprived of the opportunity to influence the transaction before it takes place, andiv) having been presented with a fait accompli, they have insufficient information to make it worthwhile investigating and challenging the decisions taken."
(a)in accordance with the rules, and
(b)in such circumstances as may be prescribed.”.
Thursday, 21 May 2009
"Company administrations need more rigorous monitoring, say MPs. Barry Turnbull reports
INSOLVENCY firms have never had it so good. The recession means that business is booming for the companies that are called in to sort out the affairs of failing or doomed enterprises.
But the avalanche of new business – insolvencies were up 43% in the first quarter – is also accompanied by calls for a tightening of the rules surrounding administrations.
Earlier this month, Parliament’s Business and Enterprise Select Committee attacked the potential abuse of pre-pack administrations, phoenix companies and the exorbitant fees charged by some practitioners.
A pre-pack deal allows troubled companies to be sold to the owners debt-free, straight after going into administration. Phoenix companies are those that also emerge from the ashes from a failing concern, with the same people involved and unsecured debts written off.
Select committee Chairman Peter Luff said: “We need a regime that stops the abuse and protects creditors from unduly high fees.
“A particular concern is that cosy arrangements are made which leave unsecured creditors in the dark and ultimately out of pocket.”
Some insolvency practitioners take a different view and argue that more jobs would be lost and businesses wound-up without being able to come to quick arrangements with existing management teams.
In Merseyside, there have been a number of insolvencies that have resulted in management resuming control while writing off much of the debt burden.
Cains pubs and brewery business collapsed into administration with debts of £50m and the solvent brewing part of the business was bought back by owners Sudarghara and Ajmail Dusanj for £103,000.
There are two other cases that share a number of similarities, including administrators, directors and the collapse of two famous Merseyside names that were subsequently rescued.
Owen Owen, owners of Lewis’s department store, went into administration and was later bought back by directors David Thompson and John Barker through a new company, Vergo Retail, leaving a trail of unsecured creditors out of pocket.
Ethel Austin was struggling with cashflow problems when its debts of £25m were bought for a reported £14m by a company called Project Steve Debtco – directors include David Thompson and Elaine McPherson.
One day after PSD took over, it called in the company debt and appointed administrators. To date, PSD has received £19.9m in preferential creditor payments. Unsecured creditors may get back £600,000 out of £6m owed.
Administrators in both cases were Philip Duffy and David Whitehouse, formerly of Kroll and now with Menzies Corporate Recovery, in Manchester. Both administrations have realised over £1m for each practice.
Business partners Thompson and McPherson earned £40m from the sale of the Mk One chain in 2004, and also bought Scottish homeware chain Au Naturale out of administration last year.
The task of Manchester-based Owen Owen administrators Kroll was to find a buyer for the business, and it was initially claimed that there were 70 expressions of interest for the stricken company, which traded from four stores, including Liverpool.
As the deadline for an agreement loomed, the interest failed to result in a sale, but, at the very last minute, former directors David Thompson and John Barker came forward with a bid for three stores via a new company called Vergo Retail.
The company had debts of £6.8m. Mr Thompson, as a secured creditor, received £4.8m – a shortfall of £1.5m – but he was able to buy back the business for £5.4m. Unsecured creditors were left £5m out of pocket. The administrators’ fees weighed in at £1.2m.
Mr Thompson argues that it was the only way to save the business after attempts to find a buyer failed. He said: “This wasn’t a pre-pack agreement. There was about three months between the administration and the purchase.
“And they are not necessarily bad things anyway, if jobs and business can be saved.
“The alternative in our case would have been closure, but instead we saved many jobs.
“I know some unsecured creditors will have lost out, but most were happy to resume doing business.”
Kroll’s fees of £1.26m were made up of 6,293 hours charged at an average rate of £163 an hour. Rates vary from a senior partner charging £385 an hour, to a junior support worker claiming £65 an hour. Some people would view such rates as being a little on the high side. The company said: “Our general approach to resourcing our assignments is to allocate staff with the skill and expertise to meet the specific requirements of the case.”
In another case, retailer Ethel Austin was about to fold when £25m of debts were bought by entrepreneur Elaine McPherson for a reported £14m via Project Steve Debtco. Immediately the company was placed in administration, enabling her company, PSD, to become senior creditor.
PSD demanded payment in full, a move which triggered the administration.
Executives associated with the group remain staggered by the turn of events to this day. They thought the takeover move was to effect a turnaround of the business, not to place it in administration.
More than 30 stores were closed and hundreds of jobs were lost. One source said: “Many jobs were lost, suppliers were out of pocket, but some people did very nicely out of the whole deal.
“The way these sort of things are carved up is nothing short of scandalous, there are too many times when buyers and administrators come to cosy arrangements to benefit each other.”
The administrators were Philip Duffy and David Whitehouse, the pair who were originally engaged on the Owen Owen administration, but who switched to Menzies Corporate Recovery during that period.
Mr Duffy said: “Ethel Austin was advertised for sale in the usual way and the highest bid was accepted. In terms of shareholders, there will be around £600,000 for distribution to unsecured creditors, representing around 10p in the pound, which is far higher than the usual rate of 2 or 3p.
“As far as fees are concerned, they do not come out of the creditors fund, but are usually through the banks.
“If you are talking about pre-packs, we supported new guidelines that were brought in at the start of the year, and reputable firms are happy to see rigorous regulation. It is those that are less reputable where you might find examples of sharp practice.”
Dominic Vincent, of corporate lawyers Mace & Jones, said it was essential administrations had clarity, but added: “I think it’s fair to say the insolvency practitioners are already pretty heavily regulated and fees are prescribed by the Insolvency Act.
“There is also guidance on pre-pack administrations and there should be widespread consultations in order to get the best result. It is a mater of how the regulations and guidelines are policed.”