17 September 2015: “If you’re unable to pay your tax bill; then call BRI” is often a message we tell people. These sentiments certainly rang true with an enquiry that BRI recently dealt with.
H M Revenue & Customs (“HMRC”) had petitioned for the debtor’s bankruptcy and a hearing was scheduled to be held imminently. BRI was able to facilitate an adjournment of the hearing, so that discussions could be held with the principal creditor, in this case HMRC, in order to find an acceptable solution for both the debtor and all of his creditors. Had BRI not been able to obtain an adjournment, it was more than likely that a bankruptcy order would have been made.
In order to avoid bankruptcy, the debtor sought to enter into an individual voluntary arrangement (“IVA”) with his creditors. The debtor presented a proposal to all his creditors, whereby an estimated dividend of 49 pence in the £ would be achieved over a period of 5 years.
The IVA option meant the debtor would be in a position to make regular contributions from future earnings. If adjudged bankrupt, however, the debtor would not be able to continue in his current employment and his ability to generate a sufficient level of income to make such a contribution would have been curtailed. As a result, the unsecured creditors would have only received a dividend of 4 pence in the £.
With the IVA option providing a significantly greater return to the debtor’s creditors, what happened next was certainly not anticipated. The principal creditor rejected the proposals, primarily on the grounds that the debtor’s matrimonial home was not being introduced until year 4. It was made clear that the proposal would only be accepted, if the debtor’s interest in his matrimonial home was introduced within 18 months of the IVA being approved. This required modification fundamentally meant that the proposal was no longer viable, as the individual wouldn’t have been in a position to deal with property within this time frame and therefore it would have ultimately failed after 18 months.
Whilst HMRC understood that bankruptcy would result in a lower return in relation to their outstanding debt, they took a firm stance and were unwilling to deviate from this position. The outlook for the debtor looked pretty bleak and bankruptcy appeared to be inevitable.
However, after considering various alternative scenarios, a comprise was reached with HMRC whereby the debtor agreed to introduce the matrimonial home within 24 months on the grounds that the regular monthly contributions into the IVA were reduced. This compromise meant that the creditors would be accepting a reduced dividend of 44 pence in the £, but it would facilitate a greater return within a shorter period of time (i.e. 2 years instead of 5 years).
Our latest dealing with HMRC has given an indication of their current mindset in dealing with the recovery of debts within an insolvency situation. The BRI team are vastly experienced in dealing with HMRC, especially when trying to reach an amicable agreement between all persons concerned.