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Wednesday23 July 2014

Our main client has unexpectedly gone into administration...

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Our major client has unexpectedly gone into administration owing us money and reducing our workload prospects, which means we face insolvency ourselves. What is the best way forward?

This is a shock that all businesses dread. There you are, skilfully running a business through a challenging recession and then suddenly, through no direct fault of your own, everything changes and you have a failing/failed business to deal with.

You must get and heed the best insolvency advice you can afford, but also talk to your funders, clients, staff and creditors. It is vitally important to keep everyone on-side and to act professionally. Focus on keeping the rest of the business going as best you can, cutting costs and overheads, getting your invoices paid promptly, and growing the workload. If you can’t keep going, the decision on what to do may not be ultimately yours, but your funders and creditors. The three options are:

Liquidation - Winding up the practice and closing everything down. This leaves clients high and dry, employees out of work and unsecured creditors out of pocket. If prospects are bad, this may be the only solution – it is the most finite and leaves all the wreckage behind you – but it could make it more difficult to set up a new firm and gain funding, clients, etc for any new venture. It may also affect your professional reputation, so do check the implications with Arb and RIBA.

Administration - Getting an insolvency administrator appointed to take over the running of the practice from the partners/directors. The administrator’s objective is to find the best deal for the creditors (not the owners), which may be to continue trading and build up the business, or sell it on, or sell the assets and wind it up, depending on whichever creates the best value for the creditors. You, and some of the staff, may be asked to continue working for the administrator to keep the business going, if only for an interim period. It may be possible to buy back company assets (including ongoing workload, office leases, etc) from the administrator and transfer these into a new or another existing practice.

Voluntary Arrangement - Existing directors/partners making a formal agreement with creditors (including the tax office) to pay an agreed proportion of the debt over time by continuing to trade. This needs to be formally registered by the courts and have binding agreement with at least 75% of the creditors. It is only feasible if the creditors believe they will get a better deal this way than by liquidation or administration. You stay in control, but you need to be realistic that you can rescue the business and meet your commitments.

The decision depends on the specific situation of the practice, the creditors (particularly your funder and the tax office) and the views of the insolvency advisers.

It also depends on your own character, skills and ambitions for your future.

The decision will affect your future career and reputation with clients, employees, suppliers and the public. It will also affect you own self-image. Get the best financial and legal advice you can and keep close to your clients and creditors. Keeping close is critical to avoiding being surprised again by clients going bust and also owing you sums of money that put your business at risk. RB

Can contractors tape phone calls?

I negotiated a resolution of a claim by telephone and the contractor disputes the terms of the agreement reached. He says he recorded the call, is this legal?

While it is not illegal for an individual to record conversations for their own use, if, as the contractor is here, you are planning on making the recording available to others, then different rules apply.

Various pieces of legislation have been passed to prevent people hacking emails or tapping into someone else’s telephone calls. This was never really intended to cover the situation here, but it would probably stretch.

First up is the Regulation of Investigatory Powers Act 2000 (RIPA). This regulates the interception of postal and electronic communications (including telephone calls) and makes it a criminal offence and a civil wrong to intercept such communications without consent.

It has been left to the courts to decide what “interception” means but taping phone calls would, I suspect, count. RIPA is subject to numerous exceptions. For example, businesses can record calls to establish facts or for quality standards. However, you are meant to inform the caller of this. Hence, the annoying messages you hear when you dial a call centre.

The Data Protection Act 1998 may also apply. It is a requirement that use of data is fair, and that at the time you collect the data (ie record the call), you inform the individual of what you are doing with their data. This act is one of my personal bugbears in terms of the clarity of its drafting, but your case is probably a technical breach of the statute.

Finally, regardless of the legality of the recording, the contractor will need it to be admitted in proceedings otherwise its use is redundant. Although settlement negotiations are generally conducted on a “without prejudice” basis, such material may be admissible when the issue is whether a concluded settlement has actually been reached. Ultimately, the judge will decide what evidence to admit. More likely than not, though, he would allow it – secret video evidence has been admitted showing claimants gambolling around when they are meant to be laid up in bed.

In short, the recording would probably be admissible, but the contractor would get strong noises of disapproval from the judge, and may get penalised in costs. Taping the call without your knowledge and consent could be in breach of various pieces of legislation, but whether, it’s worth pursuing is, I have to say, a different story. PP

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