Manolete Through the Lens by Charlotte May

 

In my six years at Manolete, I have not had the same question or case query posed more than once; every case is unique or somehow special in its own way. However, there are many patterns to the work I encounter and the claims Manolete pursues.

 

The most common type of insolvent companies I see day-to-day are construction companies and take-away retailers. Below I look at how office holders can investigate potentially missing assets.

 

It is a difficult economy for construction companies: they are invariably reliant upon delivery by other suppliers or contractors and cashflow is notoriously tight. The hardest part is sometimes spotting the claims for construction companies; there might be unaccounted withdrawals which are obvious on the bank statements, but what else (if anything) might have gone missing? 

 

One positive is that there tend to be more books and records generally available, or counterparties and suppliers to help fill in the knowledge gaps. The problem is that assets being developed may only be recorded in the balance sheet at book value and not gross development value, making it hard to spot a reduction in capital assets. How can an office holder spot something that he or she never knew was there in the first place? 

 

If a construction company is finding cash tight and has trouble selling on practical completion, a director might be tempted to acquire a property or development themselves or transfer it to a family member. On one such case, the liquidator was unaware the director’s own property had been built by the company and transferred it to him at an undervalue. The company had failed to sell in a difficult market and the property was funded by expensive bridge lending. In the director’s view, he was helping the company save money because the loan was so expensive. Unfortunately, he had purchased the property at about £300k below market value. 

 

In reviewing various other claims against the director, we noticed the director’s property was fairly new and decided to obtain historic searches at the Land Registry to see how it had been acquired. This revealed the transaction at an undervalue, not otherwise evident from the books and records. This was a very straightforward claim that significantly boosted the overall claims and led to settlement. I would highly recommend office holders to check the historic records if the property has been owned for less than a few years. A PN1 search can be helpful where appropriate.

 

Takeaway retailers can sometimes be run on cash-only transactions which makes records difficult to discover, let alone review. Given the increase in contactless payments and reduced popularity of cash, some retailers have adapted by misusing the shop’s EPOS or ‘Electronic Point Of Sale’ (a form of electronic till). EPOS tills mean a business can seamlessly record sales to bookkeeping software which is in turn used to account for VAT. However, some retailers take the customer’s card payment but then immediately ‘cancel’ the transaction so that it is not recorded in the sales, therefore turnover is not properly declared and VAT is underpaid. 

 

HMRC have powers to enter a business and analyse the EPOS tills to investigate potential underdeclared sales. Any reports by HMRC are very helpful, as they are very forensic and help to build a picture of what might be unaccounted in the business. 

 

If an investigation by HMRC is not available, an alternative is to review the bank statements to determine if the income reflects the stated turnover. A further alternative is to look on the bank statements for any income from online providers such as Just Eat and Deliveroo. An office holder can seek information on the retailer’s account with the online provider to determine if the bank statements reflect the stated trading. 

 

On one claim against a chip shop director (who had used the ‘cancel’ button for every other transaction), we had concerns about recoverability as initial enquiries revealed no property ownership. The online map view of the business showed some flats above the rented property. Searches at the Land Registry revealed these flats were owned by the director. A planning search also revealed another property that was being developed. The director settled with us in full shortly after we informed him we were aware of his other properties. 

 

So again, Land Registry searches proved decisive when settling this case and so giving creditors better access to justice. 

 

ASSOCIATE DIRECTOR FOR THE SOUTH-WEST AND WALES