I thought it might be interesting to explore some of the
rule changes relating to advertising that were introduced in April 2009. That
is over 3 years ago now, but they are still being inconsistently applied if the
evidence of our visits is anything to go by.
I will look at what the rules mean in practice and how you should
try to comply with them in real situations, rather than just repeating rule
numbers and tracts of legislation.
Unfortunately we do have to start with at least one detailed
legislative reference, and I have used the rules for a CVL notice of appointment
as a fairly typical rule. The amended
rules relating to advertising, by which I mean publicity other than by way of a
Gazette notice, are similar for all case types and stages, so it is enough for
the purpose of these notes to look at just one rule and talk around it. The rule says:
“Rule 4.106A - Appointment to be gazetted and registered
1) A liquidator appointed in a voluntary winding up in
addition to giving notice of the appointment in accordance with section 109(1)
may advertise the notice in such other manner as the liquidator thinks fit.”
I want to highlight two elements of the new
requirement. The first is that it says “may”.
This means that you do not have to advertise, and so should exercise
discretion about whether to advertise or not.
Given that the main public policy objective of the 2009 rule changes was
to reduce regulation and cut unnecessary costs, the default position should be
that you do not advertise. Indeed, regulators have made it clear that
they expect to see any decision to advertise justified by a detailed file note
explaining the commercial reason for incurring the additional cost. Although
this has been repeated several times by regulators, the Insolvency Service and
us, we still see occasions when a practice has
advertised routinely without any thought for the potential (lack of?) benefit
to be derived from it.
When you are looking at whether you should advertise or not,
start by considering the information that you already have. Is the list of creditors reliable? Do you think that the directors have been
completely open? Are the accounting records complete? Then think about how
effective any existing publicity about the insolvency is. It may be that in a case where the directors
are unreliable and the accounting records are poor you may still not gain
anything from advertising because the failure is already well publicised in the
press. Alternatively, you may anticipate
that all creditors are financial institutions and therefore likely to become
aware of the proceedings through the Gazette notices that you have to place.
Any justification for placing an advert has to show not only that there are
potential creditors who are not aware of the proceedings, but also that the
advertising will stand a reasonable chance of coming to their attention.
So, if the first point is that you need a good business
reason to advertise before you even consider advertising, the second element I
want to look at is the phrase “advertise the notice in such other manner as the
liquidator thinks fit”. This wording
moves away from the old requirement to place a local or national press
advert. What I would like to encourage
you to do is to consider who you are trying to inform with any advert and then
place your information so that it comes to their attention. One of the reasons why there are expected to
be savings from the revised approach to advertising is that a local advert
could cost over £200 and would often fail to come to the attention of creditors. The new rules encourage you to think about
how best to target likely creditors or other stakeholders that you are trying
to inform about the proceedings. I have
seen a couple of scenarios that I repeat below for you to consider and I don’t
think either of them would be effectively addressed by a traditional entry in
the classifieds section of a local paper.
The first scenario arose when I was at the Official
Receiver’s office in Gloucester in the 90’s, but is still highly relevant. I was dealing with a local double glazing
firm where the director was believed to have disposed of various assets in the
months leading up to the liquidation, despite it being a relatively small case
with a deficiency of under £100,000. The
director was not exactly co-operative and Gazette and local adverts had yielded
few leads. Unfortunately for him, but
fortunately for Prosecution Section and the IP that subsequently pursued him as
liquidator, one of the creditors was a local paper and the local advert was
somewhat overshadowed by their commentary based on the Official Receiver’s
report to creditors that resulted in a headline on page 2 that shouted “LOCAL
GLAZIER GOES BUST OWING THOUSANDS!” As a
direct result of the additional publicity, several informants came forward and
investigations into both asset recoveries and offences took a significant step
forward.
The second scenario was more recent but is equally
impressive in its impact. A client was
appointed to a business with a rapidly shrinking niche market and some
intellectual property that was believed to be declining in value. Agents were instructed and they confirmed
that as a result of years of continuing losses the company was worthless. With no money to trade, over £50,000 in wages
due for payment and no value to recover, liquidation appeared almost
inevitable. However, given the
uncertainty in valuing intellectual property, it was decided that a short
period of administration to try limited marketing and entertain any offers
might be appropriate. Before any significant marketing had been considered,
there was a degree of interest from the national press and two or three papers
ran articles on the business’s predicament.
As a direct result of the press articles, two new purchasers came
forward and the business was sold for a six figure sum with the outstanding
wages settled on time direct by the purchasers.
What I hope these stories explain is that when you decide to
advertise “in such other manner” as you see fit, you should think beyond the
limits of a simple line-based advert.
You should try to get direct interest from local, national or trade
press and try to target your efforts at publications that are likely to come to
the attention of your stakeholders.
To make an extreme comparison, consider if you were trying
to deal with the liquidation of an IP practice with offices in several
provincial towns. It would soon become
prohibitively expensive to try to advertise locally near each office and, in
any event, that sort of advertising might not come to the attention of the
suppliers and “customers” of the average IP.
If you had concerns and felt that additional publicity was required, you
would probably stand a much better chance of attracting further interest if you
could get the local or national press to latch on to a unique angle. For example, they might be attracted to the
wordplay in “insolvent insolvency practitioner” or they might follow a
particular case that one of the offices was dealing with and focus on the
disruption that the change of office holder might lead to. Headlines like
“Creditors in limbo after local Liquidator fails” in a feature in the town
newspaper might have more impact than a dry classified advert in the back of
the same paper.
If you have no angle to work on, and still feel that a paid
advert is the best way forward, try to target it using trade magazines to get
the attention of suppliers of that kind of business. It is more likely that a modern firm will
have trade specific suppliers than local ones, although in certain businesses,
such as the restaurant trade, you might need to advertise in the local press
for food suppliers as well as in trade magazines for catering consumables and
the licensed trade.
In summary, don’t advertise unless you have a good business reason to do so and even then make sure that you target any “advertising” to make it an effective investment.
