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Interview with Mr. Vertsonis K. - Trainee Solicitor at Portsmouth City Council
A brief legal view on basics with Konstantinos Vertsonis.
September, 2016
London
UPECO: What are the motives and disadvantages of someone starting a business in the UK?
Konstantinos:
There are plenty of financial motives in establishing a new business in the UK. On a legal point of view, taxation is fairly relaxed for new businesses, there are options available such as 'Carry Forward' which allows an investor to use realized capital losses to offset the taxation of capital gains in future years. The structured stable and fair taxation system is a great environment for a new business. Although the Brexit vote has led to some fear and a minor level of uncertainty, the overall foundations of the British economy are welcoming. On top of that, the Bank of England has never before had so low interest rates, nearing 0%. This makes bank loans for already established businesses cheaper and easier to get. On the other hand the UK does not have cheap labour, and has very strict employment laws with hefty fines for breaches. The operational costs of a business can be quite steep, especially in the urban regions of the UK and more so in the City. As a result careful financial planning and seeking the advise of a professional is essential when embarking on a new venture.
UPECO: What is the position of shareholders and Director when a company declares bankruptcy?
Konstantinos:
In the event that a Limited Company (Ltd) is forced to declare bankruptcy, the position is usually quite clear in the UK. An Administrator will be appointed and will proceed to liquidate the assets of the company in the most efficient and profitable way possible. It is almost always the case that secured creditors will be the first to receive their stake from the proceeds. When they have been satisfied and if there is anything left from the liquidated assets, the unsecured creditors will be satisfied. The remainder of the monies (if any) will be fairly distributed among the shareholders based on the number of shares they hold. This often results in the shareholders receiving a few pennies for every pound they have invested in buying their shares. A Director's personal assets are not affected by the bankruptcy unless there are special circumstances such as the lifting the veil of incorporation by the Courts or personally guaranteeing for company debts. The position is slightly different where the organisation is a Partnership (e.g LLP). Although this may be a short overview, it becomes quite clear that the UK has strict, transparent and relatively straightforward rules and timelines that govern the event of a bankruptcy and this adds to certainty, helps with financial planning and allows room for investment.
UPECO: What should the new and older entrepreneurs watch out for in relation to their obligations to third parties?
Konstantinos:
All entrepreneurs should firstly make sure they have robust and organised compliance department in their business. Obligations to the Companies House (such as the filing of annual accounts) and to HMRC must be dealt with timely and in a professional manner. This will not only allow the business to continue uninterrupted but will also inspire confidence in investors, employees, and business associates. Outsourcing these services to specialised, qualified professionals may be a more efficient way of dealing with these requirements. In respect of a company's obligations to other organisations I am of the opinion that Liquidity is the most important factor in a healthy business. It is the lack of liquidity that may often bring a premature death to a business and thus the ratio of 'readily available funds'/'current obligations' should always be kept at a healthy level. Again it is accountants and specialised consultants who can advise on the appropriate levels required in every business. Other very important issues would be the level of customer service provided, and the compliance with rules and regulations applicable to every sector. One example would be the Legal sector where the accounts are not only HMRC's subject of scrutiny but also the Solicitors Regulatory Authority. There is therefore a complicated web of rules and regulations to abide by. This again highlights the importance of receiving correct professional advice in these matters.
UPECO: How easy is for someone to Claim a client commitments in the UK. How Just is the UK Commercial Law?
Konstantinos:
The process of claiming without litigation is rather simple in the UK. If a debtor delays payment or refuses to pay, the Companies Act has provided organisations with a very simple yet efficient tool. A notice of statutory demand asking for payment of a mutually recognised debt would allow the debtor 21 days to pay back the debt. Failing which, the creditor can apply to render the debtor bankrupt. The UK legislation has incorporated several EU directives over the last few decades. However, the UK legal system has maintained its own character in respect of the relation between commercial claims and legal costs. The fairness in commercial litigation is often hindered by the legal costs involved, especially for small and medium size companies. If for instance the value of the amount claimed is predicted to be substantially less than the cost of litigation, then the Claimant is at a disadvantage. The pressure to settle for a lesser amount than he would otherwise claim (with a view to reduce legal costs), may be great as a Judge would always put serious consideration into the cost of litigation. All the above are issues that a financial consultant/accountant will be aware of and would take into consideration when advising a business on when to claim, how to claim and what steps would minimise losses.
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ATTENTION!
This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.
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