Booze in Debt Recovery News

There have been some notable alcohol-themed insolvencies over recent times. Here are the highlights!

Wining & Dining on HMRC

The director of Dale Global, a London based alcohol wholesaler has received a seven-year disqualification for tax evasion. The company was classed as a micro-entity principally because of staff numbers and a balance sheet of less than £310K. Accounts for the first six years showed modest trade and liabilities below £7K. At face value, it seemed the company had no use for debt collection agencies and the absence of CCJs indicated debtor collectors rarely came knocking. When the business became no longer viable it was placed into creditors voluntary liquidation. Things began to unravel for the director when liquidators identified liabilities approaching £1M. This had not been reflected in the company’s tax return filings and prompted an investigation by the Insolvency Service. The director did not contest that the tax returns submitted were inaccurate. With the full picture uncovered HMRC debt accounted for circa. 70% of the liabilities. With no recoverable assets, a dividend could not be made to creditors before the company was dissolved.

Corked Opportunity

The Official Receiver was appointed liquidator to a Southampton based fine wine investment and brokerage firm. In the modern world, investments can take many shapes and forms. Traditional returns in property or the stock market are being rivalled by those possible in assets like cryptocurrency, non-fungible tokens and even designer handbags. Wine investment has traditionally been the preserve of more affluent folk. Intercontinental Wines capitalised on a gap in the market selling investment opportunities to the wider general public. Investors funds were to be used in acquiring cases of wine listed as stock under the individual’s own portfolio. The company committed to storing wine inappropriate environmental conditions on behalf of investors. When investors didn’t receive feedback or updates, the Insolvency Service (IS) was alerted and began investigating. The IS found only 10% of the stock was held in investor personal accounts and less than 25% of investment funds were used to procure wine. The company was promptly served with a winding-up petition and ceased trading.

Raising a Glass of Unknown Origin

A London based convenience store was raided by Trading Standards in partnership with HMRC and the Met. Police. A total of 351 illegal bottles of alcohol were seized. The company could not prove duty had been paid on the alcohol or that it had been sourced legitimately. The convenience store had its liquor license revoked. This put the business in decline, and the directors applied to voluntarily strike off the company two years later. Before the company could be struck off, the Insolvency Service issued a winding-up petition. The sole director in charge during the raid and the second director in charge at the time of winding up took responsibility for the illegal bottles two years prior. Both had been complicit in buying wine from a mystery van driver before placing it for sale in-store. In addition to duty being evaded on the alcohol, the untraceable bottles meant no proof could be given they were safe for human consumption. The directors were given a combined eighteen-year disqualification.

Stash and Dash Duty

A Midlands wine company traded for five years of which the last 18 months saw the firm withhold excise duty from HMRC. The business had previously made modest profits, but the last 18 months witnessed higher operating costs and lower margins due to increased competition. Debt recovery in the wholesale alcohol industry is nothing new for Advocate. We know it can be a volatile environment for creditors. Directors are expected to trade through challenging times as opposed to throwing in the towel at the first sign of trouble. The Midlands wine company attempted to find a way through the economic downturn. One of the directors was later found to be using excise duty on sales to fund the business, instead of paying direct to HMRC. A month before the company entered creditors voluntary liquidation the dishonest director resigned. Liquidators are obliged to investigate the conduct of current and recent directors in relation to the business failing. The liquidator initially ascertained circa. £250K of exercise duty had not been paid and later concluded HMRC were owed circa. £1.6M. The director at fault was given an eight-year disqualification.

Hungover Accounts

Liquor World Scotland can trace its eventual downfall to the last two sets of accounts filed before the court authorised a winding-up order. The company traded for seven years selling alcohol to trade and the public. Having the drive to thrive in business is just as important as having the willpower to do it on merit. Admittedly the first four sets of accounts did not show the company had a metaphorical license to print money, but they didn’t suggest imminent failure either. Following tip-offs to the Insolvency Service (IS), an investigation was launched into the company’s most recent accounts. These showed a dramatically improved financial position in a short space of time with little explanation. Investigators found the accounts were designed to support a flurry of credit applications. This netted the company circa. £300K from loans, invoice factoring and asset financing. Debt recovery prospects for those creditors are not looking good. The IS investigation concluded accounting records had been falsified or misrepresented for the purpose of obtaining funds from lenders that would not otherwise be approved. To avoid any further harm to lenders, the company was wound up.

Sour Grapes

The directors of Dow And Jones barely traded four years before the wheels came off their wine investment wagon. The business model was simple. Get members of the public to invest in a portfolio of wine maintained by the company and cash out when the stock gained sufficient value. It’s an enticing prospect, except the public were being sold wine at double the retail value. The hard sell and carefully scripted cold calls to potential investors did not disclose cases were overpriced. Nor were investors made aware the finest bottles of Chateauneuf Du Pape or Corton Charlemagne rarely see values inflate by more than 25% a year. The sales team were found to push investors into overreaching through additional purchases with the carrot of quicker returns. In cases of fraud, there is little a debt collector can do. The matters fall into the realms of Financial Conduct Authority and alike. Much to the Insolvency Service’s surprise, orders up to three years before the company was wound up had still not been fulfilled. The prospect of investors getting back their buy-in, let alone making a return are bleak.

Closing Thought

Even the most highly regulated industries have individuals who fall short of their moral and legal obligations. At Advocate Commercial Debt Recovery we do not label industries good or bad. We tend to see industries represented at their worst, although most are championed by ambassadors of the utmost integrity. Advocate conducts debt collection across just about every industry you can think of. If you are owed money by a debtor who has fallen short of their payment obligations, then get in touch to see how we can help put it right.

Any reference implied or otherwise linking alcohol to errors in judgment by directors is purely coincidental!