A guide to property insolvency
Property insolvency can be an incredibly complex and opaque process that demands specialist knowledge and a thorough understanding of insolvency law and regulation. This is particularly true when the effect which the current economic climate has had on property markets is considered. Though there have been hints at recovery in certain markets, most notably London – where house prices have rebounded drastically, most regional markets are still struggling and face an uncertain future. Consequently, property insolvency has become a more prominent process in the industry and those working with property have become more accustomed to dealing with its consequences. However, this does not mean that employees or business owners have developed a greater insight into insolvency procedures. In fact, many still find themselves perplexed by the specific details of property insolvency.
Identifying your key assets
Any company that is looking to enter, or already has entered an insolvency procedure will be aiming to identify their most important and valuable assets. These alert creditors to the range and depth of assets within a particular business and makes the process that much smoother and successful. However, it is often the case that property owned by a business is forgotten or disregarded, with emphasis placed on other assets. This can result in an incredible oversight, as a great deal of capital tied up in property that needs to be released can easily be overlooked.
Unfortunately, property as an asset in the insolvency procedure also raises a number of complex issues that need to be managed carefully and with a high degree of precision to ensure the best possible result. One such issue is that of Value Added Tax (VAT). It is impossible to place too much emphasis on the importance of VAT in property insolvency as, depending on the actions of a business and their insolvency specialists, it may be recoverable. The cost of irrecoverable VAT can rise drastically, particularly if a business boasts many properties amongst its assets, and careful records must be kept in order to simplify a complex situation. Recovering VAT can be an extremely complex process and is often an area that is delegated to experienced professionals.
Make sure records are up to date
Keeping detailed records containing all information, rather than just VAT, related to a company’s property is usually deemed an essential part of insolvency and will place any company in an advantageous position. This includes details of rental payments, planning irregularities and undocumented tenancies amongst other things. This is of particular importance when dealing with estates and property that has been poorly managed, left in a dilapidated or unfinished state and requires a lot of work. By ensuring that all evidence is collected and made available to those working through the insolvency case, a business or lender can make the most of a poor situation.
One area that is seeing an increasing number of issues is that of the development industry. Hampered by a poor financial climate, an increasing amount of developers are finding themselves unable to complete projects due to debt and insolvency procedures, leaving lenders facing a number of difficult decisions. The most obvious, but often the most difficult, decision is whether to continue to develop the property before selling, or to sell the building in its current state. Without experience in the development business, this can be an incredibly tough decision to make, and one that could easily backfire. Consequently, a dedicated property insolvency team is usually required to make such decisions, ensuring that they are made with the help of a great deal of experience and industry-specific knowledge.
Every case should be judged on individual merits
It is also important to remember that every insolvency case presents a unique challenge that will have to be examined and overcome in different ways. This is largely due to the fact that properties are built in a number of different shapes and sizes, are left in varying conditions and exist over a wide price range. While cases may at first appear the same, it is always possible to tweak and shape an insolvency plan so it meets the needs of a client more efficiently, whilst also meeting, in some cases surpassing, the original objectives. Without adapting a plan of action to meet the specific context and incorporate unique details, there is not much chance that the objectives will be met.
Recognising that the property industry is changing drastically, as are many industries affected by the economic crisis and new regulation, is vital to understanding how insolvency procedures will change in the future and how businesses may be affected. Without a dedicated team that works constantly in the field of property insolvency both in LPA Receiverships as well as administrations, it’s difficult to keep abreast of new developments and make the best of difficult situations. For this reason, a greater number of businesses are utilising the services of insolvency advice experts in the field, making the most of their professional advice and reducing their exposure to unnecessary risk.