The Revenue Commissioners updated their internal procedures for using Sheriffs in November 2019. As far as the taxpayer is concerned, the main changes have been internal procedures, combined with the continuing roll out their new Debt Management System which means that their decision making is becoming more computer driven, which is now resulting in much faster referrals of debt collection cases to the Revenue Sheriffs.
Traditionally, we have always received the most calls in the month of January from accountants and solicitors asking how their clients should deal with creditor pressure, and in particular, how to deal with the payment of Revenue liabilities. This January is proving no different. What is significant about January is that there is usually more creditor pressure from the tax authorities as a result of the generally larger VAT liability for November/December becoming payable. Given the impact of the successful introduction of PAYE modernisation in 2019, we have noticed that there are smaller liabilities for the balancing PAYE/PRSI/USC liabilities that were traditionally discharged with the annual year end P35.
The hospitality and retail sectors are particularly affected due to low sales in January.
Types of Sheriffs
Trade creditors can obtain judgment and use a sheriff to enforce.The execution procedure is carried out in Dublin and Cork by “private sector” Sheriffs and in other counties by County Registrars. The Revenue are empowered to confer Sheriff’s power on their own appointees, and they have appointed 16 sheriffs around the country. A major advantage of the sheriff system as far as the Revenue is concerned is that unpaid taxes can be collected by a Revenue Sheriff without the need for judgement being given against the tax payer, and thus it can be very fast.
In 2108 the Revenue referred 25,454 cases to Sheriifs, with a value of €270.7 million, of which €151.9 million was collected.
What can be seized?
The Sheriff may seize any goods, chattels, growing crops and any money, bank notes, cheques, bills of exchange, promissory notes, bonds or securities for money belonging to the debtor. In practice they are very attracted to motor vehicles, as they may be easily moved and sold.
The Sheriff cannot take property belonging to third parties, such as property acquired under hire purchase. Stock which is subject to Reservation of Title claims is a more complex area.
Under Sections 606 and 607 of the 2014 Companies Act (“the Act”), the Sheriff must, after the sale, hold the proceeds for 14 days to allow for notice of a winding up of the company to be served on him. If such notice is served within that time, he must, after the deduction of his costs, pay the balance to the liquidator, who is entitled to retain it as against the execution creditor. If, however, the Sheriff receives notice of the winding up before the sale or the completion of the execution by the receipt or the recovery of the full amount of the levy, he must deliver the goods or any money received to the liquidator without deducting the costs of execution.
How to deal with the Sheriff?
Obviously, it is better to reach arrangements with the Revenue before sheriffs are instructed so as to avoid the “poundage” costs and other costs of the sheriff. The “poundage” costs are 5% on the first €5,000 and 2.5% on any amounts collected over €5,000. There are also smaller incidental charges to pay. Obviously, the “knock on” effects of a Sheriff seizing motor vehicles etc can be much greater.
If you are in receipt of their “Final Demand”, which only gives 7 days notice of referring the matter to the sheriff, you should call Revenue and ask for an extension of time.
For a company on the brink of liquidation, dealing with the sheriff may prevent the directors from allocating payments specifically towards PAYE liabilities, a portion of which the directors could become personally liable for if the company went into liquidation.
Before the Sheriff makes a visit, it is normal for him to contact the debtor by letter requesting his proposals for payment. The receipt of such a letter is a significant event for the directors of a company, as it is evidence that the company is unable to pay its debts as they fall due. The directors need to consider very carefully if they should continue to trade, as it is possible that they be held personally liable for any new debts incurred by the company.
At this stage the directors, and its business advisors, should consider whether the company is insolvent, and if so should cease trading to avoid the directors being made personally liable for reckless trading. If the company is insolvent and has no prospect of its fortunes reviving then the directors should take immediate steps to place the company into liquidation. A copy of the notice to creditors convening the creditors meeting pursuant to section 587 of the 2014 Companies Act should be sent at the earliest opportunity to the Sheriff. Provided the Sheriff receives this notification within the appropriate time frame then the creditor, pursuant to the Act, is not entitled to retain the benefit of any execution. The purpose of the Act is to prevent any one creditor being preferred over another. Another alternative open to the debtor is to invite the bank to appoint a Receiver if the bank has the appropriate debenture.
If the directors considers that the business is viable, but is just suffering from short term cash flow difficulties, then they should open up dialogue with the Sheriff and present positive proposals for settling the debt. If no such proposals are forthcoming, then the Sheriff will visit the premises to seize whatever assets he can.
The Revenue sheriffs are “private sector” self employed individuals. As a result, they can be very pragmatic: It does not pay them to become involved in complex seizures of assets. The sheriffs have been given authority by the Revenue to negotiate instalment plans of up to 2 years.
The directors should also consider the possibility of examinership.
New Revenue Guidelines on instalment plans
The Revenue have just published their updated guidelines on instalment arrangements. I set out below a link to their guidance which is very useful. The big change is that everything now has to done vis ROS.
For some clients the obvious response to a Final Demand from the Revenue is to negotiate an instalment plan.
If you have clients, friends or colleagues that need Expert advice on how to deal with cash flow difficulties, or expert advice on Liquidations, Formal Schemes of Arrangement, Informal Schemes of Arrangement, Examinerships or Personal Insolvency solutions please ask them to contact myself orTom Murray or Andrew Hendrick on 01 661 4066 or by email, firstname.lastname@example.org email@example.com firstname.lastname@example.org