Urgent help needed RE: liquidation and PAYE debt

[v.v.worried]

I have just googled and found this site - I hope someone can help me as I feel like i'm having a nervous breakdown...

A few yrs ago my BF's dad set up a business he told my BF he was setting it up for his future and would retire in a few yrs hopefully leaving him with a good business. My BF thought great - his dad named him and himself as directors.

BF's dad has been very secretive the whole time about the business and basically all the paperwork, books office stuff has been dealt with by him whilst my BF did all the manual labour.

6 months ago my BF's dad said the company was not doing well and he was going to liquidate the company and set up again.

He said he took my BF off as a director 2 months before he did this even though he didn't get him to sign any forms so he must have been faking his signature.

Me and BF had no idea how much debt the company was in and just after xmas started getting letters to our home address from HMRC asking for underpaid PAYE & NI totalling nearly £20k (I assume they have got address from BF's tax return as BF's dad has listed a really old address for his so he will not get anything). I am now in a total state but BF's dad said he passed letter to the company dealing with the liquidation and he said not to worry about it.

Today I open another letter addressed to the company but sent to my home address again asking for the money - there is interest accruing daily. BF tells his dad but he says just to ignore it and he is not bothered at all. I feel sick and am crying I don't know what to do.

We don't have any money to pay this and it's not even our debt and his dad is just ignoring it. I just can't understand how he can do this to us.

The letters are currently addressed to the business and not in my BF's actual name - but it says they are going to consider recovery proceedings. We wanted to try and get a mortgage in a couple of months time I feel like he has wrecked my future.

I am very worried as I have been told if they have no success getting money from the business the debt will be passed onto the directors - I know my BF's dad will just ignore this and they don't even know his address so it will all fall on my BF's back.

[BudgetB]

Hi, sorry to hear you're going through a difficult time.

If the debts were accrued by the Ltd co, such as PAYE then they will be dealt with in the liquidation. I assume this is why your partners father is saying not to worry about them. They will send out standard chaser letters but these will stop once it is all dealt with.
It may be helpful to have a frank discussion with your partners father to find out exactly what is happening with the liquidation, how far on it is, who is dealing with etc, as with more details you may feel calmer about the situation.

Only personally secured debts (some leases, overdrafts or bank loans) are potentially required to be paid directly by the directors. Everything else gets dealt with.

I'm sure that someone more knowledgeable will be along shortly to provide further info.

[v.v.worried]

I have just checked companies house and the company staus is - active - proposal to strike off.
Looking at the company filing history it goes something like this :
Dec-09 My BF terminated as director
Feb-10 Application to strike off
Mar-10 First gazette notice to strike off
May-10 Voluntary strike off suspended

I thought it would have all been done by now, is it usual to take this long and what could that last one mean form SOAS(A)

[BudgetB]

Voluntary strike off suspended sounds as though one of the creditors has objected to it.

A little out of my knowledge base now I'm afraid, but someone else will know the answer. :)

[Scalloway]

Yes it could be because of a creditor objecting. It may be that HMRC are taking legal action to recover their debt, which they would only do if they thought there were funds available.

This all sounds a bit of a mess. You could try approaching you local Citizens Advice Bureau for some more advice.

[v.v.worried]

Is it worth calling HMRC and telling them this address has nothing to do with the company?

[Spongebob]

I am very worried as I have been told if they have no success getting money from the business the debt will be passed onto the directors - I know my BF's dad will just ignore this and they don't even know his address so it will all fall on my BF's back.

The whole point of limited companies is that directors and shareholders are NOT liable for the debts of the company. So stop worrying completely; your boyfriend will not have to pay any any of this money whatsoever. HMRC cannot take any action against him personally - all they can do is chase the company, which in effect in law is a separate person.

Your father-in-law has not been behaving well to you however. He is being disingenuous about the situation in that it is quite clear from what you say that he has not appointed anyone to liquidate the company and instead is simply letting matters run their course. There's nothing wrong in this; indeed in many situations this is exactly the right thing to do, but he should be explaining the situation to you rather than letting you worry unnecessarily.

Get your boyfriend to write to HMRC explaining that the company has ceased trading due to insolvency and that it has no assets with which to pay its debts or to appoint a liquidator. Add that your boyfriend is no longer a director of the company and that all further correspondence should be addressed to the remaining director. Give them your father-in-law's address. With all the information in the databases at HMRC's disposal it would take them about five minutes to find it anyway, so you are not telling them anything they don't already know. They just don't know that they currently don't know his address! Your FiL will have no reason to suspect that you have tipped them off about his rather pathetic attempt at subterfuge.

I doubt that you will hear from HMRC again. If you do just reply with the same letter. There is no action they can take against your boyfriend personally.

Ultimately HMRC will wind up the company and it will be liquidated by the Official Receiver. This will cost the company nothing. Your father in law will have to attend a meeting with the OR to explain the reasons for the company's failure. If he has nothing to hide then he has nothing to worry about whatsoever.

Your boyfriend's credit record will not be affected as he resigned as a director long before the eventual date that the company will officially go into liquidation. Incidentally, for a director to resign does not require his signature - only the signature of any serving director.

Cheers
Bob

[bovine]

Can I just nitpick with Spongebobs excellent (as always) advise on these sort of matters - you mention he should write to hmrc saying the company is insolvent and has no assets. Im not sure he should do this as he doesnt actually know this to be true and this would not sit well with the fact he resigned last year.

I agree with everything else, but I would suggest that he cant say that as being true as in reality he doesnt know and having resigned last year wouldnt be expected to know. More accurately he could state that the FiL has told him that this is the case.

[Lease4Less]

One point that has been over looked. The monthly wage slips that you and your boyfriend received form the company, can I assume that they gave a breakdown of Tax and NI? Or did you just receive a brown envelope for your boyfriends dad?

Your Boyfriend as company director would also have been required to file a tax return each year. Who did this? Was it your Boyfriends Dad, the company accountant or someone else?

[David Griffiths]

Your Boyfriend as company director would also have been required to file a tax return each year.

Not necessarily. (and yes the HMRC website is wrong)

[Spongebob]

Can I just nitpick with Spongebobs excellent (as always) advise on these sort of matters - you mention he should write to hmrc saying the company is insolvent and has no assets. Im not sure he should do this as he doesnt actually know this to be true and this would not sit well with the fact he resigned last year.

I agree with everything else, but I would suggest that he cant say that as being true as in reality he doesnt know and having resigned last year wouldnt be expected to know. More accurately he could state that the FiL has told him that this is the case.

Good point.

The letter to HMRC should read something like;

Dear Sirs,

Re: XXXX Ltd Your ref: XXXXX

With reference to your letter dated XX.X.10 you will see from Companies House records that I resigned as a director of the above company on XX.12.09 and it is my understanding that the the company subsequently became insolvent and ceased trading.

All further correspondence on this matter should be sent to the remaining director Mr XXXX XXXXXX at the following address:

XXXXXX
XXXXX
XXXXXX

I am not aware that any insolvency practitioner has yet been appointed to deal with the company's affairs.

Yours faithfully,



XXXXXX

That's all it needs. Keep it short and to the point. Do NOT telephone HMRC under any circumstances - verbal slip-ups are only too easy to make!

[PaulCCS]

Good advice already on this thread but my advise would be to get your BF to ask his dad the name and contact of the person dealing with the insolvency. Then speak to him yourself. This is your right as a director. The IP will write to you anyway once the appointment has gone through because you were a director of the company within the 3 years prior to liquidation.

[winton50]

I'd agree with Paul and, having seen similar situations in the past can I also suggest getting everything in writing?

I know it's a difficult situation but I think you are starting to realise that your BFs dad has been playing fast and loose with the system and you need to make sure you are covered.

Please please take competant specific advice. I'm afraid the responsibilities on company directors changed so that not knowing or not being financially aware is no longer a defence. Also if a court can be persuaded that Directors acted fraudulently (like closing a company one day and opening up the next, not keeping proper records etc) then there are measures they can take against the directors personally.

I can't imagine that HMRC would chase you but you never know who else is lurking.

more info here http://www.businesslink.gov.uk/bdotg/action/detail?r.s=sc&r.l1=1073858808&r.lc=en&r.l3=1073870537&r.l2=1085093911&r.i=1085054998&type=RESOURCES&itemId=1073791045&r.t=RESOURCES

[jeffbearcroft]

Normally true Spongebob.

But, if an appointed administrator or liquidator uncovers evidence of reckless or fraudulent activities of the directors that favour them financially, this rule no longer applies. Directors have a legal duty to act responsibly.

Regards

Jeff

[quote=Spongebob;1295022]The whole point of limited companies is that directors and shareholders are NOT liable for the debts of the company. So stop worrying completely; your boyfriend will not have to pay any any of this money whatsoever. HMRC cannot take any action against him personally - all they can do is chase the company, which in effect in law is a separate person. /quote]

[Spongebob]

Normally true Spongebob.

But, if an appointed administrator or liquidator uncovers evidence of reckless or fraudulent activities of the directors that favour them financially, this rule no longer applies. Directors have a legal duty to act responsibly.

Regards

Jeff



I wasn't aware that there was any suggestion of fraudulent activities here.

It does get on my tits somewhat when a business fails that certain people always assume that the directors must have had their fingers in the till. My experience is exactly the opposite; normally the directors have suffered months of getting no salary, while working under incredible stress trying to keep a failing business above water.

More often than not the business owners have invested everything they have in pursuing the dream of running their own company. It is a very risky thing to do; four out of five businesses fail in their first few years.

Why the Hell shouldn't the owner of a failed business escape with his shirt so that he can try again? Most successful business people have a few failures in their CVs - its how people learn!

Thankfully, the principle of limited liability allows people the safty net of not losing everything when the gamble of their business doesn't work out.

If the idea of a company going bust owing you money worries you - don't give credit!

[jeffbearcroft]

Calm down Spongebob.

Noone is assuming anything, certainly not me. I am simply commenting on how the law operates.

If the Directors of a company carry out their duties reasonably and responsibly then your previous comments apply. If they act fraudulently or in a way that is designed to benefit themselves eg knowingly giving preference to certain creditors which prejudice others, then action can be taken against them.

Such action would have to be demonstrated and proven before redress was obtained.

Operating a company should never be a "get out of jail free card" for Directors. They have to act reasonably. Under the law, Directors have a duty to keep a regular check on how a company is operating. They should never be passive.

I have no idea what applies in this particular case because I don't have the facts. Everything may be totally above board. However, as I understand it, in this case there is 1 Director that is very secretive and doesn't tell the other 2 what he is doing, and then he seeks to liquidate the company. Not an ideal situation, if I can put it like that.

I think the other 2 Directors should be making urgent enquiries of the other Director to establish the facts.

Regards

Jeff

I wasn't aware that there was any suggestion of fraudulent activities here.

It does get on my tits somewhat when a business fails that certain people always assume that the directors must have had their fingers in the till. My experience is exactly the opposite; normally the directors have suffered months of getting no salary, while working under incredible stress trying to keep a failing business above water.

More often than not the business owners have invested everything they have in pursuing the dream of running their own company. It is a very risky thing to do; four out of five businesses fail in their first few years.

Why the Hell shouldn't the owner of a failed business escape with his shirt so that he can try again? Most successful business people have a few failures in their CVs - its how people learn!

Thankfully, the principle of limited liability allows people the safty net of not losing everything when the gamble of their business doesn't work out.

If the idea of a company going bust owing you money worries you - don't give credit!

[PaulCCS]

I understand your point spongebob. I agree that people should be allowed to try again. That said the government has tightened up rules slightly on phoenix companies, in that if the company fails and then is setup again with the same/similar name and goes bust again, then potentially the directors could be personally liable. Sorry a bit off tangent I know.

I think Jeff's comments are sensible though, given that in this case in appears that one director has not been overly upfront with the other. And as Jeff says if you're a director then you NEED to know what's going on in the business.

[winton50]

The law was tightened in part specifically to address the issue where a director says that they couldn't be expected to know what was happening because they didn't have the specialist knowledge or because it wasn't their area of responsibility.

No-one is having a go at directors per se but the OP clearly describes a situation where one director has largely been absent from the running of the company and has concerned themselves only with the ops side.

The fact is though that any advice we can give is purely general and my point still goes, get specific legal advice. It may be totally wasted but it may also be the best money you ever spent.

[Robert Moore]

The whole point of limited companies is that directors and shareholders are NOT liable for the debts of the company. So stop worrying completely; your boyfriend will not have to pay any any of this money whatsoever. HMRC cannot take any action against him personally - all they can do is chase the company, which in effect in law is a separate person.

I am sorry to say that the above statement is not strictly true. If the company is wound up by the court there will be an investigation into the conduct of the directors. If it can be shown that the directors traded KNOWING the business was insolvent then they may be an action against them for "wrongful trading". This would mean that the directors could be personally liable for the companies debts.

[GRDCredit]

I am sorry to say that the above statement is not strictly true. If the company is wound up by the court there will be an investigation into the conduct of the directors. If it can be shown that the directors traded KNOWING the business was insolvent then they may be an action against them for "wrongful trading". This would mean that the directors could be personally liable for the companies debts.

Robert - you are of course right.

Genunine question - how many times have directors been held personally liable for debts because of trading whilst insolvent?

[Robert Moore]

Perhaps the number penalised for "trading whilst insolvent" is modest but the veil of incorporation has been lifted many times for wrongful trading, failure to operate PAYE schemes and VAT Schemes and genuinely poor compliance by directors. We have had a CVA rejected recently because the director had paid only 1 month's PAYE over 18 months. HMRC rejected a CVA offering 34p in the 31 because HMRC want to see the company wound up (a petition has already been served) and the directors taken to task.

This action is more common that you may think particularly by HMRC seeking to make directors personally liable for company tax debts. Our response was based on the UNSAFE advice being given - don’t worry no one can touch a director of a failed company, that's patently incorrect.