Insolvency options - help!!!

[stevesolo]

I'll try to keep this as brief as I can.

I am a director and 100% shareholder of a business (ltd co) that does little trading. Call it X. A couple of years ago, X made an acquisition taking a 100% holding in Y. For long and complicated reasons, Y has gone into administration. There will be a shortfall to the bank (as well as unsecured creditors). The bank has a fixed and floating charge over Y and X. X has also given a cross-company guarantee in respect of Y.

It is not yet clear whether the bank will call on the cross-company guarantee. The balance sheet of X has been shot to pieces by the administration as 99% of its assets were the value of the subsidiary, so there would be little point in the bank doing so. But obviously until the position is resolved there is no point in trading through X, and in any case it might possibly constitute wrongful trading.

X has under £1K of creditors, but it does have 2 ongoing leases - a car and a software installation (which is intangible as it's of no value to anyone else). We have got to the point where X cannot make its payments on the leases.

I would think, but this is where I would appreciate any advice, that I can ask the finance company on the car (lease with a balloon payment at the end of term) simply to take the car back and we come to some arrangement over the shortfall. The other is more difficult because there is nothing tangible to hand back.

The business cannot be put into administration because there are no funds to pay the administrator's costs.

Can anyone suggest an approach to the problem?

Thanks in anticipation.

[Cred-X]

You have to be very careful here and the advice of an IP is essential - some give a 30 minute free consultation.
Ultimately if you treat the vehicle lessor preferentially then you may get in to serious trouble. The normal course of events would be to allow the lessor of the car or the bank take the company through insolvency - alternatively you could invite all credits to write off the debts and for the company to be formally closed.
The important thing is to be seen to treat all creditors equally.

[Tungstone]

Apply for voluntary liquidation

[InkFuzion]

If the company effectively has no assets (the shares in the subsidiary being worthless) then youa re not going to be able to take the voluntary liquidation route, any more than the administration route - no IP will take the job unless you offer them a PG for their fees or pay up from for the process - not cheap.

Depending on the amount of finance that is left remaining to settle, you might be better to clear down the leases and just wind the company up. But my advice would be to speak to an IP about your options. I think they pretty much all now offer a free initial consultation - they did when I worked for one and that was a few years ago now.

The most important thing is not to incur any additional liabilities in the Company - as youa re already fully aware that company assets cannot cover its liabilities, this would constitute wrongful trading and, theoretically at least, woud result in an investigation into your actions.

Lastly - sorry that you are having to go through this at all.

[stevesolo]

Thanks InkFuzion for the useful reply. The company is simply not trading right now partly because if it were to generate revenue, the bank might take the view that there was a chance of getting something out of it, and as a secured creditor, they would call the shots regardless of the position of the other creditors. One hell of a dilemma!!!

Have arrnegd an appointment with an IP, so we'll see what they say.

[elite123]

steve,
do you mind telling us what the business does ?
Have you tried to sell the business ?
What about asking friends, collegues, business contacts if anyone wants to take over the car ?

[stevesolo]

steve,
do you mind telling us what the business does ?
Have you tried to sell the business ?
What about asking friends, collegues, business contacts if anyone wants to take over the car ?

No problem. Basically an acquisition vehicle. Principally in marketing services and related fields. Also put some of my consultancy service through it for VAT purposes etc. I am trying as you suggest about the car. Also possibly the software could be adapted for another, similar style operation - head office with multiple locations, CRM etc.

[elite123]

do you have a website ? What do you mean an acquisition vehicle ? You assist people buying companies ?

[InsolXpert]

I'll try to keep this as brief as I can.

I am a director and 100% shareholder of a business (ltd co) that does little trading. Call it X. A couple of years ago, X made an acquisition taking a 100% holding in Y. For long and complicated reasons, Y has gone into administration. There will be a shortfall to the bank (as well as unsecured creditors). The bank has a fixed and floating charge over Y and X. X has also given a cross-company guarantee in respect of Y.

It is not yet clear whether the bank will call on the cross-company guarantee. The balance sheet of X has been shot to pieces by the administration as 99% of its assets were the value of the subsidiary, so there would be little point in the bank doing so. But obviously until the position is resolved there is no point in trading through X, and in any case it might possibly constitute wrongful trading.

X has under £1K of creditors, but it does have 2 ongoing leases - a car and a software installation (which is intangible as it's of no value to anyone else). We have got to the point where X cannot make its payments on the leases.

I would think, but this is where I would appreciate any advice, that I can ask the finance company on the car (lease with a balloon payment at the end of term) simply to take the car back and we come to some arrangement over the shortfall. The other is more difficult because there is nothing tangible to hand back.

The business cannot be put into administration because there are no funds to pay the administrator's costs.

Can anyone suggest an approach to the problem?

Thanks in anticipation.

It appears to me that X Ltd may be insolvent / will become insolvent very shortly due to the following reasons: -

Liabilities > assets
May be called upon under the cross-guarantee.
No assets other than HP car (third party asset), which needs to be returned to HP company if cannnot maintain payments.
Software will probably have nil value in liquidation as suggested by you.
Liabilities seem low at £1K (have you taken into account of crown liabilities , tort, future liabilities, unliquidated claims, director's loan account?)

Since it is not trading and not a viable business - administration is not an appropriate option.

If company is insolvent, I suggest the company should be placed into creditors' voluntary liquidation.

If creditor pressure - creditor can petition for compulsory winding-up.

Cease trading to avoid wrongful trading. Protect company assets and don't take on any further credit etc...

Re fees - if there are no company assets...do you have personal savings?

Please let me know if you need any further advice.