urgent advice request - insolvent business

Sorry to hear that you are having problems but what action you need to take depends on the circumstances...

You have obviously recognised that the company is insolvent and as such you need to minimise the losses to creditors. I am also assuming you have explored other avenues before going down this route.

Firstly to deal with 2 issues. I know others on this forum will put in their views as to how to practically deal with the situation but I'll summarise the 3 obvious risks you mention in your post:

1. Asset removal - if the company ends up in liquidation then a liquidator may seek to challenge any removal of assets where the company has not been paid a real value. Challenge in this sense probably means getting the assets back or making you pay for them.

2. Preference - by paying money into an overdraft that you have guaranteed you are potentially creating a preference in your favour - any money that comes into the company should be distributed in accordance with the Insolvency Act - you are placing yourself in a better position than you would be otherwise so there is a risk there. Again the risk is that you would have to pay back the amount you benefited from (by reducing the PG).

3. If you are continuing to trade whilst you bring the overdraft down then you risk wrongful trading - you could be required to make good any losses incurred. It is also worth bearing in mind that if you close the business and stop the losses then, depending on the value of the company's assets and level of losses, there may be more funds available to pay off the overdraft through liquidation or similar process (assuming the bank has a debenture or charge).

These matters (if proven) carry the risk of disqualification.

As mentioned at the start there will be some on here that will give you their opinion as to how risky this strategy is but the decision is yours.

In terms of closure and finalising the affairs of the company it depends on what you want to do with the business and what assets and liabilities it has - liquidation is probably the most appropriate option but further information would be required.

David
totalitysolutions.com

holmes123 said:

I am the sole director of a long established ltd company that is heading for insolvency, ie debts to creditors and HMRC/VAT.
The bank has security against the overdraft so my house is at risk.
I have no alternative but to close the company so advice on what to do would be greatly appreciated. I've read the earlier threads on asset removal etc. but would this come back on me? Only paying out anything absolutely essential at the moment as trying to get money in as quickly as possible to get down the overdraft.

Many thanks.

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You need spongebob he is the expert come on spongebob where are you ? work your magic

I'll also add that Personal Guarantees can often be challenged or deals done to minimise the personal exposure element - there are no win no fee type solicitors that do this kind of work and I can point you in that direction if you wish.

what is the nature of your business?

Are the assets owned or leased as they cannot remove leased equipment as you dont own it.

Big Pete said:

You need spongebob he is the expert come on spongebob where are you ? work your magic

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I'm here. Sorry I'm a bit late, but I must have missed this thread a couple of weeks ago...


Dave Shaw outlines the dry legal position very well and points out the potential accusation that by paying down the overdraft you could be improving your own position preferentially.

However, if a debtor sends you a cheque what are you supposed to do with it other than pay it into your bank account?

You mention company assets - do you occupy any business premises leased from a landlord?

My initial advice would be to cease trading immediatelyand vacate your premises, putting any assets into storage in a safe place. Hiring a Man & Van service over a weekend when prying eyes are at a minimum is a good idea. Easter would be perfect - you've got four days!

Then, write to all creditors of the company (except the bank!) informing them that the company has ceased trading due to insolvency, has vacated its premises, and has no assets or funds with which to pay a liquidator. Suggest to each creditor that they might like to initiate winding up proceedings as until one of them does no resolution of the situation will be reached and the company will sit in 'limbo'.

This step fulfills your responsibilities as a director and the accusation of wrongful trading cannot be levelled at you.

Then get chasing any outstanding debts hard. Use every ounce of personal goodwill you have with debtors to get them to pay up. Do deals and give discounts where necessary. Just get as much money in as you possibly can. A collection agency who charges by results is probably a good idea - there seem to be quite a few members on here offering such a service.

The thing that this strategy gives you is time. Most creditors will simply go away, knowing that thay are not going to get paid and that any further money spent persuing their debt will be wasted. If the bank gets wind of what is going on they will withraw your overdraft facility. This should be viewed as excellent news as it makes it impossible for you to make payments to any creditors as you have no access to funds deposited in your bank account. Any accusation of you preferring yourself will therefore not stand up.

Unless you are going to need to hang onto the company assets for a phoenix company I would sell them and use the proceeds to reduce further the overdraft. Keep records of every transaction.

Eventually, and it may take a year or more, HMRC will serve the company with a winding up order for non-payment of taxes. Ignore it.

You will then receive notification of a winding up hearing in the High Court. Ignore this, too.

Finally, you will receive a letter from your local Official Receivers office informing you that the company is now in liquidation, and summoning you to a meeting with one of their staff. Here, you will be interviewed about the circumstances of the company's failure and your actions. It sounds a little daunting but in reality it is very straightforward. Follow the steps outlined above and it will be a walk in the park.

Hopefully your personal exposure to the bank will be minimal. Dave Shaw's idea of coming to an deal with them is a good one.

Best of luck.

Bob

Spongebob said:

I'm here. Sorry I'm a bit late, but I must have missed this thread a couple of weeks ago...


Dave Shaw outlines the dry legal position very well and points out the potential accusation that by paying down the overdraft you could be improving your own position preferentially.

However, if a debtor sends you a cheque what are you supposed to do with it other than pay it into your bank account?

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I disagree with the comment about "not paying off the overdraft", for exactly the reasons spongebob gives.

To put it another way, don't pay any more money out the door to anyone. Collect your debts, and pay cheques into the bank account. If this decreases an overdraft from 25k to 15k then great. If the other creditors say that this is a preference payment, tell them to write to the bank to tell the bank to give the liquidator 10k so the bank can get 3p in the pound in return. Bank will tell them to go swivel.

If you'd like to have a conversation about your insolvency options do PM me with your contact details and I'll phone you (can be on an evening if you prefer).

yorkshirejames said:

To put it another way, don't pay any more money out the door to anyone. Collect your debts, and pay cheques into the bank account. If this decreases an overdraft from 25k to 15k then great.

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It would be the eventual liquidator that would decide whether they consider this to be a preference. Whether they would take any recovery action in practice would depend on the amounts concerned and whether there was any benefit of pursuing it - to pursue £10k would be costly for a liquidator. Otherwise they would just report it to the disqualification unit who would determine whether there was a case for disqualification.

yorkshirejames said:

If the other creditors say that this is a preference payment, tell them to write to the bank to tell the bank to give the liquidator 10k so the bank can get 3p in the pound in return. Bank will tell them to go swivel.

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A liquidator would not normally pursue the bank in these circumstances as it is the guarantor that has been preferred not the bank.

Whatever you choose to do - good luck.

Dave Shaw said:

It would be the eventual liquidator that would decide whether they consider this to be a preference. Whether they would take any recovery action in practice would depend on the amounts concerned and whether there was any benefit of pursuing it - to pursue £10k would be costly for a liquidator. Otherwise they would just report it to the disqualification unit who would determine whether there was a case for disqualification.



A liquidator would not normally pursue the bank in these circumstances as it is the guarantor that has been preferred not the bank.

Whatever you choose to do - good luck.

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As stated - can you suggest a place OTHER than the company bank account into which cheques ought to be paid into?

The personal guarantee only comes into place if the company can't repay funds to the bank. You are effectively suggesting that because the bank may have a signed mandate that the director will personally give them £50k if called on, that the director should pay the maximum level. This is not how it works!

The directors recognise that the company is insolvent and has no realistic prospect of recovery. Therefore they have an over riding responsibility to creditors and the rules relating to priority of payment should be adhered to.

What should happen is that at the point of recognising the insolvency of the company any funds realised should be placed into a separate bank account (without right of set off) pending the appointment of a liquidator. In practice this would usually mean an insolvency practitioner's client account.

Following appointment the liquidator would distribute funds according to the priority laid down in the Insolvency Act. If the bank has security then they will have some priority over other creditors and may receive a distribution to reduce their exposure. Then if there is a shortfall the bank would call upon the personal guarantee. I am not saying that they have a call on the maximum exposure but in companies where there are no realisable assets this is often the case as they are usually pushing at their limits.

I appreciate that you and spongebob are trying to provide practical advice as to how the director can protect their personal position - I am just pointing out that legally that is not how it is supposed to be done. At least if the poster follows your advice they understand that there are some risks and do so with their eyes wide open.

Dave
totalitysolutions.com

Dave Shaw said:

I appreciate that you and spongebob are trying to provide practical advice as to how the director can protect their personal position - I am just pointing out that legally that is not how it is supposed to be done. At least if the poster follows your advice they understand that there are some risks and do so with their eyes wide open.

Dave
totalitysolutions.com

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When a company is heading for the rocks the advice that a director wants is an answer to the question 'What can I get away with?' rather than 'What is the letter of the law?'

Spongebob said:

When a company is heading for the rocks the advice that a director wants is an answer to the question 'What can I get away with?' rather than 'What is the letter of the law?'

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tell me Sponge - whats the highest amount of money owed to you personally that you`ve have had to "write off" due to a company going insolvant?

saxondale said:

tell me Sponge - whats the highest amount of money owed to you personally that you`ve have had to "write off" due to a company going insolvant?

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My first company, back in the mid '80s when I was a 20-something entrepreneural dynamo full of enthusiasm, suffered a bad debt of £45k when my biggest customer went bust. I had no choice but to call in the liquidators the next day and watch everything I had spent the previous five years building up get auctioned off. It took me years to bounce back.

It taught me though, the biggest lessons of my life. Never get into the situation where you are owed money, and never put all your eggs in a few big baskets.

All this is beside the point.

My advice is for company owners who find themselves in the awful position of their business failing. More often than not by the time directors realise that they have a problem the company is already insolvent and thare is little alternative but to cease trading.

All I try to do is to offer advice as to the best way to negotiate the minefield that is the 'insolvency industry', and how to emerge as unscathed as possible.

I am certainly not in the business of helping scumbags screw over other small companies.

Cheers
Bob

Spongebob said:

All I try to do is to offer advice as to the best way to negotiate the minefield that is the 'insolvency industry', and how to emerge as unscathed as possible.

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Which indeed has been an invaluable contribution to this forum, for which thanks are due.

The 'domino effect' you describe, where you are forced into insolvency despite your best endeavours, could happen to anyone, and it's hard to find out how best to deal with it.

Spongebob said:

I am certainly not in the business of helping scumbags screw over other small companies.

Cheers
Bob

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so, because you suffered, others must too?


OP`s - I want my money, I don`t give a hoot about your wife and kids

Spongebob said:

When a company is heading for the rocks the advice that a director wants is an answer to the question 'What can I get away with?' rather than 'What is the letter of the law?'

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I agree that some directors may want to know that answer but many don't - they actually want to ensure that their creditors and suppliers emerge with as much money and suffer as little as possible.

How people deal with these situations is up to them and I think it is important that when such decisions are made they are taken with full knowledge of the advantages and disadvantages. I acknowledge the role you have to play in providing a perspective that people like me can't but think people should understand that there may be consequences.

Dave Shaw said:

I appreciate that you and spongebob are trying to provide practical advice as to how the director can protect their personal position - I am just pointing out that legally that is not how it is supposed to be done. At least if the poster follows your advice they understand that there are some risks and do so with their eyes wide open.

Dave
totalitysolutions.com

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Can I respectfully advise that while spongebob is a layman (but one who definitely knows his stuff) I am a professional in this area.

Your suggestion that the directors of a struggling company (that presumably has a poor credit rating) open a second bank account is ridiculous.

Spongebob said:

When a company is heading for the rocks the advice that a director wants is an answer to the question 'What can I get away with?' rather than 'What is the letter of the law?'

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100% correct Bob. And this is why advisors who give advice that is relevant and targeted are able to do a more successful job than these people who think they are an extension of the gestapo.

Dave Shaw said:

I agree that some directors may want to know that answer but many don't - they actually want to ensure that their creditors and suppliers emerge with as much money and suffer as little as possible.

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No they don't - they want to be able to put bread on their family table.

Dear Mr Holmes

I agree with Dave you need to deal with this sooner rather than later, so that you minimise the damage to you personally. I would have a more indepth chat with an insolvency practioner. It is surprising how much they will help you, free of charge, in order to get a possible introduction to work.

Hope that helps,

Sally

Miss Sally Wainwright ACMA Et Voila Accountancy Services Limited

holmes123 said:

I am the sole director of a long established ltd company that is heading for insolvency, ie debts to creditors and HMRC/VAT.
The bank has security against the overdraft so my house is at risk.
I have no alternative but to close the company so advice on what to do would be greatly appreciated. I've read the earlier threads on asset removal etc. but would this come back on me? Only paying out anything absolutely essential at the moment as trying to get money in as quickly as possible to get down the overdraft.

Many thanks.

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yorkshirejames said:

No they don't - they want to be able to put bread on their family table.

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And this is the whole point.

Most small businesspeople invest everything they own into their business. When that business fails they stand potentially to lose the lot. A practical understanding of the insolvency process and the laws relating to limited liability can make the difference between personal ruin and escaping to fight another day.

This is the area in which I have aquired a degree of knowledge, and where I try to offer help where I can.

I can't remember Saxondale ever offering help to anyone...





...and the inevitable exhortation of an accountant to seek advice from a insolvency practitioner always makes me smile. Does the man dying of thirst in the desert ask the vulture for directions to the oasis?

Just wanted to say Good Luck Holmes ... I hope all works out well for you and yours ... there is some excellent advice on this thread by some most excellent people ~x~

Spongebob said:

I can't remember Saxondale ever offering help to anyone...

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can you not?