dissolving ltd company with debts owed to HMRC

[Spongebob]

Spongebob,

Thank you for taking the time to help us, I know how much you have given others hope in the past

We have two creditors, one £450 and the other £14K, both are big companies who 'maybe' will see we cannot fulfil our obligations, so I send them this letter.

HMRC is owed £15K over the next two years, next £500 payment is due at the end of Jan, we have scraped by with the first two payments, but will not have funds for this third successive month.

Do we inform them or wait for Companies House to close us after not filing accounts?

Our mortgage was an incredible £1500 a month repayment, I have got this down to an interest only £480 a month, which has allowed us to keep the mortgage up to date.

The £30K personal debt is between us and the four accounts they are with are all taking an agreed £50 a month to reduce the bills after we laid out in writing our monthly income and expenditure.

Thanks Again

Dave,

Send out the letters to all the company's creditors, including HMRC. Do not make any more payments.

Then wait and see what happens.

For the amount involved, I would expect HMRC to wind the company up after first getting a court judgement. Don't worry about any letters you receive from them or the court - it is the process at work and you can safely ignore the lot! The first letter you need to respond to is one from the Official Receivers Office notifying you that the company is in liquidation. This is many months away, though.

If however, you have heard nothing from HMRC after 3 months it would be worth applying to Companies House to have the company struck off. You never know your luck!

Two important questions remain unanswered;

Does your wife have an overdrawn Directors Loan Account?

How much equity do you have in your home?

 

[davedouble]

Dave,



Does your wife have an overdrawn Directors Loan Account?

How much equity do you have in your home?

Spongebob,

My wife has an overdrawn Directors loan account, yes

We do have equity in the house, will HMRC come for that?

Regards

DD

 

[davedouble]

We stopped the accountant from doing anymore work and no 2011-12 accounts have been finalised or filed yet. Could I, with the help of our new accountant, retrospectively turn DLA into salary so we owe Tax and NI instead.

Thanks

D

 

[kulture]

You would have to ask you new accountant that as he will have access to the books and all the details. He should know what can be legally done, how it should be done, and who to notify if needed. If your old accounts are wrong, if things have been badly accounted for, then a decent new accountant should be able to sort something out. Whilst I would never agree to fiddling the books to avoid tax, likewise I would accept the need to correct the books if an incompetent accountant has done them in such a way that your tax liability is far more than it should be.

 

[David A]

We stopped the accountant from doing anymore work and no 2011-12 accounts have been finalised or filed yet. Could I, with the help of our new accountant, retrospectively turn DLA into salary so we owe Tax and NI instead.

Although the company will owe tax and NI, you will also then have a personal liability for income tax - for the work involved, it may not justify the time due to tax being due anyway.

Company accounting can seem pretty complicated - you always have to remember that the company is, in simplest terms, a pseudo human: a person in its own right. It is as separate from you as you are from your wife.

The reason I say this is that although you might believe there is an overdrawn directors loan, in reality there may not.

What I mean is that I'm sure that if you went back over your financial relationship with the company month by month from the start, I'm sure you will find that you have introduced money into the company either directly, or paying bills that are the company's, or buying items yourself that were for the company. After all, I'm sure you would not have clocked up £30K in card bills if you weren't subsidising the company. After doing this you might well find that the company's directors loan account goes the other way, and the company then owes you money.

Even though the first year's accounts have been done, there is nothing wrong in re-visiting these - even large PLC's sometimes have to do this and you will see that the previous year's accounts are 're-stated'.

 

[davedouble]

Thank you kulture and David A for your advice on this.

I am going to sit down with the new accountant on Mon and go through all this. Why I ever moved from him to this other idiot in the first place 'oh I was advised'!

My previous accountant was under £500 to do all the accounts before I went over to the new one and he is now the one who is trying to bail me out.

regards
D

 

[Spongebob]

My wife has an overdrawn Directors loan account, yes

We do have equity in the house, will HMRC come for that?

As others have suggested, there could be many ways of perfectly lawfully reducing or even eliminating the overdrawn Directors Loan Account. If your accountant has been as poor as you suggest I suspect that there are many errors to be discovered by your new guy. Look after him.

The good thing is that the recent accounts have not been filed, and so HMRC have no knowledge of any overdrawn DLA. Keep it that way for now. They could make life difficult for your wife if they knew that she owed the company money while the company was in arrears with its tax.

As for the equity in the house; no - HMRC cannot come after that directly. If the Official Receiver is appointed however, one of his responsibilities will be to collect the overdrawn DLA from your wife. Ultimately he could force her into bankruptcy; however that is most unlikely. Even if this happened only her share of the equity would be at risk.

Putting your new accountant to work on the DLA is clearly your priority.

 

[oldoakey]

Sorry to jump in on this thread but a quick question.

Can the liquidators only go as far back as far as the last set of posted accounts?
(Assuming those showed the company was trading profitably)

In other words if were in trouble and our accounts year end is Oct 2012 and we manage to get the new accounts in via our accountants in say Februaury 2013 is it right that they can only go back to October 2012 ?

 

[oldoakey]

Sorry to jump in on this thread but a quick question.

Can the liquidators only go as far back as far as the last set of posted accounts?
(Assuming those showed the company was trading profitably)

In other words if were in trouble and our accounts year end is Oct 2012 and we manage to get the new accounts in via our accountants in say February 2013 is it right that they can only go back to October 2012 ?

 

[oldoakey]

Oops Sorry about the double post

 

[Charlie B ACS]

Simply put, NO. They can & will look back through the previous sets of accounts to spot anomolies.

 

[oldoakey]

Simply put, NO. They can & will look back through the previous sets of accounts to spot anomolies.

Thanks for the reply Charlie B but what anomalies are you meaning?

 

[Charlie B ACS]

Transfer of assets, preferential payments, illegal dividends, to name but a few.

They are legally obliged to investigate the directors conduct, including directors who have resigned within the past 3 years.

 

[Alan R Price]

As liquidators, we will always look at the company's history and try to ascertain when the directors know or ought to have known that it was insolvent. We will usually concentrate our investigations on the period since then; this will include a review of previous accounts. I am currently looking at a case where the company used its own assets (c £250k) to buy a director's shares when it had significant contingent liabilities. It looks as though this was done to get money out of the company in case the liabilities crystallised - which they did, at least partly - which led to its insolvency. The transactions span two sets of formal accounts so we have required the accountants to deliver up their files, including their own working papers, to us so we can properly analyse them. This may lead to claims against present and former directors.

 

[davedouble]

As others have suggested, there could be many ways of perfectly lawfully reducing or even eliminating the overdrawn Directors Loan Account. If your accountant has been as poor as you suggest I suspect that there are many errors to be discovered by your new guy. Look after him.

The good thing is that the recent accounts have not been filed, and so HMRC have no knowledge of any overdrawn DLA. Keep it that way for now. They could make life difficult for your wife if they knew that she owed the company money while the company was in arrears with its tax.

As for the equity in the house; no - HMRC cannot come after that directly. If the Official Receiver is appointed however, one of his responsibilities will be to collect the overdrawn DLA from your wife. Ultimately he could force her into bankruptcy; however that is most unlikely. Even if this happened only her share of the equity would be at risk.

Putting your new accountant to work on the DLA is clearly your priority.

Hi Spongebob,

I am back after a four hour meeting with the new accountants. I showed him a letter my wife received from HMRC at the start of Jan which is looking for information to complete a Compliance Check on her Income Tax affairs, that gave him a fright.

She received this in Jan and we were confused as to why they were asking for information as we thought all Tax documents had been filed by previous accountant. We contacted HMRC while everything else was happening and they gave her until the end of Feb to comply.

But new accountant thinks that we cannot simply close the company now as simply as letters to creditor, because HMRC are investigating the overdrawn DLA. To clarify one of your earlier points in your post above, HMRC do know of the overdrawn DLA as this was in the previous years accounts.

I am completely staggered by what is happening now.

The previous accountant looks like they took all drawings under my name as an employee and lumped them with my wife's to make a grand total of £60K. It was me totally doing all the work, my wife just did the admin, but was down as sole Director. I was not paid by salary, any drawings which we needed simply to pay mortgage and live on were put down under her DLA.

This is a right mess and I feel so stupid.

I really don't know what to do. Not only were we accruing massive credit card debts to keep the company going, but my wife is now down as taking £60K thanks to the accountants.

Please before, anyone chimes in with, well you took money which was not yours, or you must have this stashed somewhere, well we have not.

Our new accountant has asked me to ask old accountants for our P60's and Payroll Records, because again we have never seen these.

This really is my darkest hour, I don't know if I can break this to her

 

[Spongebob]

Dave,

I'm so sorry to hear that your situation appears to be even worse than you thought. You are yet another victim of the appalling advice and service routinely given by many accountants regarding the low salary/high dividends ruse to reduce ones tax liability. It's only a matter of time before one of these charlatans gets sued or given a pair of concrete boots by a disgruntled client!

Can you raise five grand plus VAT? I am coming to the conclusion that your best option would be to appoint your own insolvency practitioner to liquidate the company and to advise you on resolving your personal financial situations. He would also provide a foil between your wife and HMRC.

Make sure you find the right guy, though. My choice would be our very own Alan R Price.

 

[davedouble]

Dave,

I'm so sorry to hear that your situation appears to be even worse than you thought. You are yet another victim of the appalling advice and service routinely given by many accountants regarding the low salary/high dividends ruse to reduce ones tax liability. It's only a matter of time before one of these charlatans gets sued or given a pair of concrete boots by a disgruntled client!

Can you raise five grand plus VAT? I am coming to the conclusion that your best option would be to appoint your own insolvency practitioner to liquidate the company and to advise you on resolving your personal financial situations. He would also provide a foil between your wife and HMRC.

Make sure you find the right guy, though. My choice would be our very own Alan R Price.

Thanks Spongebob,

£5K is a huge amount to find at the moment, we are currently under agreements with Credit Card companies to pay £50-£100 a month on paying these off.

I have started a new ltd company to bring in and do work under and I have a few encouraging projects lined up. But it would take a good three to four months to raise £5K from those?

Mate, I feel physically sick with worry, my wife thinks she is going to jail

 

[Talay]

Dave,

I'm so sorry to hear that your situation appears to be even worse than you thought. You are yet another victim of the appalling advice and service routinely given by many accountants regarding the low salary/high dividends ruse to reduce ones tax liability. It's only a matter of time before one of these charlatans gets sued or given a pair of concrete boots by a disgruntled client!

Can you raise five grand plus VAT? I am coming to the conclusion that your best option would be to appoint your own insolvency practitioner to liquidate the company and to advise you on resolving your personal financial situations. He would also provide a foil between your wife and HMRC.

Make sure you find the right guy, though. My choice would be our very own Alan R Price.

Without dragging this off topic, would you perhaps elaborate on what could be gained by someone who cannot pay the mortgage, their credit card bills and presumably lots of other things, in paying out £6k plus to anyone, let alone on another professional advisor.

 

[Spongebob]

Without dragging this off topic, would you perhaps elaborate on what could be gained by someone who cannot pay the mortgage, their credit card bills and presumably lots of other things, in paying out £6k plus to anyone, let alone on another professional advisor.

Because the right IP could protect Dave and his wife from HMRC and potentially save them both from losing their home and/or facing personal bankruptcy.

I know from my conversations with him that someone like Alan is not going to pursue a director into bankruptcy over an overdrawn DLA if he is satisfied that they have acted properly and honestly and are simply victims of the bad advice of a rogue accountant. The relationship between director and IP is critical. In a liquidation the IP is in a very powerful position; choosing your own can make a huge difference to the outcome rather than simply taking your chances with the Official Receiver.

My caveat to these comments is that most IPs remain vulturous charlatans who should be avoided at all costs!

 

[davedouble]

Because the right IP could protect Dave and his wife from HMRC and potentially save them both from losing their home and/or facing personal bankruptcy.

I know from my conversations with him that someone like Alan is not going to pursue a director into bankruptcy over an overdrawn DLA if he is satisfied that they have acted properly and honestly and are simply victims of the bad advice of a rogue accountant. The relationship between director and IP is critical. In a liquidation the IP is in a very powerful position; choosing your own can make a huge difference to the outcome rather than simply taking your chances with the Official Receiver.

My caveat to these comments is that most IPs remain vulturous charlatans who should be avoided at all costs!

Spongebob,

Just a quick update. We are waiting for both our P60s and Payroll records from the old accountant, as we have never received these, this will tell us our Tax position.

It 'could' transpire that the HMRC letter into my wife's Tax could be an innocuous passing request triggered by her getting a Part Time job about 6 months ago.

Thanks

DD

 

[Walkol]

The previous accountant looks like they took all drawings under my name as an employee and lumped them with my wife's to make a grand total of £60K. It was me totally doing all the work, my wife just did the admin, but was down as sole Director. I was not paid by salary, any drawings which we needed simply to pay mortgage and live on were put down under her DLA.

I'm sorry, but what else could they do? Money was withdrawn (not as a salary as you state yourself), so has to go down as a DLA.

"I have started a new ltd company to bring in and do work under and I have a few encouraging projects lined up" is very worrying. Do you not think, that given past history, you should avoid trading as a limited company?

 

[Spongebob]

I'm sorry, but what else could they do? Money was withdrawn (not as a salary as you state yourself), so has to go down as a DLA.

'What they could do' is be a proper bloody accountant!!!

What kind of accountant encourages a couple to set up a limited company with the wife as sole director and then doesn't operate a proper PAYE scheme, instead just dumping the husband's (and main employee's) wages into his wife's Directors Loan account?

The answer of course, is an incompetent charlatan who should be earning a living driving a bus or working behind the pie counter in Morrison's.

I am lucky enough to have a very good accountant; one who operates my PAYE scheme and with whom I meet regularly throughout the year to apraise how things are going. It is utterly unthinkable that he would allow me to run up an overdrawn DLA - it is part of his job to make sure that I don't!

Surely this is the service that all accountants should be giving. Anything less is not being an accountant - it's being a bookkeeper.

His charges, by the way, are about £500 per year.

 

[davedouble]

'What they could do' is be a proper bloody accountant!!!

What kind of accountant encourages a couple to set up a limited company with the wife as sole director and then doesn't operate a proper PAYE scheme, instead just dumping the husband's (and main employee's) wages into his wife's Directors Loan account?

The answer of course, is an incompetent charlatan who should be earning a living driving a bus or working behind the pie counter in Morrison's.

I am lucky enough to have a very good accountant; one who operates my PAYE scheme and with whom I meet regularly throughout the year to apraise how things are going. It is utterly unthinkable that he would allow me to run up an overdrawn DLA - it is part of his job to make sure that I don't!

Surely this is the service that all accountants should be giving. Anything less is not being an accountant - it's being a bookkeeper.

His charges, by the way, are about £500 per year.

Thanks Spongebob..... it was only a matter of time until until I started to get a kicking on here.

I am sure everything is perfect in Walkol's world and to who I say, yes I have made stupid mistakes and I will pay for them one way or another. I am on here to get some positive help, from people like Spongebob and to be honest I am down enough without a kicking from you.

In my line of work, clients will not even entertain giving me work unless I am a limited company and VAT registered, I have little choice.

DD

 

[Tea Monkey]

When faced las week with my tax return from our accountant (yes we filed at the last minute like many others!), I was hit with the comment at the end of the letter' Your director's Loan is now at over £13k, 25% of which is due now to HMRC & the rest is payable back to the company in this financial year'.

My heart stopped & I have been worrying & not sleeping since. I googled & found your thread very quickly & firstly wanted to say a huge thank you to all that have commented on here. It has given me hope & strength to fight in my corner rather than throw the towel in, as I was ready to do.

Our situation is a little more complex in that I run a photographic company & when we were hit by a large VAT bill several years ago, we were advised to split the company into two. We now run a LTD company dealing with weddings & commercial work, & the partnership deals with all social portraits - families, babies, school kids etc. We were advised as Katy Katy to take a low salary & draw the rest as dividends. We too were a little naive & took out more dividends than we could afoord over a two year period.

The directors loan jumped from £7k last year to over £13k this year. Quite a shock & after speaking to our accountant who got his figures very wrong, we are back to the £7k. We have been told we still need to repay this in thre next year with the 25% still owed to HMRC due now.

With no savings, we are worried how we are going to pay this. We have a high street studio & already are prepared to let that go. We will disssolve the partnership & run the studio 'mobile'. Its hard when you have built something up to take a regressive step, but it's either that or wind up the company.

The added bizarre situation is that our wedding bookings are down 50%, seemingly because brides won't amrry in 2013 due to superstition - something I hadn't reckoned for! That has really affected our cash flow at a time when cash-flow is at it's worse any - Jan to March is always a quiet time for photographers for obvious reasons. We ar e in the red to the tune of about £3k with over £2k of unpaid invoices. Hard to see a way ahead, but I am one of theose few people who love what I do - I am getting paid to do my hobby.

Is there any way we can repay the directors loan back to the company/HMRC at a nominal amount to show willing? If we don't pay, what will happen? Any comments gratefully received. Thanks

 

[Walkol]

and to be honest I am down enough without a kicking from you.

If you think that is a kicking, you are obviously a very sensitive soul. Yes, you got bad advise by the looks of things, but its clear some people are not cut out to run a limited company. Anyways, best of luck with it all.

 

[Spongebob]

some people are not cut out to run a limited company

I'm sure you're right.

It is the case however, that very many accountants now routinely advise ALL their clients to set up limited companies purely so that they can benefit from the 'low salary/payment in dividends' ruse to reduce their tax liability.

It appears that many of these accountants then just leave their clients to it, only to inform them a year or so later that they have a huge overdrawn DLA!

In such circumstances, I don't see how you can blame the client for simply following his accountant's advice. It is the accountant who is culpable - maybe not legally but most certainly morally.

Accountants need to get their act together on this before their standing in society plummets to that of politicians, double glazing salesmen, and estate agents.

 

[Spongebob]

When faced las week with my tax return from our accountant (yes we filed at the last minute like many others!), I was hit with the comment at the end of the letter' Your director's Loan is now at over £13k, 25% of which is due now to HMRC & the rest is payable back to the company in this financial year'.

We were advised as Katy Katy to take a low salary & draw the rest as dividends. We too were a little naive & took out more dividends than we could afoord over a two year period.

The directors loan jumped from £7k last year to over £13k this year. Quite a shock & after speaking to our accountant who got his figures very wrong, we are back to the £7k. We have been told we still need to repay this in thre next year with the 25% still owed to HMRC due now.

Another example of a negligent and incompetent accountant. Just what the hell was he doing all year to justify his fees and his appointment as the company's accountant.

Do accountants really think that their job is just to 'do the accounts' at the end of the year? Where are all the good professional proactive accountants who actually take an interest in the business of their clients?

 

[Walkol]

I'm sure you're right.

It is the case however, that very many accountants now routinely advise ALL their clients to set up limited companies purely so that they can benefit from the 'low salary/payment in dividends' ruse to reduce their tax liability.

It appears that many of these accountants then just leave their clients to it, only to inform them a year or so later that they have a huge overdrawn DLA!

In such circumstances, I don't see how you can blame the client for simply following his accountant's advice. It is the accountant who is culpable - maybe not legally but most certainly morally.

Accountants need to get their act together on this before their standing in society plummets to that of politicians, double glazing salesmen, and estate agents.

Agree on the vast majority of it. However, both parties for me are equally to blame, the accountant for assuming the client would have a basic understanding of how being a director works, and the client for not bothering their backside to spend 20 minutes having a good read to understand the basics.

Anyways, i'm not really helping the thread along, so thats my tuppence worth on this!

 

[Spongebob]

But surely it is the accountant's job to tell the client how being a director works.

Most self-employed people have no reason to know the first thing about limited companies and the responsibilities of directors. They are sold the idea by accountants on the basis that it will save them three grand a year in tax.

Now a director rather than a sole trader, these people simply carry on as always; company and personal expenditure gets jumbled together and cash is withdrawn from the company account for personal use etc etc.

A good accountant will untangle the mess, restate things properly and advise his client on how to operate in future. A lousy accountant will simply tell them that they have an overdrawn DLA.

 

[Jenni384]

Do accountants really think that their job is just to 'do the accounts' at the end of the year? Where are all the good professional proactive accountants who actually take an interest in the business of their clients?

No we don't, and *waves hand* here's one.

Many of us take pains to explain the situation with regards taking money out of the company, and that overdrawn director loans are bad and yes, it's our responsibility to do this. The director also has a responsibility to take this on board and not to use the company bank account as his own - which we all know often happens, no matter how much we advise them.

In an ideal world, we would keep on top of a director's loan account in-year - however no matter how many emails and phone calls we send, this still relies on the director getting the required information to us. So many clients see the accountant as a once-a-year job, so it's not just the accountants who are at fault.

That said, there are many accountants who will just have a year-end compliance sausage machine, and equally there are many accountants who care about their clients and want to give them the best service they can. Price is not necessarily an indicator of this. I would say personal recommendation is, but I've read a few of these threads recently where accountants haven't helped, and they came with personal recommendation.

I think the bottom line is, if you're not 100% happy with the situation or the advice given, get a second opinion - such as on UKBF. If you aren't happy with your accountant, then switch - it's not a complicated process at all.

While professionally I (sadly) can't agree with everything you say, Spongebob, on a personal level I am relieved and delighted that methods such as yours exist to help people. Taking severe stress away from people is never a bad thing, and sometimes the official route is less effective and more stressful. We're talking about desperate people's quality of life here - and there isn't much more important than helping them and supporting them.

 

[Tea Monkey]

Another example of a negligent and incompetent accountant. Just what the hell was he doing all year to justify his fees and his appointment as the company's accountant.

Do accountants really think that their job is just to 'do the accounts' at the end of the year? Where are all the good professional proactive accountants who actually take an interest in the business of their clients?

Thanks for that. I am a passionate photographer who loves what he does. I hold my hands up & say I don't understand all the ins & outs of company law & financial implications, which is exactly why I changed to a recommended accountant to guide me through the process.

In the early days (we have used his services for 7-8 years) the fee was low, we saw him regularly & we got an ok service. As his business has grown we have had different advisors & the contact has got less & less. Whenever I talk to business colleagues & friends trading as sole traders, the issue of finding a reputable trustworthy accountant a huge issue & most have had bad experiences from different accountants. It seems if we want to spend an hour with the accountant we have to pay a premium for that. Is that the case for most or are there those accountants who do a fixed fee & will offer good regular advice & help keep an eye on things?

Any way, thanks Spongebob & others for your advice & comments, much appreciated

 

[Jenni384]

are there those accountants who do a fixed fee & will offer good regular advice & help keep an eye on things?

I would guess most of the accountants here on UKBF fit that definition

 

[Tea Monkey]

Hi & thanks for that Jenni. One quick question. In terms of my outstanding directors loan due this year, can we negotiate with HMRC on the repayment both to them & the company of how much & when we pay it back or is it non negotiable?

 

[Walkol]

Hi & thanks for that Jenni. One quick question. In terms of my outstanding directors loan due this year, can we negotiate with HMRC on the repayment both to them & the company of how much & when we pay it back or is it non negotiable?

Just a side note, as I have a feeling you may not be aware, but upon repayment of the DLA you can claim back the corp tax paid on it.

 

[Alan R Price]

Dave,

I'm so sorry to hear that your situation appears to be even worse than you thought. You are yet another victim of the appalling advice and service routinely given by many accountants regarding the low salary/high dividends ruse to reduce ones tax liability. It's only a matter of time before one of these charlatans gets sued or given a pair of concrete boots by a disgruntled client!

Can you raise five grand plus VAT? I am coming to the conclusion that your best option would be to appoint your own insolvency practitioner to liquidate the company and to advise you on resolving your personal financial situations. He would also provide a foil between your wife and HMRC.

Make sure you find the right guy, though. My choice would be our very own Alan R Price.

Many thanks, Bob. I've been on holiday, hence my delay in responding.

Just for the record, we rarely ask directors to fund proceedings from their own pockets - if the company has assets we will usually look to those for our fees. If there are no assets, we will recommend one or other variation of the Spongebob plan.

If there are personal financial problems as well, we will look at those and at very least, direct the client towards the relevant help and information. We do deal with personal insolvency as well as corporate but usually only where it is related to business (including personal guarantee liabilities and overdrawn directors' loan accounts), as opposed to purely consumer finance debts.

 

[Spongebob]

If there are no assets, we will recommend one or other variation of the Spongebob plan.

Thank you Alan, I've been taking a bit of stick lately and your endorsement means a lot.

 

[fellside]

Hello All,

My first Post here, finding Spongbob's posts amazing.

I have a situation with a previous employee who is going to tribunal claiming £40k for unfair dismissal.

I want to strike off or Spongebob the business before the hearing.
(around 3 mths)

It is a Ltd Co with debts to HMRC of around 6K, no assets.

Can he add the director as respondent? Any Ideas anybody?


Ed C

 

[Spongebob]

Hello All,

My first Post here, finding Spongbob's posts amazing.

I have a situation with a previous employee who is going to tribunal claiming £40k for unfair dismissal.

I want to strike off or Spongebob the business before the hearing.
(around 3 mths)

It is a Ltd Co with debts to HMRC of around 6K, no assets.

Can he add the director as respondent? Any Ideas anybody?


Ed C

My advice is not intended as a way for companies and their directors to evade their responsibilities; it is for those genuinely facing insolvency.

Assuming then, that the company is insolvent and cannot legally continue to trade without the introduction of further funding, you could follow the standard 'Spongebob Plan' as detailed earlier.

You would have to notify your former employee of any application to have the company struck off as they are undoubtedly an 'interested party'. In turn they would certainly raise an objection to it. Personally I would not make the application at all as it could appear to your erstwhile employee, their legal represestatives, and the tribunal that you were attempting to 'pull a fast one'.

Instead, I would simply cease trading and send out the letters. I would then attend the tribunal and be as helpful as possible to the chairman in putting forward your case. Naturally, you should explain that the company is no longer trading and has no assets.

As far as I'm aware, there is no way that you can be made personally liable for any compensation awarded to the plaintiff. The debt is the company's, pure and simple.

Your former employee will receive some or all of any award direct from state funds - but only once the company has entered formal insolvency such as liquidation. As you are unlikely to place the company in voluntary liquidation (and there is no legal reason why you should) the onus is on a creditor to wind the company up through the High Court resulting in it being placed in compulsory liquidation. It is possible that HMRC will do this, but if they don't your ex-employee will have to do it themselves. They will have to calculate whether the payout they will receive will make funding the legal costs associated with winding a company up worthwhile. They will have to take specialist advice on this.

My assumption is that any monies recoverable by them from state funds would be limited to their redundancy entitlement and would not include any penal award against the company by the tribunal.

All in all, by following the strategy outlined above you will have complied fully with your responsibilities without having to do very much. Let the others do the running around while you concentrate on your future.

 

[fellside]

Thank you Bob for that prompt and very useful advice.

As to the insolvency we could trade on if it were not for this claim, it is the possibility of such a large payout that would push us into true insolvency.

Would it be better to wait till after the tribunal to apply the method ?

It was dismissal for gross misconduct but we didn't follow ACAS procedure correctly.

 

[Alan R Price]

Thank you Bob for that prompt and very useful advice.

As to the insolvency we could trade on if it were not for this claim, it is the possibility of such a large payout that would push us into true insolvency.

Would it be better to wait till after the tribunal to apply the method ?

It was dismissal for gross misconduct but we didn't follow ACAS procedure correctly.

If your business is profitable and successful apart from the award you should be able to save it using one or other processes provided for in the insolvency legislation, if push comes to shove. Talk the matter through with your accountant and if necessary get him to refer you to an insolvency practitioner who specialises in business rescues. If he doesn't know any, feel free to contact me for a free informal chat. It would be a great shame to lose the business because you fell foul of some daft, anti-employer legislation.