Closing a Limited Company to end a Lease

[simon164]

hello everyone

Firstly I originally posted this in the wrong section, so I have just reposted it!

I wondered if anyone could offer me some advice?

I have had a business for 11 years and took on a larger premises just under 4 years ago on a 5 year Lease. Initially everything was going very well. We took on good staff etc but it suddenly turned and we have had the most terrible luck in virtually every area..!its been a real struggle the last 2 years particularly. 2017 was incredibly difficult and stressful for many reasons and actually the worst year of the lot. I constantly worry about meeting my financial obligations and it’s making me ill.

I have been increasingly depressed by it all and have decided after much deliberation that I need to get out of it for my own sanity! Life is too short and I am going to end up in an early grave from worry otherwise.

I am more than confident that my Landlord will not release me from the Lease early. As far as he is aware we are trading successfully and I have not been late with a rent payment (I have killed myself to pay the quarterly rent on time religiously).

My alternative options as I see it are to either sublet the property out or fold my Company. I have a licence to sublet in place however I would still be responsible if the tenant didn’t pay. I really don’t like this idea at all. The rent is £35,000 a year plus damage liability etc.

I am therefore giving serious thought as to winding the company up. I provided it with a £80k cash injection for stock when we moved to the site as a director loan. This is currently invested in stock and I would ideally like to withdraw it and have the company wound up / struck off. We have some furniture and general equipment etc but nothing else of any significance. I owe HMRC around £1500 for corporation tax and a late filing penalty to companies house of £500.Other than that, nothing of any significance that can’t be settled. I do have a phone and broadband with BT.

My biggest priority is to basically end and get out of the Lease - ideally as quickly as possible. I did not sign as a personal guarantor and it is purely in my Limited Company’s name. A Deposit of £8750 was lodged which I accept I will lose.

How would you say is the best way to do this? I have read that I can just not file anything and the company will get struck off provided no one objects to it. I have also seen I can apply for it to be struck off. What I really want to avoid is an objection. I don’t think it is wise to alert my landlord to the company being wound up as he may try to keep it open by objecting. I also need to try and get the timing right as I pay the rent quarterly. My accounts are next due to be filed in mid February.

In terms of removal of my Director Loan, how can I go about releasing this (obviously at purchase value)? What would be the process with regard to any other minor assets as mentioned? Would it be wise to settle the outstanding debt with HMRC?

I do feel really bad over all of this and it’s not something I feel at all proud of. I just can’t continue to run myself into the ground, nor afford to lose what I invested initially. I fear that will be the outcome if I stay until the end of the tenancy. I am not generally someone who throws the towel in but enough is enough.

Any advice/help is really appreciated and thanks a lot for taking the time to read the above.

 

[Gavin Bates]

Hi

First of all can I suggest that you take professional advice as it seems that the business may be a reasonable size so i don't think the Spongebob plan, which I think you are referring to will work for you.

I have to advise that if you take any steps to repay your Directors Loan Account whilst other creditors remain unpaid will be a preference and therefore can be overturned.

It would it may be better to liquidate and you will be a creditor alongside other. In simple terms unsecured creditors are paid on a equal basis so if the assets are £10,000 and the debts are £100,000 everybody will get 10p in the £.

Most Insolvency Practitioners, including myself will offer a free initial meeting which will be confidential.

If you need anything further please let me know

Kind regards

Gavin

 

[UK Contractor Accountant]

This is currently invested in stock and I would ideally like to withdraw

withdraw what? the stock for yourself?

 

[KAC]

@Gavin Bates @Lisa Thomas If the OP put his company into liquidation and the liquidator surrenders or disclaims the lease, will the rents due until the lease would have been due to end fall into the pot as a creditor?

 

[Clinton]

I have to advise that if you take any steps to repay your Directors Loan Account whilst other creditors remain unpaid will be a preference and therefore can be overturned.

But he's paying off the other creditors, isn't he?

He's looking to do the dirty on just the landlord.

However, the commitment to the landlord is a longer term contract - the landlord only becomes a creditor when the quarterly rent is due. And he ceases to be a creditor when that rent is paid.

I'm curious, if the company is struck off after payment of the quarterly rent, what happens in the next quarter? The landlord can't become a creditor again as the company doesn't exist.

<added> Crossposted with KAC

 

[Lisa Thomas]

@Gavin Bates @Lisa Thomas If the OP put his company into liquidation and the liquidator surrenders or disclaims the lease, will the rents due until the lease would have been due to end fall into the pot as a creditor?

Yes rent due to date of surrender or disclaimer would rank as unsecured debt in Lqn.

 

[Lisa Thomas]

But he's paying off the other creditors, isn't he?

He's looking to do the dirty on just the landlord.

However, the commitment to the landlord is a longer term contract - the landlord only becomes a creditor when the quarterly rent is due. And he ceases to be a creditor when that rent is paid.

I'm curious, if the company is struck off after payment of the quarterly rent, what happens in the next quarter? The landlord can't become a creditor again as the company doesn't exist.

<added> Crossposted with KAC

Has to pay all creditors pro rata to avoid preference allegation.

Landlord is contingent creditor.

 

[Spongebob]

If all the figures you have quoted were smaller by a factor of ten, I could well be suggesting that you might do a "moonlight flit", vacate the premises, and liquidate the stock yourself.

With the amounts actually involved however, this course of action would not be appropriate, and you should involve an IP. Do not inform the landlord of anything until the company is safely in liquidation - he might cause serious problems for you if he is alerted prior to a liquidator being appointed.

Edited to add:

Given that there are no other serious creditors, it might be worth considering whether you could sell the stock for significantly more that a liquidator might get for it. If so, you could then vacate the premises and make the landlord a cash offer of say £10,000 to terminate the lease forthwith.

He would probably accept as the alternative would result in him getting a lot less.

Pay off the other creditors in full and pocket the rest.

 

[KAC]

Yes rent due to date of surrender or disclaimer would rank as unsecured debt in Lqn.

@Lisa Thomas. So if the company goes into liquidation and the liquidator immediately disclaims the lease, are you saying that the company would be able to avoid paying the rent from the date of disclaimer up to the end of the 5 year lease?

Presumably landlord would be able to keep the rent deposit, or would he if none were technically owing?

Assuming rent is paid in advance, OP would then effectively be the only creditor with his DLA?

 

[UK Contractor Accountant]

the company goes into liquidation and the liquidator immediately disclaims the lease, are you saying that the company would be able to avoid paying the rent from the date of disclaimer up to the end of the 5 year lease?

yes once Disclaimer is invoked by the Liquidator all liabilities to the landlord cease for future rents.

Interesting I suspect the landlord is entitled to be paid rent for the period the Liquidator uses the property. Ranks ahead of other creditors?

 

[Spongebob]

yes once Disclaimer is invoked by the Liquidator all liabilities to the landlord cease for future rents.

I wasn't aware of that.

This puts the OP in an even stronger negotiating position with the landlord. If a liquidator is appointed the landlord will get nothing once the premises are vacated. Yet at the moment he is the single biggest potential creditor as the rent is payable until the end of the lease.

The OP could do a moonlight flit, flog the stock, and slip the landlord a few grand to terminate the lease. Hey Presto! The biggest creditor disappears!

Pay HMRC and any other creditors the relatively small amounts they are owed and any balance can perfectly properly be pocketed by the OP and set against the monies owed to him.

Everybody wins!

 

[KAC]

That is why I sought clarification. OP was most concerned about paying the rent till the end of the lease. This way by appointing a friendly liquidator who immediately disclaims the lease, he won't have to Must get stock and assets out of the premises before telling the landlord, or he may change the locks

 

[Spongebob]

I like it!

Pay a friendly liquidator a few grand instead of the landlord and let the landlord whistle.

Then help the liquidator get the best price possible for the stock and there should be a few quid left over after paying the other creditors.

If a liquidator is involved there is no real need to move the goods until they are sold. The landlord cannot do a thing.

 

[UK Contractor Accountant]

Extract from business insolvency website

"If your company goes into liquidation, the liquidator is under a duty to ascertain if the lease to the property used by your company is of any value. In over 95% of cases, the lease will be valueless, so the liquidator will bring the lease to an end once he’s finished using the property for what he needs to do in the liquidation – that way he’ll extract himself from having to continue paying rent, looking after the property, etc; he’ll free the property up for the landlord to sell or let it; and he’ll set the financial position between the tenant and landlord – work out what the company owes the landlord.

Interestingly the law gives him some pretty unusual, and very strong, powers to bring the lease to an end – these are powers that no one else anywhere has. But to use those powers he has to follow a process.

The power he has is called ‘disclaimer’.

What does disclaimer achieve?
Disclaimer ends all of the tenant’s rights, interests and liabilities in the property, enabling the tenant to get out of the lease before the end of the lease term. Disclaimer also has a big impact on a landlord because his income from the property will abruptly stop. And the landlord is powerless to stop the liquidator disclaiming a lease – unlike a ‘surrender’ the liquidator does not have to negotiate a disclaimer with the landlord, the liquidator can force the disclaimer on the landlord."

 

[KAC]

Can't be clearer than that. Let's hope the OP returns to get the benefit of our posts

 

[Lisa Thomas]

I don't think the disclaimer gets a guarantor off the hook, just the Ltd Company.

However I have been legally advised on a few occasions that the voluntary surrender agreed by the landlord would prevent them from then pursuing any guarantors from the date of the surrender.

 

[simon164]

Hi everyone. Apologies for the lack of involvement in this post. I have had quite a bit on my mind and when I posted this I felt particularly low. Having spent a huge amount of my time trying to get this premises working (as well as money..!), it is so frustrating to be in the position I am in. That said, it’s a reality and I have been looking at as many options as I can to get out of the Lease.

I have without question realised that what is making my business unsuccessful is this site and associated overheads. I probably still have a passion for the job (somewhere...!), but the overheads and constant worries have killed it. There is an obvious temptation just to throw in the towel as it’s made me ill and my health is more important. There is no point working yourself into an early grave...particularly when the work brings you no financial reward!

I therefore decided to look at the option of a cheaper premises and believe I have found somewhere substantially cheaper on very flexible terms with a business I have worked closely with for many years. He has offered space within his building having had a similar business vacate. Due to downsizing it will involve redundancies, but not to everyone I employ. It does however reduce my overheads by over 70%. The site isn’t ideal but it is certainly workable with many features in its favour.

When I took the lease on I did at the time apply to have a licence to sublet if I found my situation changing. This was granted and I didn’t really consider this to be a route. I decided though on the right terms I should consider it. I therefore marketed the property a few days ago with a local agent and have a competitor looking at the site who seems keen. If that went ahead I would have to vacate very quickly but we will see what happens. I have insisted on half of the years rent up front - no exceptions. Worse case if the new tenant defaults I only have to find 6 months until the end of the lease but it also gets me out of the other obligations including a rates break for 6 months. I would actually be a few hundred pounds a month better off subletting it too. I am also in a fortunate position in that my landlord did not complete an inventory when I took the site on.

I really hate the idea of not meeting my rent commitments. The landlord has been good to deal with, however I saw no feasible choice but to consider folding the company to escape. If I can get the above to work that would be excellent and I may even get a decent reference in future.

My feeling is I will look to pay off my creditors during the move, gradually pay myself back the directors loans and on the footing that the tenancy goes ahead, reconsider my position in a year. If it’s not working, I will wind the company up legitimately.

I think sometimes it’s hard to see the wood for the trees when you are under pressure. It’s certainly not a situation I have ever faced, but these things are sent to try us. I very much appreciate all the help and advice everyone above has pointed out. If it comes to winding up I will be sure to take on board your experienced views.

Thanks again

 

[Mr D]

Sounds like you have a plan.
Good luck with it.

We learn and we grow. Sometimes in ways we had never expected.

 

[Salfordian]

"He's looking to do the dirty on just the landlord."

A little harsh considering the circumstances. At least the landlord will still have the premises to re-let, whereas the tenant could be totally cleared out.