Advice On Closing Down With £50k Debt

[Ray Green 1969]

Hi There,

I came across this website today after searching for answers on google. I would be very greatful if anyone could give me advice. I have spent the last few hours reading lots of threads and can say that I cannot refer to my accountant as I owe her money and now cannot pay and she wont give me advice. I have no insurance and my business assets are worth about £1800.

I own a Ltd company that specialised in providing IT Support & Services to SME's. The company has been trading for over 5 years. Up until 7 months ago the company was making good money, I had never ran a business before so have been naive in many decisions.

The problems started when one of my employees who came on board shortly after I started, left the company. I had a contract of employment but there was no clause preventing him from dealing with clients once he left.

As you can guess he started up his own company providing the same services as us, but he took our 2 main clients when their contracts came for renewal. I had been duped into believing he had taken a new career path and only discovered what he was doing when the clients said they were not renewing and were going with him instead. I placed faith in him and made him account manager for both clients and have a weak relationship with them. He charged far less than us and before I could compete they had already signed up for 5 years contracts.

Due to arrogance and self belief of having 2 clients who were providing a healthy income, I took out a £75K loan 2 years ago thinking the business would grow. I have a personal guarantee on £32.5K of the loan and a further £15K guarantee on the systems I bought for the company.

The business is now in a total of £100K debt. I know I am liable for £49,500 and am feeling a great strain already. Because our overheads are fixed I have made all my staff redundant but am still faced with £100K bill.

I own my house and have £25K equity available. I have various personal loans and credit cards, and my wife does not work as she cares for our 2 year old daughter.

I am really scared I am going to lose everything. I have done some research into what my options are. Bankruptcy means I lose my home. We cant move in with relatives as they dont have space. I have done some reading on IVA's but with my personal debt at £45K and business debt of £100K I do not know if this can be considered and with my mortgage I dont know how I can pay for all of this.

I have paid up all VAT and any money due to HMRC. The remaining debt is with the bank and other companies.

Does anyone know if I can close down the business with all this debt and just pay the £49,500 debt I have personally guaranteed?

My wife and I have not slept properly as we are scared of losing everything.

Any advice or help would be really really appreciated.

Ray

 

[Gillie]

http://www.insolvencyhelpline.co.uk/bankruptcy/index.php

Gives lots of free impartial advise for you ...

 

[stugster]

Really feel for you Ray

Is there any way you can turn the Business into something more feasible? You're concentrating solely on the SME market, which is fair enough. But, with your experience, would supporting a home user be an option?

What if you had a unique selling point like mine, of specifying your prices up front for each different support option?

How quickly have you got to pay the remaining debt back?

 

[RedEvo]

My heart goes out to you, it's very sad to see this happen.

The only thing that seems to suggest you might be able to minimise the damage is the fact you have a limited company. This limits your personal liability.

d

 

[Kent Accountant]

Have a look at this

 

[DuaneJackson]

Have you given personal guarantees on any of the 50k owed? Or is it owed by the company.

The most important thin you have to do right now, if you haven't already is to STOP trading.

If you knowingly trade while insolvent then you'll become liable for the debts.

 

[Gillie]

Ray does mention that he has a personal guarantee on just short of £50k in his post, so yes he stands to lose despite being a limited company. Where does being a limited company stop you being liable when you are personally asked to guarantee the debt??

You need to get professional advise Ray and quickly before you commit to something that was not in your best interest.

 

[DuaneJackson]

Sorry, serves me right for scan reading!

Where does being a limited company stop you being liable when you are personally asked to guarantee the debt??

I'm suggesting it does.

 

[An Oasis]

Hello Ray

Having been in a similar situation I understand what you are going through, it's not pleasant and makes every moment of your life seem worthless. I did not consult the right people and acted when it was too late, by believing that I could make things "somehow" work. The end result was not good, mainly because I just thought I had to lose everything so I just gave up and sure enough everything went.

You need advice and you need it fast, like anything debt is a negotiable commodity so get the best advice that you can and negotiate about the debt like you have never negotiated before. Don't do what I did and sit there handing over everything that I owned because I thought was what I had to do.

One positive thing to hold on to. In a few years time you will look back on what happened and it will be a dim memory, you will have rebuilt your life and be enjoying every moment of it.

 

[Vaninternatinal]

I got into debt about 10 years ago, although I was a sole trader at the time total debt £30,000. anyway I was put in touch with a company in Birmingham, who said my best way out was a volantry something , I can't remember. anyway I took a job, got a mortgage, paid off the debt @54 pence in the pound, job done. the relife was unbelieveable, but I acted quick, don't hang about, and good luck.

 

[Jyemstone]

Hi Ray,

I'm so sorry to hear about your situation but please hang in there and explore all avenues.

All I can give you is my heartfelt support, but i'm hoping all will work out well for you.

 

[Page]

I "know" someone that has recently gone down as a sole trader.

He contacted Business Link for advice and said that they gave him some good advice but more importantly put him in contact with a firm that really knew their stuff in this area.

I think this made a huge difference to what he has done in terms of winding down and dealing with the debt. I am sure that it also removed a lot of the stress. No point struggling on trying to become an expert yourself in this area.

Yes it is that bizarre catch 22 situation. You have to find the money to pay them even though you are essentially bankrupt!

The firm were called mph recovery - www.mph4recovery - not sure on extension and are based in Bradford.

This may not be geographically close to you. But they could be worth contacting as a start point. They may be able to recommend someone closer to you or how to find someone closer to you. Or maybe the distance does not matter.

Good luck.

 

[Page]

I have had problems myself in the past and struggled on and came out the other side.

But if I had my time again I would have shut down and had a break and refreshed myself - got a job for a while - and then restarted again.

The problems and slowly turning it around were very very draining and took years. During that time I was not working near my best and so it was even harder than it should have been. So that added to the years.

Taught me a lot though!

If you don't yet do it - start exercising daily - to help burn off that stress so that you are better able to deal with the problems.

I drank heavily at the time - works by the days but causes more problems by the weeks and months.

Let us know how you get on as it is (sorry) an interesting post and one that we often do not hear so much about.

Remember that most businesses fail or at least fail to pay for the effort put in and so are shut down. But we only see or tend to hear about ones that are still trading. Going down is not something that people boast about nor is there an inverse falshy car to drive around in and let people know.

 

[quikshop]

IVA, In Voluntary Arrangement, all personal debts are frozen and a five year payment plan is agreed based on your ability to pay - as Van mentioned above he paid 54p for every pound he owed. Its a second to last resort before bankruptcy.

Its effective in stopping interest mounting on debts and protects you from your creditors while you are repaying the agreed monthly amount, but it is a CCJ on your record and will damage your ability to gain credit in the future.

 

[Cred-X]

Hiya Ray,
I'm very sorry to hear about your plight.

Firstly, making an observation from your original post, I would not have paid off HMRC or the VAT man. I would have paid off as much to the bank as possible, the reason being that I would assume that your bank would be classed as a preferential creditor because they would have charges over assets etc.
If you had paid off some on the bank debt that could have helped to reduce your personal liability and the VAT man would have stood in line like the rest of your creditors.


The best advice I could give in a situation like this is that you need t start talking to your bank and other creditors.
Banks will often come to an agreement over a loan if they see that there is little chance of recovering the full sum. You should be able to negotiate with them to agree a figure to repay and a repayment plan.

 

[Alice3537]

But, cred-ex, if you don't pay HMRC or the VAT man the fear is they could stop the company trading - and the bank freezes the accounts, so how would that help? :|

Although there are processes that the OP could have gone through re the payment, I think most people are more scared of HMRC than pretty much anyone else, so I can understand why he planned his finances in that way.

 

[Ian J]

An IVA is the obvious option and there are many specialist who can advise in that area but if you only have two major creditors have you tried negotiating directly with them as they might be reasonable knowing that you always have the option of an IVA up your sleeve.

Either way your credit history will be ruined but an IVA could enable you to repay only a precentage of what you owe rather than the full amount.

 

[Cred-X]

Hi Alice,

Some people may not be aware that since 15th September 2003 HMRC is no longer a preferential creditor. They used to be one of the most frequent petitioners for winding a company up, because they could use their preference to get paid first and then leave all the rest of the creditors to feed on the scraps.
Now the HMRC are in with the rest of us feeding on the scraps although they don't shout about it, they still try to give the impression of having the clout.
If the HMRC wanted to stop a company from trading they would be just as bad off as the next creditor. The HMRC has since been replaced by the Banks.
The Banks used to be 2nd in line in preference but now that they are king of the hill they are now forcing the majority of insolvencies because of the fixed or floating charges they hold over the debtors.

I hope that helps to clarify things

Regards

Nick

 

[KM-Tiger]

Some people may not be aware that since 15th September 2003 HMRC is no longer a preferential creditor.

I think many people are not aware of that, and if this forum had stickies, your post should be one of them. This is vital information for anyone whose business is up against the wall.

Clearly the OP would have been in a much better position paying the bank and not HMRC.

 

[Ian J]

The Banks used to be 2nd in line in preference but now that they are king of the hill they are now forcing the majority of insolvencies because of the fixed or floating charges they hold over the debtors.

There is no fixed charge on debtors any more as the courts have ruled them invalid. The charges are floating and therefore rank much lower down the pecking order and this is why banks are no longer keen to offer overdrafts any more.

Clearly the OP would have been in a much better position paying the bank and not HMRC.

By paying the bank and not HMRC the OP may have reduced his personal liability to the bank but could have laid himself open to charges of fraudulent preference whereupon he could have been made personally liable forall of the debts of the company whether limited or not.

 

[CKG]

Get down the bank and negotiate hard with them. They can be suprisingly flexible.

I've been in your position, it was hell, but good communication, honesty and forward planning can make the difference between floating or sinking.

 

[Cred-X]

There is no fixed charge on debtors any more as the courts have ruled them invalid.

Sorry Ian, my post was poorly worded.
I didn't mean a charge over the debtors on the customers sales ledger, I meant it as in the 'debtor who is the banks customer'.
I hope that clarifies.

Regards

Nick

 

[Brin]

I am a Licensed Insolvency Practitioner ('LIP'), I have done this for a living for 20 years, so you should probably listen to me.

You need to take advice from a LIP.

Pick up the Yellow Pages, pick up the names of three (all offer a free initial consultation) LIPs.

Go to see all three.

Ignore the rubbish you see on the web about insolvency, much is scaremongering.

Only go into an IVA if you are either protecting assets or income, do not let yourself be persuaded down the IVA route by an IVA salesman. To do so is a waste or time, cash and effort.

Do not spend money closing a limited company down which has virtually no assets (a creditors voluntary liquidation costs upwards of £5k, and you as a director have no legal responsibility to spend your own money closing it down), so do not let yourself be persuaded down the CVL route by a LIP.

 

[Brin]

Since starting my reply, I have seen various other replies, all of which miss the point.

Before you do anything, you need to know what your starting legal position is (both for the company and as an individual), you then need to consider in detail what you want to achieve and then you need to do a realistic assessment of what you can actually achieve given your circumstances.

You need to do this with a LIP. Don't do anything til you see one.

 

[An Oasis]

Have we been conned with this post? No reply from the OP.

 

[Brin]

Probably just got a life outside of business!

If he does anything as aresult of the hodgepodge of posts we have seen here, he is a fool. He needs proper advice.

 

[Alice3537]

Nick,

I've just seen your reply to me - thanks for going through that!

Alice

 

[Ray Green 1969]

Thank you to everyone with advice and encouragement. Brin, I think I will follow your advice and get professional advice. It is all nerve racking and my hesitations is telling an organisation my predicament and them taking advantage of me as I know relatively little in this area. It probably stems from being bitten by someone I classed as a friend but when it comes to business I should have known better. I will keep everyone update and it is encouraging to know similar things have happened to people and they turned it around. Hopefully I can use this website as a guide to rebuilding my life. Thank you all again.

 

[shirley64]

There is help available to you, do not despair, as a company we deal with people who have business and private debts and the solution is FREE to you, I know hard to believe but TOTALLY true

 

[Alan R Price]

There is help available to you, do not despair, as a company we deal with people who have business and private debts and the solution is FREE to you, I know hard to believe but TOTALLY true

Shirley

No disrespect but the purpose of this forum is to give advice, not directly sell your services. If the advice you give leads to opportunities for you, great but please bear this in mind.

 

[GreatSEO]

Not only that but the post is over 4 years old and would not result in you getting any business

It would be nice to get an update from the OP on how things are now though.....

Dave