PLEASE HELP, COMPANY INSOLVENT AND NEEDS TO CLOSE

[stressedwife]

So this is a horrible post to write, basically our company has failed with DLA debt and has been unable to pay its taxes/BBL. It has no money, we have no money and are obviously terrified of the consequences. In terms of drawings my husband hasn’t taken anything since the moment he found out it was illegal (over a year ago) but we haven’t managed to make it profitable in that year.

My first question is - is there a way of saying the company owes him money for the amount of work he has put in over the last year? Could it be that it owes him to at least the minimum point of non PAYE registry? I think what I read it was £6100. The aim being to reduce the DLA.

And what do we do going forward with no money to pay for final accounts and no money to pay off debts. My husband is the director, but obviously I’m worrying our house can be taken and he is still burying his head in the sand just hoping it all goes away. I am so so worried.

Thanks for listening :’(

 

[WaveJumper]

Welcome to the UKBF sorry hear of your issues but know our members here will point you in the right direction. Take a deep breath have a read of this thread if you have not already seen it. The IPs who resided here will I am sure be along a little later

Liquidation with Debts and Minimal Assets

Hi Guys, I've been looking over the the internet and this forum regarding the best apporach to closing down my company and am looking for some advice if possible. The company has been trading for just over 4yrs and unfortunately it looks like I may run out of money in the next month or so. As...

www.ukbusinessforums.co.uk

 

[Elliot Green]

So this is a horrible post to write, basically our company has failed with DLA debt and has been unable to pay its taxes/BBL. It has no money, we have no money and are obviously terrified of the consequences. In terms of drawings my husband hasn’t taken anything since the moment he found out it was illegal (over a year ago) but we haven’t managed to make it profitable in that year.

My first question is - is there a way of saying the company owes him money for the amount of work he has put in over the last year? Could it be that it owes him to at least the minimum point of non PAYE registry? I think what I read it was £6100. The aim being to reduce the DLA.

And what do we do going forward with no money to pay for final accounts and no money to pay off debts. My husband is the director, but obviously I’m worrying our house can be taken and he is still burying his head in the sand just hoping it all goes away. I am so so worried.

Thanks for listening :’(

I am sorry to learn of the situation and your concerns.

In general terms, an overdrawn director's loan account ("ODLA") cannot be wiped by way of posting more salary when a company has failed. Directors can subject to complying with relevant available procedures for their company, vote a salary but the problem when this is done specifically to wipe an ODLA is if the company goes into liquidation then commonly the new salary can be treated as what is known as a Preference under Section 239 of the Insolvency Act 1986. It could also be a transaction at undervalue under Section 238 of the Insolvency Act 1986. This can render it ineffective. Also, you cannot backdate salary - the case of Bass v Buchanan [2021] EWHC 2740 (Ch) highlights the reason that you cannot backdate your salary - judge's comment:

"In my judgment, it is simply not open to a director to recreate history and the basis upon which they have historically received money from a company."

If it is dealt with by way of a dividend then a similar position can arise notwithstanding that such a dividend will be unlawful if the company is insolvent without sufficient distributable profits/reserves.

Elements of an ODLA not repaid mean there is generally a requirement under Section 415 of the Income Tax (Trading and Other Income) Act 2005 for this to be reported on a person's personal tax return and depending on the amounts involved income tax would likely be charged on any written off or released element of an ODLA.

Happy to chat through your options if you want to get in touch.

Best wishes.

Disclaimer: This post is not legal advice and should not be relied upon as such. It is provided for information purposes only. You should consider therefore taking professional advice derived from instructions applicable to the specific facts of your case.​

 

[stressedwife]

Hi there, are you saying we could personally back date it as if we had paid income tax. We have paid all of our taxes, all be it 12570 at tax free salary and then dividend percentage. That being, back date and adjust the income on our next return to include the income we’ve taken as dividend?

Honeslty can’t thank you enough. I will have a look at this post now.

 

[WaveJumper]

Good advice above arrange a call with @Elliot Green and sleep better at night - all the best

 

[stressedwife]

also Elliot would it be possible to have your contact details - be good to discuss various options and know how much full insolvency would cost. Thanks so much - feel so much happier since finding this forum!

 

[Elliot Green]

also Elliot would it be possible to have your contact details - be good to discuss various options and know how much full insolvency would cost. Thanks so much - feel so much happier since finding this forum!

If you click on my profile all the contact details are there. I think the forum prohibits my putting them in the post itself.

 

[MyAccountantOnline]

So this is a horrible post to write, basically our company has failed with DLA debt and has been unable to pay its taxes/BBL. It has no money, we have no money and are obviously terrified of the consequences. In terms of drawings my husband hasn’t taken anything since the moment he found out it was illegal (over a year ago) but we haven’t managed to make it profitable in that year.

My first question is - is there a way of saying the company owes him money for the amount of work he has put in over the last year? Could it be that it owes him to at least the minimum point of non PAYE registry? I think what I read it was £6100. The aim being to reduce the DLA.

...

Why do you want to do that?

 

[Newchodge]

Hi there, are you saying we could personally back date it as if we had paid income tax. We have paid all of our taxes, all be it 12570 at tax free salary and then dividend percentage. That being, back date and adjust the income on our next return to include the income we’ve taken as dividend?

Honeslty can’t thank you enough. I will have a look at this post now.

I really don't think that is what he is saying.

 

[MyAccountantOnline]

.... My husband is the director, but obviously I’m worrying our house can be taken and he is still burying his head in the sand just hoping it all goes away. I am so so worried.

Thanks for listening :’(

Have you given any personal guarantees for any company loans etc?

 

[Elliot Green]

Hi there, are you saying we could personally back date it as if we had paid income tax. We have paid all of our taxes, all be it 12570 at tax free salary and then dividend percentage. That being, back date and adjust the income on our next return to include the income we’ve taken as dividend?

Honeslty can’t thank you enough. I will have a look at this post now.

In general terms, it is NOT possible to backdate transactions such as salary or dividends.

My contact details are now below if you want to give us a call to explain.

 

[Daybooks]

Try and prepare a set of accounts since the last annual set produced to get the current and true position if not already done. Similarly consider preparing a financial plan for the Company for the immediate future. You may have already done this in one form or another but the numbers can sometimes help formulate strategies allowing you to the make the best informed decisions. Take up @Elliot Green 's offer and best of luck.

 

[Daybooks]

I am sorry to learn of the situation and your concerns.

In general terms, an overdrawn director's loan account ("ODLA") cannot be wiped by way of posting more salary when a company has failed. Directors can subject to complying with relevant available procedures for their company, vote a salary but the problem when this is done specifically to wipe an ODLA is if the company goes into liquidation then commonly the new salary can be treated as what is known as a Preference under Section 239 of the Insolvency Act 1986. It could also be a transaction at undervalue under Section 238 of the Insolvency Act 1986. This can render it ineffective. Also, you cannot backdate salary - the case of Bass v Buchanan [2021] EWHC 2740 (Ch) highlights the reason that you cannot backdate your salary - judge's comment:

"In my judgment, it is simply not open to a director to recreate history and the basis upon which they have historically received money from a company."

If it is dealt with by way of a dividend then a similar position can arise notwithstanding that such a dividend will be unlawful if the company is insolvent without sufficient distributable profits/reserves.

Elements of an ODLA not repaid mean there is generally a requirement under Section 415 of the Income Tax (Trading and Other Income) Act 2005 for this to be reported on a person's personal tax return and depending on the amounts involved income tax would likely be charged on any written off or released element of an ODLA.

Happy to chat through your options if you want to get in touch.

Best wishes.

Disclaimer: This post is not legal advice and should not be relied upon as such. It is provided for information purposes only. You should consider therefore taking professional advice derived from instructions applicable to the specific facts of your case.​

Appreciate you posting the reference to the case law. Whilst it may be of little comfort to the OP directly, perhaps it should be mandatory reading for all directors.

 

[stressedwife]

Have you given any personal guarantees for any company loans etc?

Hello, thanks so much for your response!

No we haven’t - although it is my opinion if there is a BBL outstanding and we have taken money that shouldn’t have been paid out then we are personally liable to the amount we’ve paid ourselves?

 

[Elliot Green]

Appreciate you posting the reference to the case law. Whilst it may be of little comfort to the OP directly, perhaps it should be mandatory reading for all directors.

We have licenses/regulation for lots of (trading) activities:
- Insolvency Practitioners
- Lawyers
- Auditors
- Doctors
- Waste Management
- Travel Agents
- Alcohol sellers
- Driving
- etc

There is nothing to address the matter of a trading company director and whether they understand their statutory duties. They can simply form a company and get a congratulations letter from Companies House.

It is conceivable many directors might not necessarily grasp the Salomon v Salomon implications of the separate legal personality and how their money might be distinct from the company's.

It is arguably time for mandatory director courses with a test at the end to protect them and those with whom they trade.

 

[Daybooks]

We have licenses/regulation for lots of (trading) activities:
- Insolvency Practitioners
- Lawyers
- Auditors
- Doctors
- Waste Management
- Travel Agents
- Alcohol sellers
- Driving
- etc

There is nothing to address the matter of a trading company director and whether they understand their statutory duties. They can simply form a company and get a congratulations letter from Companies House.

It is conceivable many directors might not necessarily grasp the Salomon v Salomon implications of the separate legal personality and how their money might be distinct from the company's.

It is arguably time for mandatory director courses with a test at the end to protect them and those with whom they trade.

Apologies for being off the beaten track.
There is a thought; Continuing Professional Development for directors.

I presume the principle of “ignorantia juris non excusat” still holds; thus the doctrine of some being “History ain’t what it used to be.”

I wonder if anyone has ever been charged in respect of failure to comply with s386 Companies Act.

 

[Elliot Green]

Apologies for being off the beaten track.
There is a thought; Continuing Professional Development for directors.

I presume the principle of “ignorantia juris non excusat” still holds; thus the doctrine of some being “History ain’t what it used to be.”

I wonder if anyone has ever been charged in respect of failure to comply with s386 Companies Act.

That principle is still prima facie one that exists but the application of the law by the courts often means judges have discretion and for many rules there are exceptions. As an example only, Section 1157 Companies Act 2006 permits a court to relieve a director after a breach of duty or Section 387(2) of the Companies Act 2006:

"It is a defence for a person charged with such an offence to show that he acted honestly and that in the circumstances in which the company's business was carried on the default was excusable."

As for your company records point, directors do get charged for a failure to keep company records but those who do so often have kept no records at all or the offence is often bundled alongside a series of other misdemeanours.

 

[UK Contractor Accountant]

No we haven’t - although it is my opinion if there is a BBL outstanding and we have taken money that shouldn’t have been paid out then we are personally liable to the amount we’ve paid ourselves?

What then was the BBL spent on?

 

[Lisa Thomas]

Sorry to hear about the company's insolvency situation.

As the others have stated it's best to take advice from a licensed Insolvency Practitioner on the options available.

You might find this video useful as it runs through various options:

- YouTube

Enjoy the videos and music that you love, upload original content and share it all with friends, family and the world on YouTube.

youtu.be

As regards the O/D DLA, if you are unable to pay it, and do not have any assets of a material value, it might be academic.

Directors often pay back what they afford, depending on your substances. Happy to chat about this in more detail if needed but have gone into more detail on this here:

- YouTube

Enjoy the videos and music that you love, upload original content and share it all with friends, family and the world on YouTube.

youtu.be