How To Close My Insolvent LTD Company

[Malexa]

Hi Community,

I'm looking for a little guidance please.

I want to close down my small limited company if possible, without the services of an insolvency practice as I can't afford it.

My only outstanding debt is that of a bounce back loan of just under £10K. I have been pretty much insolvent for over 2 years and have been filing accounts and paying the monthly BBL payments from my own personal funds. I am working although this is through an umbrella set-up as the contractual role is inside IR35.

Any suggestions would be most grateful.

 

[ChrisCallaghan]

Hi @Malexa ,

I'm sorry to hear about your situation. The 2021 IR35 changes have caused this issues for many who have worked through limited company set ups like yours. There's a few things to consider:

Is the Bounce Back Loan the company's only debt? Does the company have any assets? Do you know the current balance of your director's loan account?

 

[Malexa]

Hi Chris,

Thank you for your response here. The DLA is positive and owes me over £1K as the BBL is being paid from my personal account. The company has no assets or physical office and other than a small (circa £200) CT payment due for the current tax year there's no other outstanding funds to any creditors etc. Just the BBL.

 

[emufeet]

Hi Chris,

Thank you for your response here. The DLA is positive and owes me over £1K as the BBL is being paid from my personal account. The company has no assets or physical office and other than a small (circa £200) CT payment due for the current tax year there's no other outstanding funds to any creditors etc. Just the BBL.

Firstly stop paying the BBL from your own funds. You have no personal liability to pay it and morally you don't either after the government gave us contractors zero support during Covid and then destroyed our livelihoods with IR35 changes! The sensible route at some point is likely to be allowing the company to be struck off by Companies House which will cost you nothing and all debts will effectively be written off. HOWEVER, there is a big caveat - due to the BBL I recommend you don't go ahead with striking the company off until you have taken advice on this. The strike off is almost certain to be blocked as the government is watching for companies that have had BBLs and the Official Receiver may then decide to carry out a formal liquidation, with company Directors being questioned to check whether the BBL was fraudulently obtained or used for incorrect purposes. This may sound scary but don't let it worry you - I'm sure you are perfectly above board and have nothing to be worried about - however you need to get advice to ensure everything is done correctly. I suggest you google "Mr Bounce Back" - it may sound amusing but he's an expert on the subject and knows what he is talking about. If you are on X (Twitter) I would try sending him a DM on there - he gives free advice and you can also phone him. He also has a website which has some free resources or you can pay a small amount for monthly access to all the articles. He also has a book you can download on Amazon. He will advise the correct procedure. I'm not sponsored by him honest, but I'm going through the same scenario and have found him really helpful! Don't let an Insolvency Practitioner persuade you to pay for a voluntary liquidation - it's very likely not necessary - although having said that I've seen Lisa on here offering very helpful advice to people. Good luck!

 

[UK Contractor Accountant]

So what was the BBL funds used for?

As a contractor Ltd I would imagine costs & overhead of the business were limited.

 

[emufeet]

So what was the BBL funds used for?

As a contractor Ltd I would imagine costs & overhead of the business were limited.

My understanding is you were allowed to use the funds to pay yourself if this was not excessive and not significantly different to your normal practice. BBL funds were provided to be used in the best interest of the company to enable it to survive through an unprecedented crisis into the future. I would argue that not having the director(s) bankrupt and out on the streets was in the best interest of the company.

 

[UK Contractor Accountant]

My understanding is you were allowed to use the funds to pay yourself

Not as dividends you weren't- normal salary levels yes without backdating hmrc filings.

 

[emufeet]

Not as dividends you weren't- normal salary levels yes without backdating hmrc filings.

That's what I meant.

 

[Porky]

Can I point out that at no point has @Malexa said they are NOT prepared to settle the BBL debt if they have to. Whilst yes, the bank can investigate use of funds Yada Yada, frankly it’s highly unlikely, they won’t give a toss but they may or may not write it off and if they don’t she would have to settle with them worst case scenario in my option so no scare mongering.

The poster will be likely feeling stressed as it is although nothing frankly to worry about, it’s just a process. At the moment business closures are up by over 30% already, there are thousands in this position.

In this situation, obviously it would be better to use an IP IMO it’s cleaner and far quicker to close the whole thing off but it would cost probably £5k unless one of the IPs like @Lisa Thomas could do the OP a favour as it’s a small one. As the OP wants to avoid that option they should:-

Cease trading completely with the LTD company, close the bank account and stop paying the Loan. Follow the sponge Bob plan. Ie include telling the bank the company has ceased trading then Request the company be dissolved at CH.

Now highly likely either the Bank or the Inland Revenue, most likely will object, even though the OP doesn’t owe them anything but you never know the poster might get lucky and CH dissolve it, happy days if they do.

If it’s objected to it could hang around at companies house for a long time but the Sponge Bob plan works for many and the OP should give it a try. As I say worst case IMO is they may have to reach terms on the BBL but not the end of the world.

 

[UK Contractor Accountant]

Can I point out that at no point has @Malexa said they are NOT prepared to settle the BBL debt if they have to. Whilst yes, the bank can investigate use of funds Yada Yada, frankly it’s highly unlikely, they won’t give a toss but they may or may not write it off and if they don’t she would have to settle with them worst case scenario in my option so no scare monger

In this situation, obviously it would be better to use an IP IMO it’s cleaner and far quicker to close the whole thing off but it would cost probably £5k unless one of the IPs like @Lisa Thomas could do the OP a favour as it’s a small one. As the OP wants to avoid that option they should:-

Cease trading completely with the LTD company, close the bank account and stop paying the Loan. Follow the sponge Bob plan. Ie include telling the bank the company has ceased trading then Request the company be dissolved at CH.

Missing the point here - any IP appointed has to check whether the BBL was a valid application using correct turnover figures and also investigste the use of the BBL funds. Any skulduggery gets reported to the Insolvency Service for further action.

 

[Lisa Thomas]

My understanding is you were allowed to use the funds to pay yourself if this was not excessive and not significantly different to your normal practice.

Not necessarily! Also, it's not just what the money was spent on that is investigated, it's whether the loan application was allowed in the first place.

 

[Lisa Thomas]

Can I point out that at no point has @Malexa said they are NOT prepared to settle the BBL debt if they have to. Whilst yes, the bank can investigate use of funds Yada Yada, frankly it’s highly unlikely, they won’t give a toss but they may or may not write it off and if they don’t she would have to settle with them worst case scenario in my option so no scare mongering.

The poster will be likely feeling stressed as it is although nothing frankly to worry about, it’s just a process. At the moment business closures are up by over 30% already, there are thousands in this position.

In this situation, obviously it would be better to use an IP IMO it’s cleaner and far quicker to close the whole thing off but it would cost probably £5k unless one of the IPs like @Lisa Thomas could do the OP a favour as it’s a small one. As the OP wants to avoid that option they should:-

Cease trading completely with the LTD company, close the bank account and stop paying the Loan. Follow the sponge Bob plan. Ie include telling the bank the company has ceased trading then Request the company be dissolved at CH.

Now highly likely either the Bank or the Inland Revenue, most likely will object, even though the OP doesn’t owe them anything but you never know the poster might get lucky and CH dissolve it, happy days if they do.

If it’s objected to it could hang around at companies house for a long time but the Sponge Bob plan works for many and the OP should give it a try. As I say worst case IMO is they may have to reach terms on the BBL but not the end of the world.

Thanks Porky.

OP always happy to chat. Sounds like dissolution might be the best option for you here, as you are not obligated to pay for a liquidation out of your own pocket, where the company cannot afford to pay it.

Have a look here:

Guidance for limited companies, partnerships and other company types

Guidance about registering, filing and disclosing information with Companies House.

www.gov.uk

and towards the end of my video here: https://youtu.be/01lTdazWwTk?si=2HG19-mnW2c0zaA4

 

[Elliot Green]

My understanding is you were allowed to use the funds to pay yourself if this was not excessive and not significantly different to your normal practice. BBL funds were provided to be used in the best interest of the company to enable it to survive through an unprecedented crisis into the future. I would argue that not having the director(s) bankrupt and out on the streets was in the best interest of the company.

Unfortunately that argument might not be a particularly strong one when you look at the disqualification listings and the causes of the Undertakings often provided.

The test for 'Econmic Benefit' appears somewhat imprecise but something akin to a combination of Sections 171 and 172 of the Companies Act 2006 is conceivable when it is looked at from a fitness perspective.

As for a director not being bankrupt, that is in the best interests of the director personally, not the company.

There is the general rule in Salomon v Salomon & Co Ltd [1896] UKHL 1 that may merit some consideration:

"… once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself…"

 

[Elliot Green]

Not as dividends you weren't- normal salary levels yes without backdating hmrc filings.

Dividends might be a tricky point for all concerned if prosecuted. Payment of directors on the common combination of dividends and salary doesn't seem to readily feature in the disqualification listings on bounce back badness.

Strictly speaking the potential difficulties with deployment of a bounce back loan to pay dividends might for example be that following the rationale in the Sequana decision, they appear deemed to be a transaction for no consideration.

 

[Elliot Green]

Can I point out that at no point has @Malexa said they are NOT prepared to settle the BBL debt if they have to. Whilst yes, the bank can investigate use of funds Yada Yada, frankly it’s highly unlikely, they won’t give a toss but they may or may not write it off and if they don’t she would have to settle with them worst case scenario in my option so no scare mongering.

The poster will be likely feeling stressed as it is although nothing frankly to worry about, it’s just a process. At the moment business closures are up by over 30% already, there are thousands in this position.

In this situation, obviously it would be better to use an IP IMO it’s cleaner and far quicker to close the whole thing off but it would cost probably £5k unless one of the IPs like @Lisa Thomas could do the OP a favour as it’s a small one. As the OP wants to avoid that option they should:-

Cease trading completely with the LTD company, close the bank account and stop paying the Loan. Follow the sponge Bob plan. Ie include telling the bank the company has ceased trading then Request the company be dissolved at CH.

Now highly likely either the Bank or the Inland Revenue, most likely will object, even though the OP doesn’t owe them anything but you never know the poster might get lucky and CH dissolve it, happy days if they do.

If it’s objected to it could hang around at companies house for a long time but the Sponge Bob plan works for many and the OP should give it a try. As I say worst case IMO is they may have to reach terms on the BBL but not the end of the world.

It is not unknown for a Liquidation to be done for less than £5,000.

 

[Malexa]

Missing the point here - any IP appointed has to check whether the BBL was a valid application using correct turnover figures and also investigste the use of the BBL funds. Any skulduggery gets reported to the Insolvency Service for further action.

Thanks all for your comments. Regarding the legitimacy of how the BBL funds were used is transparent, so any investigation is most welcome. I've paid back in excess of £12K from my own funds since the company has been close to doing no turnover for over 2 years. I think it would ve extremely difficult to state that the remaining £10K of the BBL was used inappropriately.

 

[UK Contractor Accountant]

I think it would ve extremely difficult to state that the remaining £10K of the BBL was used inappropriately.

If it gets looked at they wont look at the £10K of remaining balance - its what happened to the original BBL funds when received is the review aspect.

If used for the benefit of the business then you have nothing to worry about.

 

[Lisa Thomas]

FYI whether the application should have been made in the first place is another point of investigation.

 

[Malexa]

FYI whether the application should have been made in the first place is another point of investigation.

If I hadn't made the application I would have lost my business during g the pandemic and also lost my property without any doubt.

 

[Lisa Thomas]

If I hadn't made the application I would have lost my business during g the pandemic and also lost my property without any doubt.

Unfortunately that's irrelevant. There were certain rules put in place for businesses to qualify. Part of the investigation is to check the company fit the criteria to apply for the funds, and the sum applied for.

 

[Malexa]

I will take my chances with the Spongebob plan. Nothing to lose whatsoever.

 

[UK Contractor Accountant]

I will take my chances with the Spongebob plan. Nothing to lose whatsoever.

As previously stated the Strike Offs are being blocked until they have been looked at.

At present the Govt are offering incentives to some Banks to petition for winding up at which stage the original application and use of BBL funds will be looked at.

If used for business purposes then nothing to worry about!