Advice on closing a company with BBL and DLA

[Merl89]

Hello,

I’m in need of some advice, please.

I’m the sole director of a limited company. I took out a bounce back loan of 12k in 2020 (I had to use this to live off, as I had two or three months with only very little or no work during the pandemic). My director’s loan account was overdrawn by 9k at the time of preparing the 2020/2021 accounts. My accountant has now informed me that he will have to charge S455 tax on any amount still overdrawn by 30/04/22.

I have recently lost a regular client, so the BBL and the extra tax liability would send me over the edge. At the same time, I don’t have any funds to wind up the company properly. I do, however, have enough money put aside to pay the normal corporation tax that would be due for 2021/22 after the next accounts have been prepared. So I’m wondering, what other options are available for closing the company? Prepare the next accounts, pay the normal corporation tax (excl. S455), wait to receive a default notice on the BBL, then apply to have the company struck off? Would HMRC be likely to chase me for the DLA?

Thanks in advance, any advice is appreciated.

 

[Chris Parkman]

I would have thought that HMRC would object to any strike off application because of the overdrawn DLA, which is a debt that is repayable to the Company.

If you discuss the matter with an Insolvency Practitioner you may find that it would be possible to agree a repayment plan to repay the directors loan account over a period of time via monthly payments. The repayment of that loan would fund the liquidation costs, the Insolvency Practitioner would just have to wait for their fees.

 

[Gavin Bates]

I agree with Chris, both the Bank and HMRC will object to the strike-off. My understanding is that once the BBL fails into default the bank is required to pursue the BBL. What is not clear is how far that will go particularly given the small amounts involved here.

 

[ChrisCallaghan]

@Merl89 Firstly I am sorry to hear about the situation you find yourself in.

I agree with @Chris Parkman & @Gavin Bates . I suspect objections to a strike off application could be likely, and then it would be a case of wait and see if either HMRC or the BBL lender will take action to wind up your company, aka compulsory liquidation. Or they may choose to eventually withdraw their objections, allowing the strike off to go through.

In the event that company ends up in liquidation, it would likely be dealt with by the Official Receiver's office, and they will decide how to treat your overdrawn director's loan account.

As Gavin has mentioned, not sure how far they will go to pursue the director's loan account for the amounts involved. They will likely base their decision on your personal financial position (for example, if you own property and what your monthly disposable income is).

Though I fully understand why used the BBL to get by personally, unfortunately this would not be considered as what the BBL was intended for. It is quite possible that you may be made subject to a director's ban because of this. Examples of directors' bans can also be found on this forum.

 

[japancool]

If he pays the corporation tax, would that be considered a preferential payment?

 

[Lisa Thomas]

If he pays the corporation tax, would that be considered a preferential payment?

Yes if there are other creditors outstanding at the time. It might be better to use the funds, if sufficient, to pay to lqe the company.

 

[Lisa Thomas]

You really need to speak to an IP about the company's options.

It's possible you owe the company c£20k rather than just £9k. It depends on the circumstances and how the BBL funds were drawn and also whether the company breached any terms in taking out the BBL in the first place.

More details in my video here:

 

[Merl89]

Thank you everyone for the kind replies

 

[Lisa Thomas]

No problem - that's what we're here for. Best of luck.