ADVICE ON WINDING UP A PUBLIC HOUSE LIMITED COMPANY USING THE SPONGBOB METHOD

Discussion in 'Insolvency' started by daverout, Oct 19, 2019.

  1. daverout

    daverout UKBF Newcomer Free Member

    28 2
    Have been lurking on these forums for about 6 years now and have not needed advice and support until now :rolleyes:

    First I'd like to say that we will be using the @Spongebob Plan to 'Wind Up' this Limited Company with absolutely no funds left. Big vote of thanks to Bob from Bikini Bottom :D

    Back in June 2018 my 40 year old daughter and her partner, a chef, decided to 'take on' a local pub.
    6 year lease with yearly rent paid quarterly.
    My daughter, a divorcee with a mortgage free house and savings foolishly agreed to fund this venue. She works part time at a local school as a TA.
    Set up fees came to about £53,000 including buying the lease. :eek:

    They worked hard with a great staff team and turned the place around with good support from the locals. Good food and drinks meant that the pub should have been a goldmine.
    However it soon became apparent that outgoings were exceeding the income.
    From what I can work out numbers cash injections were required to keep it solvent.
    These came from my daughters savings and loans from 'bank of dad' etc.

    The business was set up as trading as a Limited Company with our daughter as the sole Director.

    Then at the beginning of October 2019, not being able to meet their mounting debts, they decided to 'walk away' from the pub!
    Up to this point I was not allowed to interfere. However, my daughter, was absolutely distraught for letting everyone down including herself. Savings now all gone, she had to turn to me for help and even borrow £100 for food shopping for her and our granddaughter.
    There's worse to come.....

    Now asked to help, she turned to me and slowly I am beginning to peel back the layers and find out the true extent of the failed business.
    Over the next few days I can give basic details of how we dealt with the pub lease and how we intend to deal with the numbers creditors.

    My daughter disclosed to me that at the beginning of April 2019, with mounting debt, she signed up a Loan Agreement entitled "Unregulated and Secured Hire Agreement" with a certain Secured Finance Company :oops:
    I have a copy of the agreement and can go into details later.
    Initial reading shows that the hire schedule is based on appliances, fixtures and fittings at the pub!
    Having defaulted on the monthly payment this company have attempted enforcement and I was authored to speak to their Collection Dept.
    An interim payment was made with respect to the monthly payments by 'bank of dad' buying us more time:
    How much was loaned - £40,000
    Monthly repayments - 60 x £1405.20
    Settlement figure? - about £90,000
    The operative stated that my daughter was personally liable and would have to sell her house to pay this off.....
    WTF is going in here then? :mad:

    So the BIG QUESTIONS are:
    Is my daughter personally liable for this business debt or is it her Limited Company?
    After only a few months is the huge settlement fee realistic?
     
    Posted: Oct 19, 2019 By: daverout Member since: Feb 10, 2013
    #1
  2. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

    4,908 848
    Depends if she signed an enforceable personal guarantee for the loan.

    If she has then it's down to negotiating a settlement figure to clear or personal monthly
    payments assuming the company is no longer able to pay
     
    Posted: Oct 19, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #2
  3. daverout

    daverout UKBF Newcomer Free Member

    28 2
    Thanks for replying back so quick and while I am still online.
    Yes, on page 4 of the document, it would appear that she has signed a "Deed of Guarantee" :mad:
    When I last spoke to the Collection Dept a few days ago, he said that they want to see evidence that her house has been put on the market :(
    Whilst I accept that they're going to need their money back, is this really he way that they do business?
     
    Posted: Oct 19, 2019 By: daverout Member since: Feb 10, 2013
    #3
  4. Mr D

    Mr D UKBF Legend Free Member

    21,996 2,586
    Basically any debt where she signed a personal guarantee then when company does not pay it she will be chased. Common on leases and with banks.

    Settlement fee - read through the contract. Consumer contracts the person has some protection. Business contracts there is less protection and the contract can be written how the other side wants. If it's agreed then much harder to get out of.

    By the sound of it your daughter needed help to deal with the business back when she started.
    Now with additional debts there may well be more that she has personal guarantee on.
    Lease on the pub for example - payable until the next break clause which may be years away.
     
    Posted: Oct 19, 2019 By: Mr D Member since: Feb 12, 2017
    #4
  5. Mr D

    Mr D UKBF Legend Free Member

    21,996 2,586
    Well they could seek to make her personally bankrupt for the debt, however if the house is sold that way will the amount raised be smaller?
     
    Posted: Oct 19, 2019 By: Mr D Member since: Feb 12, 2017
    #5
  6. daverout

    daverout UKBF Newcomer Free Member

    28 2
    Thanks for replying quickly with advice.
    Last point first - yes she DID need advice when the business was started :mad:
    But, I was only told after it was a done deal.
    She was a vulnerable young lady with financial assets.
    Still grieving for the death of her 12 year old son (our grandson) and subsequent breakup of her marriage, she formed a relationship with a local chef.
    His business went bankrupt :rolleyes: and you can guess the rest.
    And yes I am going for the sympathy vote!

    Settlement fee - the small print talks about:
    "11. the Termination Sum which you have to pay upon early termination or early settlement of this agreement will be based upon the remaining total gross rentals shown overleaf in the Rental payments section as also shown in clause 9 (b). This termination sum represents damages and a supply of service therefore you will not receive a VAT invoice etc....."
    So in his clause they are effectively saying that they want the full 60 x £1405.25
    That comes to £84,315 :eek:
    Remember that the loan was for £40,000 in April this year :mad:

    So, what can be done about this particular business practice.
    It doesn't seem fair or right. Is it something that the FCA could deal with....
     
    Posted: Oct 19, 2019 By: daverout Member since: Feb 10, 2013
    #6
  7. daverout

    daverout UKBF Newcomer Free Member

    28 2
    Good question - no the house is mortgage free and will more than cover any debts.
    However, this house is her home for her and 10 year old daughter. It represents the settlement after her marriage broke up.
    Remember this was after the death of her 12 year old son :(
    It is doubtful that she will get a new mortgage on the wages of a part time teaching assistant
    I do realise that she is liable for the debt for this 'business loan' but we are now into damage limitation.
    It would appear that her chef partner has lost interest now the money has run out.
    He has now walked into another job with a £25k salary
    And it would also appear that he has ducked any personal liabilities :mad:
     
    Posted: Oct 19, 2019 By: daverout Member since: Feb 10, 2013
    #7
  8. Mr D

    Mr D UKBF Legend Free Member

    21,996 2,586
    Yep, he has ducked. She was director, she had control of the business, she signed any guarantees presumably alone? So she pays the price.

    The creditor or creditors will simply see that she has a property - either her equity is used to raise funds to pay them or house sold used to pay them.
    Sorry, single parent in their own house given as settlement appears not to prevent debts being repaid.

    Worth her getting professional advice regarding her personal debt situation. Stepchange is a good charity, I trust them and they don't charge.
     
    Posted: Oct 19, 2019 By: Mr D Member since: Feb 12, 2017
    #8
  9. Mr D

    Mr D UKBF Legend Free Member

    21,996 2,586
    If she signed the contract then unless the company she owes breaks the contract its probably going to be enforceable without trouble.
    As a consumer she needs protection and treated like a child, as a business owner she's treated like an adult and responsible for whatever contract she agreed. Of course she read the contract before signing - or at least treated as such.

    Get her to check with a commercial solicitor about the contract (more cost, sorry) but if they cannot find a way round it then its payable.
     
    Posted: Oct 19, 2019 By: Mr D Member since: Feb 12, 2017
    #9
  10. Mark T Jones

    Mark T Jones UKBF Big Shot Free Member

    4,522 1,646
    Whilst as individuals we can be sympathetic, legally she is a business owner and director and is considered capable of understanding the contract she has entered in to

    the only exceptions are if she can demonstrate that she was medically incapable through alcoholism or insanity (my knowledge may be out of date) or that there was active coercion or dishonesty in the signing. (Salesmen telling lies doesn’t count unless it is verifiable)

    Most reputable lenders will look for a suitable time to pay arrangement. Sadly, not are reputable.
     
    Posted: Oct 19, 2019 By: Mark T Jones Member since: Nov 4, 2015
    #10
  11. daverout

    daverout UKBF Newcomer Free Member

    28 2
    Thanks for your reply and advice Mark.
    How I wish she had asked me first before a) taking on the pub b)taking out a secured loan FFS :mad:
    This is the one big personal debt that 'bank of dad' can't cover.
    We have a long way to go, so I'll keep this thread going and ask a few more questions as we progress.
    We have owned our own house(s) since 1975 and considered ownership of property sacred.
    But I guess that times are changing.....
     
    Posted: Oct 19, 2019 By: daverout Member since: Feb 10, 2013
    #11
  12. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,486 436
    She should take some insolvency advice as Bankruptcy might be an option depending on whether she has any other personal debts? Do you know? Has she given an other personal guarantees?

    If nothing else Bankruptcy will likely reduce the amount of funds the PG'd creditor will receive due to the high costs involved. It might also be a bargaining tool to negotiate the debt down from £85k.
     
    Posted: Oct 22, 2019 By: Lisa Thomas Member since: Apr 20, 2015
    #12
  13. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,486 436
    My points about BKY were based on the pg'd being unsecured, apologies I forgot OP had said it was secured. BKY will not affect, unless property is in negative equity.
     
    Posted: Oct 22, 2019 By: Lisa Thomas Member since: Apr 20, 2015
    #13
  14. daverout

    daverout UKBF Newcomer Free Member

    28 2
    UPDATE

    We have been busy sorting out the insolvency using the Sprongbob Method and no doubt have saved money that my daughter does not have in appointing an insolvency practitioner. Sorry Guys if you are one of those.
    We now know that she is personally liable for the secured loan debt :mad:
    More on that shortly.....
     
    Posted: Oct 28, 2019 By: daverout Member since: Feb 10, 2013
    #14
  15. daverout

    daverout UKBF Newcomer Free Member

    28 2
    However, the BIG problem is this secured loan that I outlined at the beginning of the thread.

    The company involved is Nationwide Corporate Finance PLC
    My daughter came across these on a Google search when other loan companies turned her down.
    Check out their web site and see how she was 'sucked in'
    Her chef partner begged her to 'take out a loan to save the business'

    These were the only company to touch them :eek:
    She said that they looked OK on all the reviews etc.
    Check out the big yellow warning on TrustPilot about this company and it's fake reviews :mad:

    Rather naively she signed up to an "Unregulated and Secured Hire Agreement" with a Blackrock Secured Finance Ltd. This company is now called Bluerock Secured Finance Ltd. Bit these companies are at the same address as Nationwide Corporate Finance.
    These companies have "Authorised and regulated by the Financial Conduct Authority" all over their web sites and paperwork. More on that below.....

    On the agreement there is a "Schedule of Hire Agreement" which list equipment, fixtures and fittings in the pub, which is not owned by them!

    They received £40,000 within a few days which was used to pay off debts and rent owed on the pub.
    The repayments were 60 x £1404.20
    Almost immediately they defaulted on repayments .....:rolleyes:
    When I spoke to their collections department, it is clear that they expect the full repayments to be made c £ 84,000
    They expect my daughter to sell her house to repay this loan
    Whilst I accept that she will being owing the £40,000 how on earth can they justify paying back the full repayments when after only a few months she cannot keep up the repayments?

    I am now looking to negotiate the settlement figure to something more sensible
    Now I strongly suspect that this loan product has been mis-sold.
    The reviews on TrustPilot of this company appear to be fake
    I also suspect that my vulnerable 40 year old daughter is not the first to fall into this trap
    The Times ran a story in the Money section on 2nd June 2019 with almost identical circumstances.
    I have written to The Times and await their reply.....
    I have spoken to the FCA who say the agreement is 'unregulated' and that they cannot deal with a complaint.

    An Estate Agent coming round later to today to put daughters house in the market :(

    So where do we go from here?

    If you can give advice I am happy to exchange PMs etc and show you a copy of the agreement.
    Any advice will be gratefully received and faithfully applied;)
     
    Posted: Oct 28, 2019 By: daverout Member since: Feb 10, 2013
    #15
  16. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,486 436
    Your daughter should really employ a Solicitor.
     
    Posted: Oct 28, 2019 By: Lisa Thomas Member since: Apr 20, 2015
    #16
  17. Mr D

    Mr D UKBF Legend Free Member

    21,996 2,586
    It sounds like a cowboy outfit. However that does not make the debt invalid.
    Nothing to say businesses cannot share addresses - the time to find out about problems is before agreeing contract. When your business is struggling though it's hard to be objective.
    Basically the finance company preyed on the desire and desperation for money. Which may well be their niche market.
     
    Posted: Oct 28, 2019 By: Mr D Member since: Feb 12, 2017
    #17
  18. daverout

    daverout UKBF Newcomer Free Member

    28 2
    Thanks Lisa, this really is excellent advice and we shall now explore that option.
    I am a semi retired after serving for 30 years as police officer, but this is now becoming complicated...
    Looks like 'bank of dad' will be sponsoring this matter :rolleyes:
     
    Posted: Oct 29, 2019 By: daverout Member since: Feb 10, 2013
    #18
  19. daverout

    daverout UKBF Newcomer Free Member

    28 2
    Thanks - more excellent advice.
    And yes the business was struggling and she did not come to me for advice at the time :rolleyes:
    Her house is now on the market to get this extortionate business loan paid off :(
    And yes I do agree that the companies involved have a business model which tend to prey on those who are vulnerable.
    Check out the web sites and have a good look at the 'reviews' and big yellow warnings about this company :mad:
    Which have a guide on how to spot fake reviews.
    I will be speaking to them later to today to see what is now on offer.....
     
    Posted: Oct 29, 2019 By: daverout Member since: Feb 10, 2013
    #19
  20. daverout

    daverout UKBF Newcomer Free Member

    28 2
    UPDATE
    So, on the @Spongebob Plan we have almost completed Step 2.
    All letters to known creditors have been sent out.
    Responses have been a bit sporadic :rolleyes:
    We have responded to one who took his claim to the County Court Moneyclaim
    Step 3 does not appear to be relevant - but we may get a surprise.
    Step 4 may well take it's course - already I have discovered an old letter from Companies House.
    'Bank of Dad' - continues to pay for stuff and drive things forward
    My daughters house is now on the market as of yesterday :(
    This has been done to pay off the secured finance company who have a 'charge' registered with Land Registry against her house.
    We are facing up to responsibilities and trying to sort out this mess.
    I am a semi-retired after serving 30 years in the police force and am now giving up my time to help my daughter :cool:
    She has lost thousands in this failed public house business and now stand to lose her home.
    My guess is that she is not the first or the last to take out a secured loan against their home to raise business finance.:eek:
    Does any member have similar experiences?
     
    Posted: Oct 29, 2019 By: daverout Member since: Feb 10, 2013
    #20