Another insolvency situation

[Hendrick]

I have read the various threads on insolvency as sadly this is where my business is heading. I have a question that I am hoping I might be able to get some advice on please.

It’s really about if I can use the SpongeBob method as I do have a few assets, however I am struggling to dispose of them. I am worried about selling them ’cheap’ in case this causes problems later on. The assets are made up of some new stock and some display/demo stock.

Current debts


BBBL - £15,500 outstanding (of £18,750 borrowed)

Suppliers - £8,000 (2 companies)

VAT - £5,500 (following the sale of an asset)

Bank account overdrawn by £600

Assets - £2-3000 (struggling to sell however)


DLA - in credit (significantly)



Background


Business has been tough for the last couple of years and it survived Covid by slightly diversifying - which worked really well for a while, probably while people had some spare money. The bbbl helped at the time and I also put some additional money into the business to fund the diversification.

Unfortunately all business revenue seems to have come to an abrupt stop, having been in decline for the past 12 months. I used the remainder of the bbbl waiting for things to pick up, which it normally does at this time of year, but it remains pretty much non-existent. The business now is left with no cash and a few assets in the form of demo/used items which will not realise much more than £2-3k if I am lucky. I have been trying to sell them with little/no interest unfortunately.

There is an ongoing cost of storing them in a lockup, so I need to dispose of them to cut the cost of this. This is the only ongoing business cost. I don’t have space to store them personally.

The bbbl has been used solely to meet the business costs, I have not taken any salary/dividend since taking it. The DLA is in credit.

I will really struggle to meet the cost of an IP as the quotes I have had are £4K plus VAT, as a minimum. I think there is a personal guarantee on the overdraft, so I am hoping to realise enough from the assets pay off the overdraft. I cannot afford to pay an IP personally.

I have read about the SpongeBob plan but it mentions that you cannot have any assets, but what if you have assets that you cannot liquidate? I am also worried about selling them ‘cheap’ in case I get into trouble for this at some point in the future. Do I hold out for the maximum price in case I need to pay an IP or do I sell them for what I can get, clear the overdraft and cease trading?

It’s obviously very stressful being in this situation as I am worried about running out of time/options as I know the business is insolvent.

Any thoughts and advice would be very welcome.

 

[Frank Wessely]

I have read the various threads on insolvency as sadly this is where my business is heading. I have a question that I am hoping I might be able to get some advice on please.

It’s really about if I can use the SpongeBob method as I do have a few assets, however I am struggling to dispose of them. I am worried about selling them ’cheap’ in case this causes problems later on. The assets are made up of some new stock and some display/demo stock.

Current debts


BBBL - £15,500 outstanding (of £18,750 borrowed)

Suppliers - £8,000 (2 companies)

VAT - £5,500 (following the sale of an asset)

Bank account overdrawn by £600

Assets - £2-3000 (struggling to sell however)


DLA - in credit (significantly)



Background


Business has been tough for the last couple of years and it survived Covid by slightly diversifying - which worked really well for a while, probably while people had some spare money. The bbbl helped at the time and I also put some additional money into the business to fund the diversification.

Unfortunately all business revenue seems to have come to an abrupt stop, having been in decline for the past 12 months. I used the remainder of the bbbl waiting for things to pick up, which it normally does at this time of year, but it remains pretty much non-existent. The business now is left with no cash and a few assets in the form of demo/used items which will not realise much more than £2-3k if I am lucky. I have been trying to sell them with little/no interest unfortunately.

There is an ongoing cost of storing them in a lockup, so I need to dispose of them to cut the cost of this. This is the only ongoing business cost. I don’t have space to store them personally.

The bbbl has been used solely to meet the business costs, I have not taken any salary/dividend since taking it. The DLA is in credit.

I will really struggle to meet the cost of an IP as the quotes I have had are £4K plus VAT, as a minimum. I think there is a personal guarantee on the overdraft, so I am hoping to realise enough from the assets pay off the overdraft. I cannot afford to pay an IP personally.

I have read about the SpongeBob plan but it mentions that you cannot have any assets, but what if you have assets that you cannot liquidate? I am also worried about selling them ‘cheap’ in case I get into trouble for this at some point in the future. Do I hold out for the maximum price in case I need to pay an IP or do I sell them for what I can get, clear the overdraft and cease trading?

It’s obviously very stressful being in this situation as I am worried about running out of time/options as I know the business is insolvent.

Any thoughts and advice would be very welcome.

Hi Hendrick

It isn’t the minimal amount of assets which is the main issue. It’s the BBL - the Bank will automatically object to any proposed strike off due to the BBL. As such the company would sit in limbo for some 2 years or more based on other experiences.

As for the assets they clearly are not worth £2-£3k else you would have already sold them. You should keep a record of your attempts to sell these assets - dates, who you contacted, a summary of the conversations etc - just in case the disposal is queried at some future point. It sounds like you should just sell them for whatever you can get; that isn’t advice though as I do not have sufficient information to formally advise.

I also cannot advise that you repay the overdraft using company funds as technically that would be a preference but the sum involved is quite small.

I am happy to have a telephone call with you to discuss the options; there is no charge for an initial consultation.

Thanks.

 

[WaveJumper]

Clearly a very stressful time take up the offer above and hopefully Frank will be able to set out a path for you so you are able to move forward on a more positive footing

PS
Welcome to the UKBF

 

[Michael Loveridge]

Your situation is obviously very upsetting for you, and it'll be no consolation that many others are in the same boat. However, this is what limited liability is all about, and you'd be in a far worse position if you didn't have that protection.

From what you've said there would appear to be no justification all for paying £4k to an IP, and I can't see any reason why the SpongeBob technique wouldn't work perfectly well.

I am also worried about selling them ‘cheap’ in case I get into trouble for this at some point in the future

The assets are only worth what you can sell them for, and if you can't even realise a couple of thousand quid they're really not worth bothering about. I'd take the view that if you can get enough to pay off the overdraft that's all you need to do., Although it may technically be a preference nobody's going to come after you for a piddling £600, and you won't `get into trouble'.

Although, as Frank says, the bank may (but won't necessarily) object to a strike off, so what? There's nothing they can do to pursue you personally in the absence of a guarantee.

So I'd recommend selling the assets for the best price you can - probably through a local auction house would be best, as that's proof you've got the best available price - then pay off the overdraft and put the SpongeBob plan into operation. You can then effectively forget about it all and let the strike off procedure wrap everything up so you can, hopefully, start again with a clean sheet.

 

[Lisa Thomas]

If you could just about scrape together £2,900 from the assets sales then you would have enough to liquidate via Court, failing which I would sell them for what you can, keep evidence as to the sales price etc then use the funds to pay HMRC as they are preferential creditor for VAT.

 

[Hendrick]

Dear all,

many thanks for the advice it’s incredibly helpful and much appreciated. I have managed to clear the overdraft by selling a couple of items today, which is a relief.

I’ve looked at the liquidation via court now, thanks to Lisa, and it looks pretty scary! I am keen to avoid that if possible.

It’s incredibly sad to be in this position as I love the business, it’s equally sad that others are in a similar position.

I will speak with Frank also. I will let you know how it goes. I found it really helpful to read the other scenarios on here along with the advice, so hopefully this situation will be of use to someone else.

 

[MBE2017]

Make the call, get an expert viewpoint, proceed from there. Best of luck.