CAN I CLOSE MY LIMITED COMPANY OWING MONEY IN AN OVERDRAFT

[Michael Tuck]

Hi guys hoping you can help me here I will try and explain in a nut shell, I have had my business for approx 8 years, I went limited on approx March 2015, I am the only person involved in the business. I sell and source vehicles, however over the last 2 years business has been extremely slow and the last 6 months sales have been non existent. I currently have 2 vehicle on stock worth about £9k retail these I have had for many months. At the minute my overdraft is approx £23k obviously if these vehicles sell i will be left with a shortfall on my overdraft to pay back to the bank approx £14k. I don't owe anything else my VAT and tax is up to date however there will be a VAT bill due shortly which will obviously make the overdraft more. The business has no savings. The overdraft will increase as bills for the business rent etc are going out. My question is can i just disolve the company not sure if that is the term but will I be liable for paying the overdraft back. Also i took out a £10k loan 2 years ago to top up the company bank account this is being paid back every month, the loan was taken out in our personal account and the money transferred from our personal account to business account and i have set up a DD every month to pay back into our personal account the monthly payments. My question is can i use what left in my business overdraft to pay the balance of which is approx £7320 or is this wrong.
Any Advice greatly appreciated as I am at my whits end.

Thanks Michael

 

[Ian J]

i took out a £10k loan 2 years ago to top up the company bank account this is being paid back every month, the loan was taken out in our personal account and the money transferred from our personal account to business account and i have set up a DD every month to pay back into our personal account the monthly payments. My question is can i use what left in my business overdraft to pay the balance of which is approx £7320 or is this wrong.

That is called fraudulent preference and is a big no no

 

[Michael Tuck]

Ian thanks for your response, what is the best avenue to go down in your opinion with the whole situation.

Thanks Michael

 

[Michael Tuck]

Is the Spongebob approach the best option

 

[Scalloway]

If you have £9k of stock then the Spongebob plan is not for you. This can be used to fund a liquidator.

 

[Michael Tuck]

So the best option is to sell the stock either retail or in the trade. is that correct, the vehicles at present are still for sale..

 

[Scalloway]

No. Your company would appear to be insolvent so you are in danger of making yourself personally liable for company debts if you carry on trading. You should appoint a liquidator who will sell the stock on the company's behalf and ensure it is legally closed down.

 

[Michael Tuck]

I have not started the ball rolling yet with closing the company i joined here for advice, if i sold the vehicles then obviously the debt wouldn't be as great, then i could start proceedings after that. is that a sensible thing to do.
Im just at a total loss what to do..

Many Thanks

 

[Scalloway]

You will be trading while insolvent which can cause you problems.

There are a couple if insolvency practitioners who regularly post here. Hopefully they will be along tomorrow to give advice on your problems.

 

[Michael Tuck]

Many thanks for your help much appreciated. Its just an awful position to be in after 8 years of hard graft.

 

[STDFR33]

Is there a personal guarantee in place for the overdraft and loan?

 

[Michael Tuck]

No, no guarantee in place for any.

 

[Lisa Thomas]

You can't use the Company assets to pay your own bank account as this will be an illegal preference.

You can either:

1. Sell the vehicles at market value based on a professional valuation, divide the net proceeds equally pro rata amongst ALL the creditors and then apply for dissolution.

There are risks with this option in that:

a) the dissolution i likely to be objected to by HMRC for non filing of final returns and accounts but if you keep trying it might eventually slip through the net.
b) if a creditor forces the Company into Liquidation the Liquidator will need to be provided with evidence that the assets were sold at market value and proceeds distributed equally.
c) if the Bank or any creditor has a debnture then they will have preferential status over the Company assets.
d) If dissolved without a Liquidaiton taking place first the Co. can be reinstated any time within 20 years and a Liquidator appointed to investigate what happened, however this is highly unlikey to happen and if you follwed the dissolution procedure to the letter and sold the assets properly there should be little to be worried about here.

2) Place Company into Lqn through the Court

3) Place Company into Creditors Voluntary Liquidation ("CVL") with an IP.

4) Do nothing and creditors might force 2) upon you or Companies House might apply to strike the Company off.

Happy to chat in more detail if necessary.

 

[k100danny]

it seems you are insolvent but wether going that way will mean you don't have to pay the overdraft back or not depends if there is a guarantee on the overdraft, mosts banks require this for newer businesses and unless you were doing amazing well before this year I can't see an overdraft of that size not having a guarantee.

as for the next part of your question the short answer is no you cannot do that, you have affectively took out a personal loan which you are liable for and then you have personally made a loan to your company, your company is not in a financial position to pay this back so you are liable for it, why would the bank allow you to use there money to pay off your debts so you can walk away?

 

[k100danny]

are you sure there is no guarantee? people often sign up for an overdraft not knowing they have actually signed a guarantee, if what you are saying is correct then your bank were very understanding and naive giving a 23k plus over draft to a very new business which won't have even submitted it's first year accounts yet, this is pretty much unheard of.

 

[MyAccountantOnline]

You cant strike-off a company with the overdraft owing.

I suspect you will have also signed a directors guarantee which means you'll be liable for the debt if the company fails/doesn't pay it.

 

[StevensOnln1]

You cant strike-off a company with the overdraft owing.

That's not correct, there is nothing to stop the directors of a company applying for it to be struck off if it has an overdraft. There is a requirement to notify all known creditors, but nothing to stop the directors of an insolvent company applying for strike off.

 

[Michael Tuck]

Hi I had the overdraft in place before i went limited the overdraft has been in place for about 8 years and run without problems until this year, when I went limited the bank just simply moved buy account to a limited company account

 

[MyAccountantOnline]

That's not correct, there is nothing to stop the directors of a company applying for it to be struck off if it has an overdraft. There is a requirement to notify all known creditors, but nothing to stop the directors of an insolvent company applying for strike off.

I agree you are quite correct. I should have given a full reply.

The OP can apply for striking off sending a copy to the bank but the bank would then object so in effect it can't be done.

That said I suppose it's possible the bank may overlook objecting to the striking off but I'd be surprised if the director hadn't signed a guarantee so they will pursue collection one way or another.

 

[Michael Tuck]

Hi you were right i did sign something 8 years ago i have just rang the bank..How does this change things now..

 

[STDFR33]

Hi you were right i did sign something 8 years ago i have just rang the bank..How does this change things now..

You will more than likely need to repay the bank. They may accept a lower offer based on a cash settlement.

 

[MikeJ]

Also i took out a £10k loan 2 years ago to top up the company bank account this is being paid back every month, the loan was taken out in our personal account and the money transferred from our personal account to business account and i have set up a DD every month to pay back into our personal account the monthly payments.

Have you got paperwork in place for this? If not, could this be viewed as injected capital rather than a loan, and the subsequent repayments a dividend payment?

 

[UK Contractor Accountant]

You basically have 2 choices- hire yourself a lawyer and fight the Guarantee or negotiate a lump sum settlement or monthly payment plan.

 

[Lisa Thomas]

You still have to deal with the Company but in addition this means that the o/d is going to be called in and then you have to decide whether to negotiate/pay or fight.