Cant afford IP

[Topcat58]

HI

I have a client who has suffered through the virus. He was in a poor position to start but is now clearly insolvent and cannot afford his bills. His sales have fallen 80%.

He has 20 share holders and £400K unsecured loan notes. Debts to HMRC of £40K.

He cannot afford an IP to do a CVL as he doesn't have any cash to pay him.

However if he lost all the debt he could probably start again and run the business at a far lower sales level from home with his wife. The company has about £20K stock which he would need and also the web site (which is all that is left of the sales) and name.

He is the sole director. If he just resigns as a director and waits for Companies House, or HMRC, to wind him up (will take months) and sort of uses the stock remaining and the name what actually will happen. He could be accused on stealing the companies assets even though they are now pretty worthless - certainly without him.

Anybody got any ideas of how I help him sort this mess without an IP?

Tony

 

[UK Contractor Accountant]

Are you saying the company has debts £440K with only £20K in assets?

If that's the case think you need an IP to sort out - they can be paid from realising the stock, trading name & website etc.

He can make an offer to buy from the IP and pay over a set period.

Think you need to explain to them their Directors duties & responsibilities!

 

[Gavin Bates]

Hi

I try to be sensible when answering these posts but in simple terms, he can't just take the assets and website without them being properly valued and paid for. At best it is a transaction at an undervalue or at worst is simple theft. If there are 20 Shareholders owed £440k I am pretty sure that one of them will want this investigated and at the least will push the Company into compulsory liquidation and so as the director, he will have plenty of questions to answer.

Sorry but the position put forward is just doesn't make sense. If the assets and website have no value why would he want them?

Gavin

 

[Topcat58]

Thanks for the replies guys.

He knows his director's responsibilities but has been told he needs 75% shareholder agreement for a CVL, which he won't get and he hasn't got the money to pay an IP. He's been quoted £6K + VAT + disbursements. The shareholders won't vote in favour as it's like turkeys voting for Christmas. And he faces a lot of shareholder resentment so one or two would just make things difficult for him on principle.

So in a way it's like the shareholders are voting for him to continue trading illegally. I doubt any of them could be bothered to pay for a winding up petition and compulsory liquidation.

The stock is mainly in bits and worthless to anyone really except him. He is the only one that knows the source in China to procure more parts. He's OK too pay say £2K for it but if there is no IP then who does he pay it to? It's been suggested he could just sell it to himself and leave the money in the company. Not sure if that would be legit. It wouldn't be an undervalue sale as no one in their right mind would buy a bunch of unassembled bits that they don't know what to do with.

Yes company has liabilities on the balance sheet of £591K and the only asset is the stock. Debtor book is virtually zero and there are no fixed assets or IP. He has an overdrawn account with Lloyds and has a pg on it for £25K which he is desperately trying to get the balance to £0, using every penny that comes from the small amount of web sales.

Web site and name have no value to any one else. He's the only one that would want them.

Would welcome any further comments as an the minute it's really stumped me.

 

[Gavin Bates]

Hi

Many thanks for the additional information which it into more context.

Again, he needs to be careful because paying off the back with a personal guarantee is a preference and action could be taken against him.

Personally, I would suggest that he just ceases to trade and writes to creditors to confirm the position. He would be better off starting a new company with new stock, name and website to avoid criticism.

Regards

Gavin

 

[UK Contractor Accountant]

Have you looked at terminal loss carry back claims to claw back ctax paid for prior years?

I am sure that if you held a Meeting with the Members and had an IP present to explain Insolvent trading rules & Directors Responsibilities to protect creditors etc the CVL would be passed by 75% majority.

Failing that do as Gavin suggest write to the Members and Creditors and resign as a Director. Ask for someone else to be appointed as Director in your place if you are Sole Director.

 

[Lisa Thomas]

If the shareholders won't agree to a voluntary Liquidation then the Director will need to wind up through the Court.

The Company does has sufficient assets to cover the costs as it has the £20k of stock.

That will have to be sold to cover the costs. It will need to be valued by a professional agent to ensure it is being paid for at market value and there can be no challenge by the liquation or a Transaction at an Undervalue.

The Director's new entity could buy it and the costs used to cover Liquidation.

If he can convenience the shareholders to agree to a CVL then the IP might be willing to allow his new entity to pay for the stock in instalments.

Failing which he should sell it to a third party, ideally getting an agent to deal with the sale so it is at arms length, and use the money to Liquidate via the Court. The balance will have to be held by the agents to pass to the Official Receiver Liquidator.

 

[Topcat58]

Thanks for the advice.

He doesn't have the cash to pay for any court proceedings and the £20K stock really isn't worth that as it's all in bits, and he is the only one that really knows how it all goes together.

I don't think anybody would want to buy any of the stock or name as without the director it's of no use to anyone. But I have no doubt that the people who will be losing money (it's already lost) however would want to stop him starting up again.

Also take the point on preferential treatment but I think his wife would divorce him if they ended up with a £25k bill from the bank!

I think the idea of just walking away from it and starting again with as minimal connection as possible may be the only way forward.

The company has never made a profit so has never paid any CT!

 

[Lisa Thomas]

In which case he should buy the stock himself and use the funds to Liquidate via the Court. he will still need to support the sales price, ideally with a professional valuation.

It will costs c£3-4k for the Court and legal fees to Liquidate.

 

[UK Contractor Accountant]

Have you looked at trying to sell the company which I assume has accumulated trading losses of £400K to £500K?

 

[Paul Kelly ICHYB]

He was in a poor position to start

This indicates that they were poor business people in the first place - they should probably just wind it up and look for a job!

 

[Mr D]

For your client.

The assets are worth 20k to you. Just worth less to others.
So by means of negotiation with an IP you could get the assets for a reasonable price.

Assets do not belong to you they belong to the company. So buy them from the company while of course acting in the best interests of the creditors. Or negotiate with IP.
Either way the company has valuable assets that can be used to pay IP or used to pay its bills.

Shareholders by the sound of it pretty much lose out. They may well blame you.

 

[Topcat58]

I don't know who would buy it that is in the same market place.

I can't disagree that they have previously made some really crap business decisions but the director was originally surrounded by a number of high net worth individuals who put money in and encouraged him to raise more money and spend it on marketing, exhibitions and all sorts of stuff that just made a loss.

Underneath all the historic crap there is a good business struggling to get out as the actual product is quite good!

 

[Mr D]

I don't know who would buy it that is in the same market place.

I can't disagree that they have previously made some really crap business decisions but the director was originally surrounded by a number of high net worth individuals who put money in and encouraged him to raise more money and spend it on marketing, exhibitions and all sorts of stuff that just made a loss.

Underneath all the historic crap there is a good business struggling to get out as the actual product is quite good!

Then shutting it down and the director starting again with newly purchased stock is worthwhile.
How he goes about that is important though - done properly and while there will be a lot of aggro there should not be legal complications.