Ceased trading, debt to employees

[covidkilledus]

Hi there,

We ran a coffee shop as a limited company, which has unfortunately fallen victim to the Covid pandemic and which, ultimately, just ran out of cash.

We ceased trading in November 2021, and at the time as directors/shareholders we were by far the largest creditor with almost £75k owed that we'd invested and loaned to the company. Other than this, the only creditors of note were the employees who were collectively owed something in the region of £6k in notice pay, holiday pay and wages for the hours worked up to when we closed the doors.

We were able to realise about £1.5k for the assets of the company - alas, sadly, there's something of a surplus of tired old coffee shop fixtures and fittings on the market right now as so many have closed during the lockdowns. It had been my hope that we'd realise more than twice that amount, but clearly not.

With no other money or assets, there was no way of funding an insolvency process, so what was raised was split between the employees. I've also managed to personally raise a further £3.5k which has also been paid to them, leaving them owed around £1k now in total. I know that as a limited company there was no legal obligation for me to do this, but morally I felt it right as I didn't want them to lose out. Unfortunately I've nothing left to sell, and no personal income from which to pay anything further to them - I've lost now the best part of £80k, plus my own livelihood, and I'm at a bit of a loss as to what to do now.

The staff do appreciate the lengths I've gone to in trying to pay what I could, but they're still chasing for the remainder - the company has nothing other than a massive debt to me, I have nothing left, and I don't quite know what do now? Do I just tell them there's nothing left and invite them to take legal action against the company if they so wish, but politely advise that it will be as waste of money as the company cannot pay what it doesn't have?

I know I've no legal obligation to them, but guess they see me as their employer and as such keep hounding me - and I get it, I'd want what I was owed too, heck I do want what I'm owed but I know it's not going to happen.

To be clear, there are no other debts other than to me and the staff. The business was run on a cash basis, suppliers paid in cash (well, often card, but no credit terms etc) and nothing owing to HMRC or anywhere else. There was no debt to the staff up to the point we closed, it's just accrued entitlements to holiday, wages up to the last day, and notice pay.

Any suggestions greatly appreciated.

Cheers,

 

[Gavin Bates]

Hi

Given the information you have given, I would say that tell the employees there is nothing left and then apply to have the company struck off.

Whilst they could take action against the Company I doubt that they will. It is clear that you have tried your best.

Best Wishes

Gavin

 

[simon field]

Hats off for going well beyond what most would do in your situation.

 

[covidkilledus]

Thanks Gavin, much appreciated.

And cheers Simon. It's a bit of a shitty situation all round, but the way I look at it is I signed up to the risk (and, had things worked out, the reward) whereas the staff were just doing their job - they did it well, and the least they could expect was to be paid. I only wish I was in a position to pay the remainder, but sadly I can't magic money up from nowhere - if only eh!

 

[MBE2017]

Agree with Simon, well done on trying to do right by your employees.

I would simply tell them what Gavin suggested and has put above and just lay the facts out to them.

 

[simon field]

Best of luck in your next venture

 

[WaveJumper]

If the company has no funds available to make redundancy payments etc can his staff not claim payments from the National Insurance fund, does this work in this situation I thought it covered redundancy payment, wages, accrued holiday pay

 

[Ian J]

Given the information you have given, I would say that tell the employees there is nothing left and then apply to have the company struck off.

If the company is struck off will the OP be able to offset his losses against future gains?

 

[Chris Parkman]

The Redundancy Payments Service will only usually pay out when there is a formal insolvency event, which is why they do not pay out when a company is dissolved.

It is unfortunate that the 5k raised was not used to place the Company into Liquidation, because the staff would then have been paid in full.

I think that the best course of action is what Gavin has said. You have done your best, and more than what you needed to, and they just need to accept that.

 

[Lisa Thomas]

The staff could lodge tribunal's against the company in order to get their redundancy pay.

However they would not receive holiday, wages, notice or pension contribution shortfalls but if all that is left owing is redundancy they may feel it its worthwhile to start tribunal proceedings.

 

[D_C_S]

If the company has no funds available to make redundancy payments etc can his staff not claim payments from the National Insurance fund, does this work in this situation I thought it covered redundancy payment, wages, accrued holiday pay

It would be difficult for former employees (including the Director) to make a claim to The Insolvency Service as the company does not appear to have gone through the formal Liquidation process. Unfortunately, The Insolvency Service does not consider the 'striking off' of a company to be a liquidation process. www.gov.uk/claim-redundancy

 

[D_C_S]

The Redundancy Payments Service will only usually pay out when there is a formal insolvency event, which is why they do not pay out when a company is dissolved.

It is unfortunate that the 5k raised was not used to place the Company into Liquidation, because the staff would then have been paid in full.

I think that the best course of action is what Gavin has said. You have done your best, and more than what you needed to, and they just need to accept that.

Plus, the Director would have been able to submit a claim to The Insolvency Service for their own redundancy pay.