Closing a limited company in debt with no funds or assets

[Dobbollah]

So, I'm the sole director of a ltd company. The company has been running serviced accommodation but with covid it's done. The company took the 20k government bail out loan last year but with zero business since then I've ended up here. This will be the only debt.

I've been looking at liquidation but didn't realise the cost involved, the company has nothing in the bank and some furniture worth very little.

The company can't afford liquidation (nor can I) and at the minute don't have the first idea what to do.

Any advice world be most welcome, I thank you in advance

 

[JEREMY HAWKE]

Reluctantly I will suggest Bobs plan provided you dont owe the company money

 

[Mr D]

SpongeBob plan.

 

[Dobbollah]

Thank you I have since posting seen the plan... I don't see what other option there is....

No no money owed.... Cheers covid

 

[Ian J]

Reluctantly I will suggest Bobs plan provided you dont owe the company money

CLOSING A LIMITED COMPANY WTH INSUFFICIENT FUNDS WITH WHICH TO PAY AN INSOLVENCY PRACTITIONER | UK Business Forums

 

[ChrisCallaghan]

Good Morning Dobbollah,

Firstly I am very sorry to hear about your situation. As others have suggested, you may wish to attempt to close your company via a method detailed on this forum as the SpongeBob plan. In essence this a method that involves communicating with your company's creditors and attempting to close the company by striking it off via Companies House. My only concern with this method is that there is a chance the bank who have lent you the £20k may object to your company being closed in this way. Am I right in thinking this £20k loan is a Bounce Back Loan? Sadly I've heard several reports of banks objecting to a company being struck off (SpongeBob plan) as there is a question mark over whether the government will pay back the banks unless the company enters into a form of recognised insolvency (e.g. a liquidation).

Can I ask how much you have been quoted for a liquidation? A basic case such as yours shouldn't cost more than £3,000.

Also have you explored if you would be entitled to a redundancy claim from the government? Depending on how you have remunerated yourself and how long you've been employed by your own company, you may be entitled to claim a redundancy payment from the government if your company was liquidated. Some insolvency practitioners will even allow you to use this to help you fund a liquidation fee.

 

[Dobbollah]

It was a bbl loan yes.

Business was running 5 years or so, I was director, not an employee... So was never payrolled.... So I don't know if that wipes out a redundancy claim.

Haven't officially had a liquidation quote, just saw the guided figures and knew it wasn't an option financially.

 

[ChrisCallaghan]

If you were never registered as a PAYE employee then I am afraid it is unlikely that you would be entitled to any redundancy. It may be worth calling some insolvency practitioners to obtain some quotations, but if they are not affordable to you then the SpongeBob plan would be the best option.

 

[Dobbollah]

Anything is unaffordable so looks like 1 option.

I'm, very grateful for people's time in responding.

 

[Lisa Thomas]

The guidance is here. Suggest you send the creditor notices by registered post.

https://www.gov.uk/strike-off-your-company-from-companies-register

 

[Mr D]

Good Morning Dobbollah,

Firstly I am very sorry to hear about your situation. As others have suggested, you may wish to attempt to close your company via a method detailed on this forum as the SpongeBob plan. In essence this a method that involves communicating with your company's creditors and attempting to close the company by striking it off via Companies House. My only concern with this method is that there is a chance the bank who have lent you the £20k may object to your company being closed in this way. Am I right in thinking this £20k loan is a Bounce Back Loan? Sadly I've heard several reports of banks objecting to a company being struck off (SpongeBob plan) as there is a question mark over whether the government will pay back the banks unless the company enters into a form of recognised insolvency (e.g. a liquidation).

Can I ask how much you have been quoted for a liquidation? A basic case such as yours shouldn't cost more than £3,000.

Also have you explored if you would be entitled to a redundancy claim from the government? Depending on how you have remunerated yourself and how long you've been employed by your own company, you may be entitled to claim a redundancy payment from the government if your company was liquidated. Some insolvency practitioners will even allow you to use this to help you fund a liquidation fee.

3 grand the company has not got.
Bank objecting to the dissolution? Be pretty normal, HMRC often do if they are owed anything. SpongeBob plan still works.

 

[ChrisCallaghan]

Bank objecting to the dissolution? Be pretty normal

In my experience most banks, especially your typical high street lenders, do not normally object to a strike off application. Ordinarily they have security by way of personal guarantees, and so do not routinely object to strike off applications. However I'm seeing the banks treating Bounce Back Loans very differently to their typical loans to small businesses.

However as you rightly point out, if the company does not have the funds to pay for a liquidation, then the SpongeBob method is a viable option. It is just worth being aware that a strike off application is unlikely to be successful and waiting for a creditor (i.e. the lender) to take winding up action is the likely outcome.

 

[Lisa Thomas]

Companies House will eventually strike the Company for non filing of statutory returns.

 

[ChrisCallaghan]

Lisa,

Several banks have advised directors I have been in communication with that they will actively seek to block any dissolution action and take winding up action (when they are able), as they believe the government will not pay out their guarantees on Bounce Back Loans unless the company enters into a recognised form of insolvency. Much like the Redundancy Payments Service won't pay out on dissolution cases. Understandably the government wants their to be an investigation for failing companies that took out a Bounce Back Loan (and probably CBILS, but I have yet to come across any examples).

I hope I am wrong but I expect winding up petitions where the bank is a creditor to become as common as HMRC petitions in the future.

But with respect to this post, I fully appreciate that the Sponge Bob plan is still likely the best option for Dobbollah.

 

[Lisa Thomas]

It will be interesting to see what develops Chris.

 

[JEREMY HAWKE]

Lisa,

Several banks have advised directors I have been in communication with that they will actively seek to block any dissolution action and take winding up action (when they are able), as they believe the government will not pay out their guarantees on Bounce Back Loans unless the company enters into a recognised form of insolvency. Much like the Redundancy Payments Service won't pay out on dissolution cases. Understandably the government wants their to be an investigation for failing companies that took out a Bounce Back Loan (and probably CBILS, but I have yet to come across any examples).

I hope I am wrong but I expect winding up petitions where the bank is a creditor to become as common as HMRC petitions in the future.

But with respect to this post, I fully appreciate that the Sponge Bob plan is still likely the best option for Dobbollah.

What would the bank gain . They would have the costs of a winding up petition with the knowledge that there are no funds to recover and no PG

I think you will find that this is just hot air from the banks .

 

[ChrisCallaghan]

What would the bank gain . They would have the costs of a winding up petition with the knowledge that there are no funds to recover and no PG

I think you will find that this is just hot air from the banks .

My apologies Jeremy if I didn't explain myself clearly in the message you have quoted. This relates specifically to Bounce Back Loans. As we all know these are 100% backed by government, meaning the government will pay back the banks if the borrower cannot repay. Several banks believe the government will not honour this guarantee unless the borrower enters into a form of recognised insolvency, such as a liquidation in the case of a limited company.

So in short, if a company is dissolved (not a recognised form of insolvency) the bank may get nothing from the government. If it is liquidated (either voluntarily or compulsory) the government are guaranteed to repay 100% of the Bounce Back Loan to the bank/lender. I think you'd agree that's motivation enough for the banks.

However it is still early days and only time will tell.

 

[WaveJumper]

I can see interesting times ahead nice to know that someone (hopefully) will be looking into where the tax payers money has gone

 

[Mr D]

What would the bank gain . They would have the costs of a winding up petition with the knowledge that there are no funds to recover and no PG

I think you will find that this is just hot air from the banks .

To get the 100% payment (or whatever is outstanding) on the BBL - if that is what they have to do then could be worth it.
Obviously someone who borrowed £2k isn't going to be cost effective like for someone who borrowed £50k.
A paper exercise costing the banks an amount to recover a large amount.

That's if the banks need to do it to get paid on BBL.

 

[Lisa Thomas]

I can see interesting times ahead nice to know that someone (hopefully) will be looking into where the tax payers money has gone

Not if a formal insolvency procedure does not take place and the Company is dissolved - Bona Vacantia/The Treasury Solicitor do not investigate...

 

[jimbof]

What would the bank gain . They would have the costs of a winding up petition with the knowledge that there are no funds to recover and no PG

I think you will find that this is just hot air from the banks .

What they gain is the ability to claim from the Govt guarantee. The bank has to attempt recovery to be able to claim, so it seems very likely they'll have to do this, as it's not until liquidators are appointed that interested parties such as a bank can fully understand what assets etc there are.

 

[ChrisCallaghan]

Bit of an update since my last post in this thread. This week I have spoken with owners of two separate companies. Both were essentially following the SpongeBob plan and had been waiting for Companies House to go for Compulsory Dissolution action. Both had Bounce Back Loans (One had £15k with NatWest and the other had £20k with Metro). Both lenders of raised objections and the dissolution action has been suspended. In both cases neither of these BBLS were actually due yet, and now both banks are chasing for the full balances. I intend to keep in contact with both directors to see if the banks take winding up action.

Much like the original author of this thread, the directors cannot afford to fund a voluntary liquidation and so the SpongeBob method is still their best option. However I think it is worth being aware that voluntary or compulsory dissolution/strike off is looking like an unlikely option for company owners with Bounce Back Loans, and the best option (where a voluntary liquidation cannot be funded) is to wait for winding up action from a creditor and the subsequent investigation.

 

[jimbof]

Bit of an update since my last post in this thread. This week I have spoken with owners of two separate companies. Both were essentially following the SpongeBob plan and had been waiting for Companies House to go for Compulsory Dissolution action. Both had Bounce Back Loans (One had £15k with NatWest and the other had £20k with Metro). Both lenders of raised objections and the dissolution action has been suspended. In both cases neither of these BBLS were actually due yet, and now both banks are chasing for the full balances. I intend to keep in contact with both directors to see if the banks take winding up action.

Much like the original author of this thread, the directors cannot afford to fund a voluntary liquidation and so the SpongeBob method is still their best option. However I think it is worth being aware that voluntary or compulsory dissolution/strike off is looking like an unlikely option for company owners with Bounce Back Loans, and the best option (where a voluntary liquidation cannot be funded) is to wait for winding up action from a creditor and the subsequent investigation.

Bumper paydays on the horizon for insolvency practice then... For a bank to be able to claim their 50K from the govt it's clearly going to make sense for them to wind up a company... unless the Govt decide they'll pay out on the guarantee with the bank having stopped short of winding up.

I wonder what the details actually are of how this works.
The publicly available guidance to companies looking to offer BBLS says the following (https://www.british-business-bank.co.uk/wp-content/uploads/2020/07/20200717-BBLS-RfP-Clean.pdf) :
"In the event of a borrower defaulting, the Lender may claim up to 100% of all amounts due under the facility (net of any recoveries) from the Guarantor."
Would fees incurred by a bank in recovery be able to be recovered? Nice little money earner there if banks can bill back recovery costs to the Govt at £20 a letter etc. If they can't, they stand to lose their shirts.

In the case of a firm with, say, a 10K BBLS without any repayments made that folds; the bank either does nothing and gets nothing, pays 5K to wind up, to claim 10K (or maybe 10K + 5K). One probably sees the bank still profiting, the other massively in the red.

There must be a doc somewhere which describes what the banks have actually signed up to have to do to show they've attempted recovery. Just objecting to strikeoff can't be enough can it? I mean, it doesn't ultimately achieve anything unless the next step is taken?

 

[ChrisCallaghan]

Jimbof,

If you find such a doc please share! For now I am just seeing BBLS lenders objecting to strike offs. Though a couple of banking professionals I know have advised they intend to take winding up action, I have yet to see it. For now there are still restrictions on creditor winding up petitions till the end of March, so for now I guess we will all have to wait and see.

Who knows? Maybe demonstrating to the government that they have objected to strike off action and attempted to collect is enough to claim the 100% guarantee? However as Lisa has also pointed out earlier in this thread, if the banks allow voluntary or compulsory dissolutions to go through, there will be no investigation into how the BBLS was spent. I suspect (though I could be wrong) that Mr Sunak would not want to see BBLS written off without investigation.

 

[jimbof]

I see this article which is interesting and highlights the issues of the costs of recovery:
https://www.accountancydaily.co/call-consistent-business-bounce-bank-loan-recovery-scheme
The numbers are eye-watering, that they think they're on the hook for £26bn of bad debt out of £43bn lent...

 

[ChrisCallaghan]

I see this article which is interesting and highlights the issues of the costs of recovery:
https://www.accountancydaily.co/call-consistent-business-bounce-bank-loan-recovery-scheme
The numbers are eye-watering, that they think they're on the hook for £26bn of bad debt out of £43bn lent...

Eye watering indeed!

 

[Jenny Julian]

Fascinating thread and interesting times ahead

 

[Talay]

Eye watering indeed!

It may well have been easier and possibly cheaper in the end just to give each company 25% of its turnover for the previous year up to £50k and just write it off.

Its a bit like the old adage about business rates, that it costs as much if not more to collect the tax and handle the rebates that the amount of tax collected and thus the country would be in a better position if those 200k workers actually did something constructive for a net positive gain.

I heard from the man on the Clapham Omnibus that the talk of the small business sector and amongst some accountants is to push companies which have no valuable accumulated losses into pre packaged liquidation with the assets phoenixing again in Ltd 2.0. Sayonara to £50k.

As Lord Gnome would say, trebles all round !

 

[Dobbollah]

Off the back of these updates I had a chat with a insolvency practitioner, he informed me the only way out of an unplayable bbl was a through voluntary liquidation.

Did he say that just to try and get business or is that now a fact.....the answer would be great to know.

 

[Mr D]

It may well have been easier and possibly cheaper in the end just to give each company 25% of its turnover for the previous year up to £50k and just write it off.

Its a bit like the old adage about business rates, that it costs as much if not more to collect the tax and handle the rebates that the amount of tax collected and thus the country would be in a better position if those 200k workers actually did something constructive for a net positive gain.

I heard from the man on the Clapham Omnibus that the talk of the small business sector and amongst some accountants is to push companies which have no valuable accumulated losses into pre packaged liquidation with the assets phoenixing again in Ltd 2.0. Sayonara to £50k.

As Lord Gnome would say, trebles all round !

Yes, why not?
Worked for Clinton's.

Tens of millions of pounds of debt wiped out. One day the family own Clinton's, a few days later the same family own Clinton's but without the debt.

 

[Spongebob]

Off the back of these updates I had a chat with a insolvency practitioner, he informed me the only way out of an unplayable bbl was a through voluntary liquidation.

Did he say that just to try and get business or is that now a fact.....the answer would be great to know.

This is typical of the lies told by many Insolvency Practitioners to scare people into appointing them to liquidate the company.

The option outlined in the Spongebob plan remains. Simply do nothing and wait for a creditor to wind the company up and for it to be placed into compulsory liquidation. The Official Receiver will then complete the liquidation process at zero cost to either the company or yourself. Simply tell the OR that the bounce back loan was spent on paying your own salary, on overheads, and on paying off debt.

There is absolutely no need to spend personal money on liquidating a company which has no assets.

I imagine that OR offices are going to be overwhelmed by a tsunami of such cases in the coming months. The time spent on each will be minimal.

 

[jimbof]

This is typical of the lies told by many Insolvency Practitioners to scare people into appointing them to liquidate the company.

The option outlined in the Spongebob plan remains. Simply do nothing and wait for a creditor to wind the company up and for it to be placed into compulsory liquidation. The Official Receiver will then complete the liquidation process at zero cost to either the company or yourself. Simply tell the OR that the bounce back loan was spent on paying your own salary, on overheads, and on paying off debt.

There is absolutely no need to spend personal money on liquidating a company which has no assets.

I imagine that OR offices are going to be overwhelmed by a tsunami of such cases in the coming months. The time spent on each will be minimal.

Are you aware of companies having Spongebob'd successfully yet with a BBL in place?

 

[ChrisCallaghan]

Are you aware of companies having Spongebob'd successfully yet with a BBL in place?

So far the majority of people I have spoken with employing Spongebob method have had the voluntary dissolution applications or compulsory dissolution action suspended following an objection by the BBL lender, and they are now waiting for the lender or other creditors to take winding up action, though as we are all aware provisions protecting companies against winding up petitions has recently been extended till the end of June.

The answer remains the same as always though. If a company does not have the funds or assets to fund a liquidation, then the Spongebob method is still likely the best option. Some directors may choose to pay for their company's liquidation if they'd prefer not to wait for a compulsory liquidation, or if they are aware of potential investigation issues and would prefer to choose their own liquidator rather than the Official Reciever or someone else.

Whilst I appreciate Spongebob's comments regarding 'lies told by insolvency practitioners' and there are certainly those who do use questionable tactics and half truths to get work, I think it's only fair to point out that some of us tell the truth!

 

[Adam93]

The majority of limited company’s do have assets, namely in the form of overdrawn directors loan accounts. A lack of understanding is often the reason individuals do not understand this.

 

[Gavin Bates]

Hi

this is a really interesting thread. Like Chris as far as I know there is no clarity on what the banks have to do to prove to the Government to obtain the funds back from them. Because of the amount of fraud that has occurred I fear that the Government will want the bank to pursue to the end.

What is clear is that IP’s have been instructed to report both furlough and bounce back fraud so for sure it will be a few interesting years ahead.

Like Chris if I hear what the banks are required to do I will report back.

regards

Gavin

 

[Dobbollah]

Thank you spongebob, your time and help is appreciated

 

[jimbof]

So far the majority of people I have spoken with employing Spongebob method have had the voluntary dissolution applications or compulsory dissolution action suspended following an objection by the BBL lender, and they are now waiting for the lender or other creditors to take winding up action, though as we are all aware provisions protecting companies against winding up petitions has recently been extended till the end of June.

The answer remains the same as always though. If a company does not have the funds or assets to fund a liquidation, then the Spongebob method is still likely the best option. Some directors may choose to pay for their company's liquidation if they'd prefer not to wait for a compulsory liquidation, or if they are aware of potential investigation issues and would prefer to choose their own liquidator rather than the Official Reciever or someone else.

I'll preface the below with a note that I'm very solvent, I'm just interested in how these things work!

If the company is going for involuntary striking off by not filing a confirmation statement, what is the mechanism by which the bank even finds out about this before it is too late - especially if the BBL isn't yet making repayments?

Assuming the bank do find out and object, and then petition for winding up, is it a given that it goes to the official receiver, or do they sometimes opt to bring in an IP?

 

[Scalloway]

I guess the bank will know the companiy's registration number and bank staff will check the London Gazette for strike off every week.

 

[jimbof]

I guess the bank will know the companiy's registration number and bank staff will check the London Gazette for strike off every week.

I was wondering if that was the mechanism. I imagine they must have some kind of data feed that makes it easier than actually having to check manually.

 

[Scalloway]

Indeed you can get a feed from the Gazette.

https://www.thegazette.co.uk/all-notices/content/21