Company insolvent, overdrawn DLA, HMRC debt and no personal assets

I have the following situation and I am not sure what is the best to do:

- Company is insolvent with approx £30,000 debt (£14,000 to HMRC for VAT, £6500 Employer NI, PAYE/NIC, £3000 to trade creditor and £6500 to credit cards/loans).
- DLA overdrawn for £28,000
- Owner and two employees, related parties (all family)
- Lots of cash withdrawals, mixing personal and business accounts, sometimes salaries paid in cash, although RTI done regularly by the accountant.
- Not charged VAT first year of trade, agreement with HMRC to pay in instalment, was paying regularly for about a year, then cashflow problem caused HMRC direct debits to bounce.
- I took personal loan to clear some of company debts at very high APR (almost 50%)

Company is insolvent and cannot trade. No assets (old van and few tools is all)
Personal debts £40,000, no assets (renting, car on HP).

If I could get rid of company debts and DLA and get delay (lets say IVA) on personal debts for 6 months, I could probably start over and manage affairs better.
But would this be possible?

Accounts will be due next month, but no money to continue to pay accountant
I could try Spongebob plan, but HMRC would object?
No money to liquidate.

What are my options?
What's the best and the worst that could happen to me?

 

Do you have an interest in any property?

And how much did you borrow at 50%?

 

Yes you can SpongeBob plan.
HMRC will object. Let them - they can seek to wind up the company. Or just keep objecting to attempts to close it.

 

With such a disaster, what on earth makes you thing you can start again

 

I'm not sure that HMRC winding the company up would be in the OP's best interests as possible outcomes could include personal bankruptcy and being disbarred from being a director

 

Nice to see the taxpayer shagged again whilst the business owner pockets £28k.

There's no way you should be starting again. Get a job.

 

No, cut your losses and go employed. Anyone who ranks up those sort of debts without a plan, shouldn't be a company director.

 

Thirded. It's not just the losses per se but the manner in which the company was run

 

Agree with the above. Take some responsibility for your actions and face the music.

 

If you have no funds to cover the cost of Liquidation then the only option is to try and have it dissolved (HMRC likely to object) or wait to see if HMRC Liquidate.

You could possibly consider a Voluntary Liquidation and pay back some of the DLA in installments and write some of it off. The repayments would then cover the costs of Liquidation and give you some breathing space.

 

Thank you all on your replies. Here are answers to questions asked:

@bodgitt&scarperLTD - No interest in any property. Borrowed £10,000 at 50% interest

@Mr D - Thank you on your opinion

@Chris Ashdown - I believe I learned what to do in business. I am EU citizen and was badly advised (or in fact, not advised) by my accountant, who I choose to be my co-patriot operating accountancy firm in UK rather than choosing an UK chartered accountant. I had no idea I was doing things wrong. I paid lots of money to accountant to be told what I need to do to run the business and was either not told, or told wrongly.

Ian J - yes, this is why I am asking question. And I agree, the company was run badly. I know it is not my excuse that I did not now, but I was paying over £2000 per year for accountant to advise me, they had my bank statements quarterly, for example in there they saw drawings with the reference "Dividends" but they did not tell me this is illegal as I have no profit. They saw all cash drawing, when I engaged them I specifically asked them can I draw cash from the company, they said yes, but they did not tell me about potential liability, about keeping bank accounts very separate from personal etc. They did not warn me about VAT and I am now finding they have applied wrong VAT percentage. I have most of this in emails but some things were verbal exchange which I cannot prove.


SDTFR33, Alison Moore - the situation is more complicated than this. My family member was employed by me. He does not speak English. If I do not run my business then he cannot work in UK. But I hope I learned and I would just do work and my spouse would be director and run the administration part.

@Lisa Thomas - Thank you on your opinion.

QUESTION: Can another LTD company be opened by another two family members and I just be employee there whilst this company which I own 100% and where I am a director is getting sorted? All three family members work in the company, so it is not settlement.

 

They'll decide to do that or not without the OP doing anything so long as they have a big bill outstanding.

 

Yes you can open a new limited company. With you as a director unless you get banned - such as after an investigation or if you go bankrupt.

 

@Mr D, thanks on the answer.

Here is another info - the company has Small Claims lodged against it by subcontractor who I did not pay, I did not pay because the customer did not pay me. They do not believe me that the company has no money, this is why they went to small claims. They know the customer did not pay for the work they did. I have two more weeks to respond to the claim, but from what I have now read, the only thing the subcontractor can do is to wind the company up. I do not deny the debt. How should I respond to Small Claim? It is for £3500

It looks like my options are:

1) Spongebob plan, wait to see what HMRC does
2) Find IP and start liquidation process myself
3) Let supplier wind the company up (I do not believe they will as they will not want to pay the costs of £1600).

Then there is the issue of bankrupcy. Total personal debts £40,000. If I add DLA tax/ni payable, this adds approximately £9,000 to my personal debt and then I need to pay another £2000 for tax/nic for salaried earnings over the last 18 months, in total £50,000 personal debt.

There is also additional £10,000 debt my spouse has, 8,500 of it on a high-interest loan, she was employed in the company so there is also additional debt of £1000 for her tax/nic for her earnings

What are the consequences of going bankrupt? Would it clear all these debts? Would I have a clean slate to start again?

 

You paying your subcontractor shouldn't rely on customer paying you.

Though that does mean the company has money owed to it by someone other than you?

Bankruptcy is individual - someone making you (or you going) bankrupt doesn't affect your spouse's debts.

Going bankrupt would prevent you being a director until discharged, affects credit. Yes clean slate afterwards - though some jobs ask if have ever been bankrupt.

 

Yes, I know now. The customer owes me £3500, they part paid the invoice in January and are refusing to pay the rest. I wrote to them few days ago again demanding payment, but no answer so far.

If I ever work for someone else, I would be in construction industry so bankrupcy is probably not relevant in these kind of jobs. But one day I would like to buy the house and I do not know how will bankrupcy affect this. And whether it would affect anything else. At the moment I am trying to decide what to do but there are too many variables.

And yes, I am affraid starting again and finding myself in the similar situation 2 years down the track because of personal debts. But I am affraid of bankrupcy consequences too. I guess I do not know enough.

 

Talk to a charity called Stepchange. They can talk you through bankruptcy or whatever else they suggest.

 

Something that someone hasn't mentioned is that as you are now insolvent, you must stop trading immediately. This is not a suggestion, but a legal requirement.

If you do not stop trading, the consequences will be much greater.

 

We stopped trading mid January. But we have not sent letters to creditors yet.

 

The Spongebob route works i think on three months after you have stopped trading, which I assume HMRC will take action before then

As a bankrupt you will not be allowed a credit account on any bank account, you also will find it hard to get one. You will also not be able to get loans

You cannot be a shadow director in law, that is basically owning a company and running it without being a notified director, for instance having your wife as the sole director