Company Winding Up Petition Received From High Court - Help Needed

[David198]

In that case you can stop worrying right now.

Just let the company get wound up and attend the interview with the OR with a spring in your step. Technically the OR can pursue you for the outstanding Directors Loan Account, and if you cannot pay it back make you bankrupt.

Noted

However, it is very unlikely that the Official Receiver will force you into bankruptcy - after all they would simply be making more work for themselves in the sure knowledge that no money would be realised from the exercise.


There is a very good chance that they will simply write off the debt. They may even help you to restate some of the debt as salary as it will enable them to get your case off their desk more quickly.

Noted

If however, you get a member of the awkward squad as your interviewer, and they attempt to put a payment plan into operation, you have a choice; go along with it and pay off the debt over a period of time, or go bankrupt and potentially pay nothing.

I did request HRMC for payment plan they didn't agree.

Remember that your creditor after the company is wound up will be the Official Receiver, not HMRC. Although they are both government agencies, there is no direct connection between them. The OR could well be your new best friend - treat them with courtesy and respect.

New information. Will treat them courtesy. Beer/Lunch/Gifts.. whatever needed I'm ready for it.

You do however, hold all the cards in any negotiations, as you have the ultimate sanction of going bankrupt.

As long as I've a bank account I'll survive.

Incidentally, bankruptcy should not harm your prospects of earning a living whatsoever. In similar circumstances it was the best thing I ever did!

When you know you have nothing to loose anymore, life becomes easier then

Keep me posted how you get on.
Bob

I'm here will be here.

A new company is already formed, applying for Bank account, as soon as I get it, I'll switch my contracts from old to new company.

 

[kulture]

"
A new company is already formed, applying for Bank account, as soon as I get it, I'll switch my contracts from old to new company."

Be very careful, this could be seen as taking assets from the old company.

 

[Spongebob]

Be very careful, this could be seen as taking assets from the old company.

Hardly.

Q. What is the value of a contract held by an insolvent company involving nothing but the personal input of a former director of that company.

A. Nothing. It's not like you could sell it to anyone.

Therefore the contract is not an asset.

 

[kulture]

It's an insane situation. The only reason the contract has no value, is because HMRC is winding the company up. If they were not doing that the contract will continue to provide income to the company. Hence value, hence an asset. The reason I say be careful is timing. Work done under the contract up until the contract is transferred to the new company should be invoiced by and money paid to the old company. If you transfer to the new company too soon, then it could be argued that you are taking income away from the old company.

 

[Spongebob]

But if you agree with the client that the contract with OldCo is terminated forthwith and that a new contract is agreed with NewCo what's the problem?

It's easy to get very pedantic about the minutiae of such circumstances, but ultimately the OR isn't going to get that involved. They know that such contracts are in effect with the principal of the company and will move with him.

The OR is in no position to sell the contract to a third party because the client will not agree to it. Therefore the contract is not an asset.

 

[Spongebob]

It's an insane situation. The only reason the contract has no value, is because HMRC is winding the company up.

That's a bit like saying 'My house was worth £200k until it burnt down'!

 

[David198]

But if you agree with the client that the contract with OldCo is terminated forthwith and that a new contract is agreed with NewCo what's the problem?

It's easy to get very pedantic about the minutiae of such circumstances, but ultimately the OR isn't going to get that involved. They know that such contracts are in effect with the principal of the company and will move with him.

The OR is in no position to sell the contract to a third party because the client will not agree to it. Therefore the contract is not an asset.

I agree with you Spongebob.

 

[David198]

David,

What is the value of your Directors Loan Account on the last set of accounts to be filed with HMRC?

What is its value on the most recent set of management accounts you have?

The difference between the two could potentially be restated as being salary. There is nothing 'dodgy' or unlawful in this as far as I can see. It's just accountancy...

Whether or not the OR goes after you for the earlier Directors Loan Account is in the lap of the gods.

Do you have substantial personal assets?

Hi Spongebob,
The most accounts have been done till 2010. I've about £21k in the director's loan account. For 2011 I've to do accounts.

So at this moment I'm left with about £21k in director's loan account and 2011 accounts to be done.

Any recommendation for 2011 accounts.

 

[David198]

Updating with progress.
High Court judgment is passed, OR is appointed, got a call from OR, he inquired few things over phone and fixed an appointment next week. Also received the questionnaire bundle.

Bank is frozen for outgoings, incomings are still allowed, I can check statements online and also over phone.

I've few questions
1) As I understand correctly the company is liquidated and can't be recovered at any cost. Am I right in this assumption?

2) Would OR agree for a payment plan? How does it work? If a company is liquidated then it can't continue trading so how does the business suppose to go through if company is not trading?

Would they allow the company to trade while it is in liquidation state and let business go through and as the money is recovered they close the company?

In such dire situation there are still more questions than answers so any inputs will be appreciated.

Tx

 

[Charlie B ACS]

As I am aware, you cannot trade once a company is in liquidation.

 

[David198]

As I am aware, you cannot trade once a company is in liquidation.

Yes exactly, that is what I thought.

That takes me to next question - if they have to agree for a monthly payment plan then how does that work? If a company can't trade then how it can make monthly payment?

 

[RBS]

1) Let them wind it up and all tax owed will be winded up with it. Open new company for £25 and enjoy life.
2) Yes it will happen, withdraw out all your money
3) Refer to point 1
4) Not much - your company and you are two completely separate things. You CANNOT be taken liable for companies debt.

Relax, its been proven easy fix for these problems and whole system is open to abuse, so enjoy!

 

[David198]

1) Let them wind it up and all tax owed will be winded up with it. Open new company for £25 and enjoy life.
2) Yes it will happen, withdraw out all your money
3) Refer to point 1
4) Not much - your company and you are two completely separate things. You CANNOT be taken liable for companies debt.

Relax, its been proven easy fix for these problems and whole system is open to abuse, so enjoy!

Tx RBS.

I could sleep whole night and nights after that provided I didn't have taken out Director's loan which is giving me nightmare in addition to sleepless nights.

And this loan is about 90% of money owed to HMRC.

I'm sure they are going to chase me personally for this. I can't pay it from my personal wallet which will lead to personal bankruptcy as well. And this is my worry.

 

[David198]

While on Phone I did Freudian slip and said I did have some ongoing contract with the company. Technically these contracts would cease to exist after the liquidation order was passed so I was wondering why OR is interested in contracts?

What they gonna do with it?

 

[RBS]

Tx RBS.

I could sleep whole night and nights after that provided I didn't have taken out Director's loan which is giving me nightmare in addition to sleepless nights.

And this loan is about 90% of money owed to HMRC.

I'm sure they are going to chase me personally for this. I can't pay it from my personal wallet which will lead to personal bankruptcy as well. And this is my worry.

David,

Remember - nobody can put you in prison for any debt - yours or company, even to HMRC. Max what could happen, they make you bankrupt. But hey, that's nothing to worry about-there are thousands of bankrupt people It won`t stop you opening new company.

Why on earth you would spend next 5 years paying off £40k like donkey rather than restart and start from scratch?

 

[David198]

David,

Remember - nobody can put you in prison for any debt - yours or company, even to HMRC. Max what could happen, they make you bankrupt. But hey, that's nothing to worry about-there are thousands of bankrupt people It won`t stop you opening new company.

Why on earth you would spend next 5 years paying off £40k like donkey rather than restart and start from scratch?

I wish they put me in at least food and shelter will be free not sure what other facilities they have inside. Does it come with Internet connection?

Not worried but wanted to remain clean, after so many years of hard work it all came to bankruptcy, feel ashamed of myself.

Have to start again, back to square one. Kind of Brick Breaker game - Game is over - Start a new game.

 

[Spongebob]

Hi David,

First of all you should be pleased that the winding up up has happened so quickly; the situation will now soon be resolved once and for all and you will not have the stress of the unknown hanging over your head.

You need to concentrate your efforts and thoughts on two things. Firstly and most importantly, you need to ensure your future income. I presume that your services are still in demand and that there is work out there for you. You did say some weeks ago that you had set up a new company to fulfil future contracts - hopefully this is now the vehicle with which you are now working.

'OldCo' is now in liquidation and no longer exists as a trading company. So in answer to your question no, you cannot carry on trading as this company. Any sales invoices from OldCo for work you did which have not yet been paid are payable to OldCo, and the OR will collect this money for distribution to creditors. Any future work you do must be via 'NewCo' or under your own name as a sole trader (possibly the best solution in the short term.)

Secondly, you need to plan what you are going to say to the OR at your interview. The person you will be dealing with will in all likelihood be a low-level functionary with a few years service and little forensic accountancy training. Basically they ask pre-prepared questions and tick boxes just like any other member of the civil service. The spin you put on your story will be fundamental to how sympathetic or otherwise their report will be on your conduct in running the company.

My tactic would be to 'play dumb' and to blame your accountant. Profess confusion between a 'dividend' and 'salary' and effect a blank face when asked about the 'Directors Loan Account'. Allow them to educate you. After all, you are just an IT geek and you left all the book-keeping stuff to your accountant, who appears to have let you down badly...

...that's your story, anyway!

They will be seeing very similar cases every week. From what I can tell half the IT contractors in the country are ending up in the OR office these days!

Ultimately, you will owe a sum of money to the OR. Note that you will not owe anything to HMRC - it all goes through the OR. The OR will be more amenable to agreeing terms of payment; after all they will know that you have no personal assets and that making you bankrupt will achieve nothing other than causing themselves more work - it is the same OR office which deals with personal bankruptcies.

My guess is that you should be able to agree terms of up to five years to pay off the outstanding directors loan account. The outstanding amount might even get reduced if you can persuade them that some of the 'dividends' should actually have been treated as 'salary'.

Good luck!

 

[David198]

Hi David,

First of all you should be pleased that the winding up up has happened so quickly; the situation will now soon be resolved once and for all and you will not have the stress of the unknown hanging over your head.

You need to concentrate your efforts and thoughts on two things. Firstly and most importantly, you need to ensure your future income. I presume that your services are still in demand and that there is work out there for you. You did say some weeks ago that you had set up a new company to fulfil future contracts - hopefully this is now the vehicle with which you are now working.

'OldCo' is now in liquidation and no longer exists as a trading company. So in answer to your question no, you cannot carry on trading as this company. Any sales invoices from OldCo for work you did which have not yet been paid are payable to OldCo, and the OR will collect this money for distribution to creditors. Any future work you do must be via 'NewCo' or under your own name as a sole trader (possibly the best solution in the short term.)

Secondly, you need to plan what you are going to say to the OR at your interview. The person you will be dealing with will in all likelihood be a low-level functionary with a few years service and little forensic accountancy training. Basically they ask pre-prepared questions and tick boxes just like any other member of the civil service. The spin you put on your story will be fundamental to how sympathetic or otherwise their report will be on your conduct in running the company.

My tactic would be to 'play dumb' and to blame your accountant. Profess confusion between a 'dividend' and 'salary' and effect a blank face when asked about the 'Directors Loan Account'. Allow them to educate you. After all, you are just an IT geek and you left all the book-keeping stuff to your accountant, who appears to have let you down badly...

...that's your story, anyway!

They will be seeing very similar cases every week. From what I can tell half the IT contractors in the country are ending up in the OR office these days!

Ultimately, you will owe a sum of money to the OR. Note that you will not owe anything to HMRC - it all goes through the OR. The OR will be more amenable to agreeing terms of payment; after all they will know that you have no personal assets and that making you bankrupt will achieve nothing other than causing themselves more work - it is the same OR office which deals with personal bankruptcies.

My guess is that you should be able to agree terms of up to five years to pay off the outstanding directors loan account. The outstanding amount might even get reduced if you can persuade them that some of the 'dividends' should actually have been treated as 'salary'.

Good luck!

Wow feeling so relaxed now, that is what I was looking for.
Thanks a ton Spongebob.

 

[David198]

One more Q.
Can I expect a visit from OR to inspect company's assets (which is none)? Office address is my home address.

 

[mhall]

One more Q.
Can I expect a visit from OR to inspect company's assets (which is none)? Office address is my home address.

Not really, you are very small fry and they have far more interesting people to chase

 

[David198]

Not really, you are very small fry and they have far more interesting people to chase

Yes I guessed so. Other day I went to Companies House website to check my company's status and found a lot of companies gone. This was not the case, let's say, few years back. In the search result about 50% are D/L.

 

[David198]

I finally had meeting with OR and as Spongbob suggested it was all formalities, 3 hours of boring paper work before I could breathe fresh air again. It was the most boring office I've ever been to.

Time passed and finally I received letter from OR appointed lawyer to recover director's loan.

If I'm not wrong, now the lawyers will start the procedure of recovering the money. First they will send notices, then go to court, court will (perhaps) pass order against me as I'm not going to defend it apart from replying to notice if I get chance. Finally they will go for Personal bankruptcy?

Did I get it right?

On personal front I've started to disappear from the system so in the worst case I'll not loos anything.

However, I would still try to avoid the personal bankruptcy so probably I've to request them to get agree for monthly payment plan.

My question is when I can request them for monthly payment plan? Now, with solicitor, or after court order-personal-bankruptcy procedure has started?

Spongbob, any inputs?

Tx

 

[Spongebob]

Hi David,

I would suggest that you write back to the solicitor explaining that you are unable to pay the debt as you have no money or personal assets. Add that you are however, able to commit to regular payments from your ongoing income and should be able to clear the outstanding debt over a period of say five years. Stress that you want to pay this debt and would prefer to avoid the inevitable alternative of personal bankruptcy.

This puts the ball back firmly in their and the OR's court. If they are sensible they will seek to negotiate a payment plan. If however, they are unable to do this because of 'get tough' policy guidelines from above then they may force you into bankruptcy.

Either way is a result for you. You really are in a win-win situation!

Have you got NewCo up and running or are you now operating as a sole trader? How are your future work and income prospects?

 

[David198]

Hi David,

I would suggest that you write back to the solicitor explaining that you are unable to pay the debt as you have no money or personal assets. Add that you are however, able to commit to regular payments from your ongoing income and should be able to clear the outstanding debt over a period of say five years. Stress that you want to pay this debt and would prefer to avoid the inevitable alternative of personal bankruptcy.

This puts the ball back firmly in their and the OR's court. If they are sensible they will seek to negotiate a payment plan. If however, they are unable to do this because of 'get tough' policy guidelines from above then they may force you into bankruptcy.

Either way is a result for you. You really are in a win-win situation!

As usual you are always a saviour. Tx again. Will do as you advised.

Have you got NewCo up and running or are you now operating as a sole trader? How are your future work and income prospects?

Yes all is done, also manage to get a Bank account from Cater Allen.
I've kept myself out from all the new company's operations, everything is on my partner's name. So if things really go worse I will be still able to walk.

Work is always with me and so income, I can carry on living.

Tx again,

 

[Spongebob]

I've kept myself out from all the new company's operations, everything is on my partner's name. So if things really go worse I will be still able to walk.

Work is always with me and so income, I can carry on living.

Fantastic!

I was going to suggest you did exactly that.

If you are pursued into bankruptcy, having a company in your partner's name is going to be very handy indeed.

Firstly, you are not allowed to be a company director during the period of bankruptcy (usually 12 months).

Secondly, at your bankruptcy interview your monthly income and expenditure will be assessed and if you have any surplus you will be expected to pay a proportion of it over to the OR for three years for distribution to your creditors. This is called an Income Payment Agreement (or Income Payment Order if you don't agree to it!)

As a mere employee of your partner's company however, your salary can be set at the national minimum wage, making it very unlikely that you will have to pay anything at all - ever! Your partner meanwhile, can take dividends from her* company's profits.

The savings from this perfectly lawful strategy can run into many thousands.


The more one looks at things in your situation, the more attractive the bankruptcy option becomes!

* I'm assuming your partner is female...

...my apologies if otherwise!

 

[David198]

Fantastic!
Firstly, you are not allowed to be a company director during the period of bankruptcy (usually 12 months).

Yes it was already there in back of my mind.

Secondly, at your bankruptcy interview

Not another (sic) interview in that boring office.

your monthly income and expenditure will be assessed and if you have any surplus you will be expected to pay a proportion of it over to the OR for three years for distribution to your creditors. This is called an Income Payment Agreement (or Income Payment Order if you don't agree to it!)

Tx, also have been browsing MSE to keep myself up to date on the Bankruptcy stuff.

As a mere employee of your partner's company however, your salary can be set at the national minimum wage, making it very unlikely that you will have to pay anything at all - ever! Your partner meanwhile, can take dividends from her company's profits.

That was going to be my next question.

I'll be employee of the newCo and I was wondering if I can be legally able to draw only min wage? I remember that for a director it was legally ok to take min wage. But is it ok to have min wage as an employee of a company? And it is going to be £4200/yr if I'm not wrong.

The savings from this perfectly lawful strategy can run into many thousands.

"Every little helps"

The more one looks at things in your situation, the more attractive the bankruptcy option becomes!

You bet, yes it is. And I'm sure it will help others as well.

 

[Spongebob]

That was going to be my next question.

I'll be employee of the newCo and I was wondering if I can be legally able to draw only min wage? I remember that for a director it was legally ok to take min wage. But is it ok to have min wage as an employee of a company? And it is going to be £4200/yr if I'm not wrong.

I wouldn't suggest that your salary was set actually at the minimum wage! Although perfectly lawful, that might look a little suspicious and attract unwanted scrutiny.

I would set your nett salary at a figure just enough to cover all your allowable expenses with a small surplus of say £50.00 per month. Until very recently one was allowed a monthly surplus of £100.00 per month before any payment to the OR was expected, but I believe that this may have now changed. The MSE Bankruptcy forum would be a good place to get the latest information on this.

The calculations made by the OR take into account household income and expenditure - ie your partner's income is also considered. Therefore she should not be paid a salary by NewCo. Instead she should take remuneration by dividend which is only accounted for at the next set of year-end accounts, by which time hopefully you will be discharged and completely off the hook.

No-one can anticipate in advance the dividends they are going to get so you can leave these off the income and expenditure questionnaire that the OR will ask you to complete.


PS If you are likely to have to pay into an IPA you might as well move to a more expensive house or flat in order to close the gap between your income and allowable expenditure. So long as you don't take the piss by renting a mansion!

 

[Spongebob]

Just a thought...


...in case I am criticised for suggesting that you 'hide' the anticipated dividends to your partner, she could always just run up a Directors Loan Account during your year of bankruptcy. In no way can a loan be considered to be earnings or income.

Once you are discharged she could simply award herself dividends and pay the loan back!

 

[Spongebob]

Two months on...

Any news, David?

 

[Nathanto]

the anticipated dividends to your partner, ... run up a Directors Loan Account during your year of bankruptcy

Eeek! Isn't that how the OP got into this mess in the first place?!?