Dissolving One Company and Opening Another - Why Is It Allowed?

[mattk]

I didn't want to hijack anyone else's thread, so I thought I'd start my own.

Many people on this sub have insurmountable debts and are recommended to follow the Spongebob plan. This is often followed by a recommendation of starting up another similar limited company with a clean slate.

Business owners have run up large debts often to the taxman, meaning that they are not only shortchanging the taxpayer, but also potentially getting an unfair advantage over their competitors by not paying what they owe.

I don't claim for a second that the people on this sub are anything other than unfortunate, inexperienced or ignorant, but this ability to dissolve one company, avoid one's debts and start up another company must be open to abuse.

Therefore my question is, what is the logic behind allowing directors of a company which has been dissolved to open an identical company with seemingly no restrictions?

 

[Mr D]

Yes its open to abuse.

A few threads you track the company down and can see a director with a half dozen dissolved companies. Without knowing the details its hard to say any of those were as you describe or just unwanted. Sometimes you do get details from the owner or someone the business owes money to.

 

[UK Contractor Accountant]

The SB plan looks like it will be dead in the water soon anyway as HMRC are looking into tax abuse for serial defaulters.

They want to extend the power to issue Personal Liability Notices across all taxes - vat, corporation tax as,well as for existing PAYE debt.

https://www.gov.uk/government/consultations/tax-abuse-and-insolvency

 

[Gavin Bates]

Hi

As mentioned this process is open to abuse and probably unfair to other companies. As UK Contractor Accountant has mentioned this being reviewed by the government and my understanding is that new laws will come into place that will allow an investigation into directors who have had they companies struck off so either SB will disappear or be a much riskier route. I understanding that directors disqualification is one of the options being discussed.

On a similar note, I know that Landlords are clubbing together to look at the use of CVA's on the high street and I also understand that some of the larger retailers are demanding CVA clauses in new leases so that if unit closeby have the rents dropped by the use of a CVA there rents will also reduce.

Regards

Gavin

 

[Deleted member 59730]

On a similar note, I know that Landlords are clubbing together to look at the use of CVA's on the high street and I also understand that some of the larger retailers are demanding CVA clauses in new leases so that if unit closeby have the rents dropped by the use of a CVA there rents will also reduce.

Which would be a very useful policy. I know of a mixed industrial estate where the landlord operated a system of reducing rents for everyone if one of his units became vacant. Needless to say his occupancy rate was very close to 100%.

 

[Lisa Thomas]

Unfortunately the government encourages entrepreneurship hence the ability to have as many Companies as you like unless you are disqualified or Bankrupt.

(Personally I think it's too easy to become a Director of a Limited Company!)

There are many practical issues, however, which can often prevent the type of Phoenix you are referring to.

Just to name a few:

1. The business failed - why will it work second time around?
2. Funding - will the bank funds if they are owed a debt by Oldco
3. Will suppliers continue to supply?
4. Are there assets that Newco will need to run, and how is it going to pay for them?
5. Will TUPE apply to any employees that were taken on by Newco?
6. Will HMRC want deposits as security?
7. What happened to any lease and will the landlord agree to assign any lease to Newco or will it need to find new premises?
8. Directors need to be prepared for any personal guarantees to be called in.
9. What is the attitude of the staff and customers?

 

[Deleted member 59730]

3. Will suppliers continue to supply?

Two of the most culpable suppliers are Cadbury and Rowntree. Their reps will race to be the first to re-supply after a Phoenix.

 

[Mr D]

Two of the most culpable suppliers are Cadbury and Rowntree. Their reps will race to be the first to re-supply after a Phoenix.

Tons of suppliers like that.
Think offhand I've only one supplier who I haven't taken back on after insolvency. And that's only because I haven't asked them yet.

I know from speaking to other people who set up again in the same field that they ended up with same suppliers often enough.