failing company - advice required

[apprentice1]

Hi

i have been running my retailing business since August 2008. Until July 2009 i was trading as a sole trader but then registered as a ltd. company. I have been struggling since i started but have now reached a point where i can no longer carry on. My health is beginning to suffer due to the stress and worry and i have already lost over £40000 which i used to start the business. This i can live with - i took a risk and failed but i've given it my all and enough is enough.

I currently owe approx. £10000 to suppliers (all large national companies) most of which is in the company's name. I also owe £7500 on my sole trader account which i signed a personal guarantee for. I need to continue to trade throughout December and January as this will be my busiest period. I have never taken a wage or any drawings/dividends from the business. Is it legal for me to pay myself over the next couple of months to help me clear my sole trader overdraft. I have been heavily discounting my stock to increase sales - this will probably mean that at the end of January i will still owe a considerable amount to the suppliers but there will be little stock left.

What is the best way for me to get out of this while clearing off as much of my sole trader overdraft as possible (i have already lost over £40000 of my initial investment and would like to minimise this £7500 as much as possible). Also do you think my bank would accept a much smaller full and final settlement of this sole trader overdraft? Who do i need to inform when i'm closing and what do i tell them. I have no clue what to do from here - i am under considerable stress and don't want to do anything that will result in me getting into trouble.

Any advice would be very much appreciated.

Thanks

 

[Bikerdave]

If the business is not generating enough profit to sustain it then it is probably insolvent and you are obliged to do something to correct that.

If you have Creditors that you can't pay and can't or don't want to raise the capital to put into the company to pay them and keep the business going then you may have to cease trading and liquidate the company.

Is there someone that will buy your business, a competitor in another area to you who possibly might like to enlarge their own business? It may not raise much if any cash but might release you from the business.

Remember that a Ltd Co is an entity in its own right and you are an employee but possibly also a Creditor depending on if you introduced capital into the company. For example if your £40,000 was introduced into the company then the company owes you £40,000.

Paying yourself depends on how you are doing it, through PAYE or by taking cash out as you need it and the amounts. If you taking cash as and when needed it may be argued that you are reducing your capital introduced ie the £40,000 however that would need to be qualified by an expert (I'm not I'm afraid).

Your Sole Trader 'side' and personal guarantee means that you are personally liable for this debt.

I assume you have an accountant so talking to them will be the first step. They may suggest that you make contact with a Licensed Insolvency Practitioner who will usually give you an initial consultation free of charge and look at the options available to you.

Have a look at the Business Link site they have a section for Businesses in Trouble and speak with them and see if they can help.

This is a Charity that offers you debt advice as you may need to be aware of the possibilities of a large personal debt debtadvicefoundation org

There is loads of helpful information on the internet and I suggest that you do a lot of research in the next couple of days. Looking at Company Insolvency, Bankruptcy and IVA's.

Dealing with all of this alone is a absolute nightmare especially if you have no knowledge of the possible courses of action and outcomes. So apart from Internet research, talking to someone you trust can help you begin to make some sense of what you can do.

It may be a long dark tunnel but there is always light at the end.

 

[Dave Shaw]

You should only continue to trade as long as you are improving the position of creditors otherwise you may end up with accusations of wrongful trading made against you. There is probably a justification there - you are probably able to get more for your stock than if the business is closed and liquidated.

You should also ensure that any funds raised by this 'closure sale' are ringfenced and used to pay for any new creditors incurred and the remainder for a liquidator to deal with. If you are working in the business then you may be able to justify taking a reasonable wage during this period but be careful that the PAYE ad NI position or any other creditor position does not deteriorate. If you reduce your £40k capital as part of this process this will be deemed to be a preference and a liquidator will seek to recover payments made.

You do need to be careful and take advice as you don't want to end up liable for more than you already are.

In terms of the overdraft position the bank may be willing to compromise their debt but it depends on what other assets and liabilities you have.

You may have to accept you have lost your £40k and the overdraft - but you don't want to be on the hook for any other actions that could increase this further. Using the proceeds from the stock to improve your position is likley to end up in a mess.

If you want to have a conversation PM me your contact details.

David Shaw
totalitysolutions.com

 

[alistaird]

We are a firm of solicitors, please contact us and we will assist you. Not only will you require an insolvency expert to whom we can refer you but you also require urgent assistance to keep creditors at bay and to understand your contractual liabilities upon liquidation. Please PM me.

 

[elliotgreen]

Sounds like you might need to consider putting the company into liquidation.

If you continue then you may be at risk of wrongful trading if the business cannot be turned around. It is best to take advice properly now rather than worry later about what might have been when the situation becomes unmanageable.

 

[apprentice1]

thanks everyone for taking the time to respond. It's a very scary position to be in. Having spoken to my accountant i am now confident that i cannot go on any longer. I will cease trading in the next few days and go from there.

Is it better for me to initiate winding up or should i allow my creditors to do this? I definitely cannot afford a liquidator and apart from a little stock the company has no other assets.

Best wishes
A1

 

[elliotgreen]

It would be better for you to initiate the winding up that leaving it to the creditors. It shows you taking responsible actions.

What stock does the company have and what is its readily realisable value? If this is less than say £3k then you may have to go down the compulsory route if there is no money available to pay for a liquidation.

 

[apprentice1]

Hi Elliot

i have some stock left but i doubt if it's realisable value would be £3000. I definitely cannot afford the services of a liquidator. I just want it to be over now.

What should my next step be?

Kind regards
A1

 

[Miles Shelbourne]

Hi
I can't comment on the insolvency of the business, but in relation to your personal liabilities to the bank I may be able to assist. There are insolvency practitioners who may be able to help with both the company and your personal situation. I suppose you may, personally, end up in an IVA, but if you wish to explore concluding your [personal] liability with the bank I can advise. I have dealt with many such situations - I think the best result I ever had for an individual was to get rid of a liability of around £140k on payment of a single sum of £6k. Sometimes it is possible to achieve this sort of outcome. If you wish to discuss, feel free to call - 07963 906092. Miles