HMRC Debt Insolvency

Discussion in 'Insolvency' started by Offcentre, Mar 20, 2020.

  1. Offcentre

    Offcentre UKBF Newcomer Free Member

    6 1
    This is hypothetical but under circumstances of all business having dropped off for us (90% down) and 20 employees our business could end up going all sorts of ways...... with a very real possibility of going under. We could get through the next few months and keep staff which will mean not getting through the other side. We know for our industry this will take several months to start looking like anything close to normal after this main phase passes which we are guessing at a 3 months at least. Most likely we are looking at the best part of a year.

    The hypothetical question as we fall outside of any grant funding is utilizing money we put to the side for HMRC to pay staff for a longer period. This will give us time to see if the Government realise the scale of the fallout and how help can be proportioned to those companies and employees directly affected. Our type of customer base is mentioned in the news for help but the companies supplying and working along these are affected equally but currently forgotten.

    So, if we pay wages for as long as possible hoping for a miracle from the Government ( I know they have no magic wand) it will mean running up the HMRC debt and then probably going bust. This might allow time enough to then transfer all staff to a new company where work might start to pick up and not dropping staff into the benefits world.

    Never been anywhere near going bust before in 25 years of business so a bit lost as to the pitfalls and HMRC actions against a Ltd company doing this. We hope to get through it but the risks and unknown factors are there that we will go through. What would be the outcome of this route with the hope of a new company then able to carry on with the same staff.

    I could just lay them all off and mothball until it all picks up as staff will likely still be unemployed further down the road but not something I want to consider yet.
    Posted: Mar 20, 2020 By: Offcentre Member since: Jan 4, 2017
  2. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,549 457
    In ordinary circumstances this hypothetical situation is potentially wrongful trading.

    If the Company trades out of it and comes out the other side then there is no issue.

    If however an insolvency procedure, such as Liquidation, occurs, then the Liquidator has the power to pursue the Directors personally for any misconduct occurred.

    Their are 5 types of key claims we look at:

    1. Fraudulent trading (where Directors purposely set out to defraud creditors)
    2. Wrongful trading (hard to prove and expensive to bring about)
    3. Transactions at undervalue (transfers of assets for less than market value or free)
    4. Illegal preferences (paying some preferred creditors, whilst not paying others eg HMRC)
    5. Misfeasance (not protecting customer deposits and drawing of unlawful dividends)

    As you have identified, closing and starting again under a Phoenix is an option, although it will bring with it lots of practical issues for the Directors to think about but may be the only real option left.
    Posted: Mar 20, 2020 By: Lisa Thomas Member since: Apr 20, 2015
  3. Ian J

    Ian J Factoring Specialist Full Member - Verified Business

    6,136 2,012
    Hopefully the Chancellor might make things a bit clearer later on this week or if not, early next week
    Posted: Mar 20, 2020 By: Ian J Member since: Nov 6, 2004

    JEREMY HAWKE UKBF Legend Full Member

    5,074 1,718
    The question should be what is on the other side
    I think we will be a much smaller economy with the real chance of a long term recession.

    If you trade insolvent and we are in a bad way for a long time it might come back to bite you

    Sadly moth balling and doing things the right way might be the only way for most of us
    Posted: Mar 20, 2020 By: JEREMY HAWKE Member since: Mar 4, 2008
  5. Offcentre

    Offcentre UKBF Newcomer Free Member

    6 1
    Thanks all for the input.

    I am aware of the trading insolvent part but the Government are almost encouraging the route of sticking with employees and that they will eventually back business. If I do what they have suggested then there is the defence......... hypothetically. The Government have said all of the right words without the detail. As mentioned in original post, we will suffer until this time next year I realistically imagine as will many companies struggle beyond the boundaries of the pandemic. When HQ say they will be there to back business and head companies down a certain route, then using what funds a business has available to get them through with the hope of a bailout I wouldn't think is blatant wrongful trading. I would love to get backing that they promise, just have my doubts as to how far this will go.

    I personally can mothball or even walkaway as I have other business interests. The fallout for my staff will be far greater though.
    Posted: Mar 20, 2020 By: Offcentre Member since: Jan 4, 2017
  6. Stas Lawicki

    Stas Lawicki UKBF Regular Free Member

    350 143
    It would be helpful if the gov decided to reimburse Corp tax or didn't call on it for the last financial year. I paid my Corp tax in the last ten days - it would be great to get that back.

    What do you think? Is that a better idea than those that haven't, defaulting and picking up debt?
    Posted: Mar 20, 2020 By: Stas Lawicki Member since: Nov 14, 2017
  7. Ian J

    Ian J Factoring Specialist Full Member - Verified Business

    6,136 2,012
    Mine is due to leave my bank account in 11 days time.
    Posted: Mar 20, 2020 By: Ian J Member since: Nov 6, 2004