Insolvency with DLA & Secured Overdraft

Discussion in 'Insolvency' started by Awkward, Apr 17, 2019 at 4:31 PM.

  1. Awkward

    Awkward UKBF Newcomer Free Member

    2 0
    Hi All


    From the reading I've been doing today this seems like a genuine and very helpful forum.


    Onto our situation.


    My partner and I run a retail company and have been for 8 years or so. For the last 2 years revenue has slowly decreased.


    We increased our work effort as much as possible as we could see revenue/profit decreasing. However, since May 2018 the decline in sales got really bad and has put the company in financial pressure.


    In August 2018 we let 3 members of staff go for fear of not being able to pay them going into Sept, Oct etc. That basically reduced it down to myself and my other half running the company.


    We've been working on reducing the company’s costs to bare minimum. However our largest supplier has just closed our (and many of our competitors) account for a ridiculous reason. This means our sales will now decline to a point where we can't see a way of keeping the business alive. Also our second child is due very soon.


    To cut a long story short we want to close the company but would like to know what the options and best way to go about this is. I've listed the position of the company to give you an idea:


    • Bank overdrawn by £15k (we have an overdraft of £35K secured against my property).
    • Owe HMRC £5K in VAT
    • Owe HMRC £9K in Corp Tax (paid 1K and set up a payment plan for the remainder. £6.5K of the amount is for over drawn Director Loan Account).
    • Over drawn DLA of £52K
    • Owe suppliers and services approx £6K
    • Outstanding customer orders for £20K
    • Stock £8K

    Any advice that could be offered would be greatly appreciated.
     
    Posted: Apr 17, 2019 at 4:31 PM By: Awkward Member since: Apr 17, 2019
    #1
  2. Gavin Bates

    Gavin Bates UKBF Enthusiast Free Member

    537 108
    Hi

    First of all, I would suggest you take advice from a licenced insolvency practitioner (IP). Any IP worth talking to will offer a free initial meeting to go through your options. There are a couple of points that you need to be discussed in depth. The first is the outstanding DLA. Second, could you clarify the customer orders? Are these orders which the customer has already paid?

    In terms of options, I think you have 3.

    1) You may have already seen the SpongeBob option often discussed on this site for companies with little or no assets.

    2) You should be aware that it is always possible that one of your creditors may petition to wind the Company up and then the liquidator will look to recover the DLA. The most likely party will be HMRC because they are already aware of the DLA as you have been paying tax on it.

    3) You take control of the situation and appoint an IP to deal with the liquidation. Again the DLA will be an issue. This will depend on your personal assets but my experience in these types of case are that there will be few so you may want to agree either a payment plan or full and final settlement with the IP.

    I hope this helps.

    Regards

    Gavin
     
    Posted: Apr 17, 2019 at 4:50 PM By: Gavin Bates Member since: May 9, 2016
    #2
  3. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    2,819 332
    You need to speak to an IP.

    It seems that Liquidation may be the only option here, being paid for from the stock.

    There are two types of Lqn - compulsory through the Court or voluntary through an IP.
     
    Posted: Apr 17, 2019 at 4:55 PM By: Lisa Thomas Member since: Apr 20, 2015
    #3
  4. Awkward

    Awkward UKBF Newcomer Free Member

    2 0
    Hi Gavin

    Thank you for your replying and your comments.

    In answer to your question yes customer have already paid.

    I did read about the Sponge bob plan, so am i right in thinking that's a way of getting a 3rd party to appoint an IP at their cost rather than yours? if so does that mean there isn't any advantage to getting your own IP or have i got that mixed up?

    With the DLA, would we have to repay the 52K or is it a taxable amount on the 52K?
     
    Posted: Apr 17, 2019 at 5:04 PM By: Awkward Member since: Apr 17, 2019
    #4
  5. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

    4,462 749
    The SB plan is not relevant here as you have assets namely stock that needs to be realised and used to part pay creditors or fund a liquidation.

    There is also the real risk here that you have been trading whilst insolvent breaching the provisions of the Insolvency Act 1986. Any appointed IP will need to look into this.
     
    Last edited: Apr 17, 2019 at 6:35 PM
    Posted: Apr 17, 2019 at 6:28 PM By: UK Contractor Accountant Member since: Sep 18, 2013
    #5
  6. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    2,819 332
     
    Posted: Apr 18, 2019 at 9:12 AM By: Lisa Thomas Member since: Apr 20, 2015
    #6
  7. Phil Meekin

    Phil Meekin UKBF Contributor Full Member

    81 14
    Agree with what has been said about taking advice form an IP.
    How vigorously you will be chased personally for the DLA and your liability to the bank for the outstanding balance will depend on how much equity there is in your property. Ironically, the less equity there is the better your chance of agreeing a full and final settlement.
     
    Posted: Apr 18, 2019 at 9:22 AM By: Phil Meekin Member since: Apr 10, 2018
    #7