Insolvency with DLA & Secured Overdraft

[Awkward]

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.

 

[Gavin Bates]

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

 

[Lisa Thomas]

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.

 

[Awkward]

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?

 

[UK Contractor Accountant]

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.

 

[Lisa Thomas]

H

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?

That route is to only for when the Company cannot afford to Liquidate, which doesn't seem to apply here.

With the DLA, would we have to repay the 52K or is it a taxable amount on the 52K?

You will be pursed for full repayment of the loan you borrowed, plus possibly personal taxes on the income too.

If you go down the Court route for Liquidation you will negotiate with the Official Receiver who will be Liquidator.

If you go down the Voluntary route you can potentially reach an agreement with an IP prior to Liquidation so you know where you stand.

What you pay back will will depend on what you can afford and your financial circumstances.

 

[ChrisCallaghan]

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.

 

[LMS]

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

Hi ..... what kind of settlement figure do you think an IP
Would accept on an overdrawn DLA account? I’m in a similar position.
Thank you

 

[Gavin Bates]

Hi

As mentioned above it will depend on your personal circumstances.

So for example, if you lived in a £1m house with no mortgage then the IP would want the lot. No equity in your house and let by the way of surplus income than more likely to accept a one-off payment or monthly instalments.

Give me a call or send me a direct message if you want to discuss further.

Regards

Gavin

 

[LMS]

Hi
Ok thankyou
As mentioned above it will depend on your personal circumstances.

So for example, if you lived in a £1m house with no mortgage then the IP would want the lot. No equity in your house and let by the way of surplus income than more likely to accept a one-off payment or monthly instalments.

Give me a call or send me a direct message if you want to discuss further.

Regards

Gavin

Ok

 

[LMS]

Ok

Ok thank you

 

[Lisa Thomas]

LMS I have answered your query on the other post.