Insolvent Ltd Co. help required please

[wetnosewheatie]

Hello I have read through a number of the threads on here and hope that someone may be able to clarify my thinking.

My husbands Ltd Co. business is insolvent although he has not yet contacted an Insolvency practitioner and is debating whether to let creditors wind him up. He has paid his 3 staff up to date and has advised them they will be redundant as of Monday. He has a number of trade creditors o/s (approx £12K) as well as the bank & investment co approx £44K (with directors guarantees signed by both of us - ah those days before the recession when we thought we could really make a go of it......). There are insufficient assets in the business to cover this and the assets include tools etc he needs to try and keep on making a living and repaying the creditors. He is mid project on a couple of jobs and we have some invoices owing us approx £7-8K. I have my own job that covers some of personal outgoings but I won't be able to repay the credit cards my husband has used to prop up the business or maintain the payments to the bank.

The only personal asset of any value we have is our house £137K mortgage poss worth £190-200K

I can't see a way round this short of a very unpleasant time followed by bankruptcy.

Any expert advice would be gratefully received.

 

[oldeagleeye]

The first thing is not to panic. £12K trade debt is not a lot and almost covered by the outstanding invoices you have coming in.

As regards the bank and other debts. Forced sale valued of your property less fees is probably about £160k. You say that you owe the bank £44 k of that plus the cc's..

Your on the boderline about being pushed into bankruptcy then and looking on the brighter side in no different a position to say some-one buying a £200k house with a £200k mortgage.

Sit down then and work out if you could pay half as much as on your current mortgage now if you had no other debts. If you can you will probably be able to re-finance your way out of this with the help of the CAB who can help advise on the government reduncy scheme for those employees too if the business can't afford to pay.

Robert

 

[wetnosewheatie]

Thank you. I will point my husband in the direction of the CAB then for starters.

 

[KM-Tiger]

The company's debt and your debt are separate, there is no reason or obligation to use any of your funds to settle the company's debt.

As OEE says, you might well be able to re-finance to cover the personal guarantees, and there is always the possibility to re-negotiate with the bank and finance co on the basis of affordable repayments, or maybe they will accept less if it's paid off in one go. Nothing to stop you making an offer, the worst they can say is no.

I have a friend who found himself in a similar predicament, and was in the end able to negotiate something he could afford, albeit over a long period of time.

 

[wetnosewheatie]

Thanks Tiger

I guess a lot will come down to my husbands ability to finish his existing commitments and get paid and to get another job quickly. I have no problem repaying over a long period if we are able to negotiate that.

What is wooly in my mind is how he can juggle finishing the existing contracts and not be accused of wrongful trading as the business is technically insolvent.

 

[Bikerdave]

You haven't said but have you decided that you do or don't want to continue to trade?

But before you go the Insolvency route is there any possibility you can continue to trade without the staff? Are there any ways that you could diversify even of only temporarily?

In other words are there any options other than Insolvency that you might be able to follow? Like finding a partner with some money/skills/help or perhaps sell the business to a competitor? Could your bank allow a payment holiday on the loan or re-negotiate the terms?

There are many helpful people in this Forum and many relevant threads so perhaps spend more time reading here and generally on the Internet to see what possibilities there may be other than Insolvency.

Finishing contracts so that the business can be paid could easily be seen as benefiting the creditors.

If the company is liquidated, the liability for payment of the Creditors is with the company and not you or your husband. So you would not have to pay the creditors out of your own money.

As far as I can tell insolvency practitioners will give you an free session to explore your situation to decide on the likely possibilities. I had over an hour with one. I was quoted £7,500 + vat to liquidate my company so your outstanding invoices will cover that.

If you have invested money into the business you are likely to be creditors as well, in which case you could initiate insolvency.

Try not to make a decision that is irreversible too quickly. Once you 'push the button' and instruct an insolvency practitioner its out of your hands and like dominoes the process will continue to its conclusion which may not be to your best advantage.

David

 

[wetnosewheatie]

Thanks Dave

My husband would like to continue to trade but unless he also pay himself something we can't cover our personal debts. It is a very fine tightrope he will have to tread to try and keep going. I think you are right about researching before making any rash decisions and that's why I am calling on this community to get the benefit of your experiences. We are just about to quit our premises - luckily on a easy out let and try and rid ourself of one vehicle which will cut overheads. He can start having he payment conversations next week with the creditors and the bank. I don't really want to liquidate as then the personal guarantees become payable - I am really not too good at not panicking.....so thanks for the advice so far - gives me food for thought.

 

[oldeagleeye]

As far as continued trading. A friend of mine used to be an IP and told me he advised clients to say they 'could see light at the end of the tunel' it seems to be a genuine valid excuse.

Business Creditors. Put your hands up and say you can't pay but rather than go bust you are trying all you can to survive and pay them by shedding staff etc then ring-fence the debt try to agree a monthly repyment plan saying that you will pay cash for future supplies. That way your creditors will see that they not only benefit from a bad situation but still enjoy you business.
Personal Finances. The government have issued guidelines to banks and building societies not to jump down hard on homeowners who get into trouble. Speak to your building society manager then and ask for a 3 month repayment holiday but in doing so make sure that you offer something in return.

Tell him/her that you have already taken steps to put the business back on track like letting 3 employees go and vehicles too. That is a huge saving in itself. Draw up a new cash-flow plan. Not just to impress the BM but so as to be able to budget yourself. The bottom line as far as your property goes is that it would take the building society 6 - 12 months to get you out if they started the process now.

Personal Guarantees. Are probably tied up with the bank with floating charges on the property. Inform them what is happening.

Credit Cards. Write to them asking to freeze all interest but see if you can keep one serviced for emergency use.

Open up a new non status bank account with Natwest or Barclays to pay checks in or standing orders and be prepared to live more or less on the cash in your back pocket each week.

As said. You can get help from the CAB who have more or less standard letters to send out for this sort of thing. Just remember. Chin up. It is in no-ones interest to see you go bust and people will bear with you if you are seen to be doing all you can.

Robert

 

[Spongebob]

I guess a lot will come down to my husbands ability to finish his existing commitments and get paid and to get another job quickly. I have no problem repaying over a long period if we are able to negotiate that.

What is wooly in my mind is how he can juggle finishing the existing contracts and not be accused of wrongful trading as the business is technically insolvent.

If the company is insolvent you have no option but to cease trading now. Tying the date of this in with making the staff redundant adds credibility to your position. You do not though, have to appoint a liquidator at this stage. Instead, the company will simply lie in limbo until a creditor chooses to initiate winding up proceedings. The only creditor likely to take this action is HMRC. The process will take many months.

There is no reason however, why your husband can't continue in the same line of business immediately as a sole trader. He can complete the outstanding contracts on his own account and collect any monies himself. He can also take on new work. Any tools he needs to do this should be clearly designated as his personal property and not jumbled up with the assets of the company. This should at least ensure an ongoing income stream - the most important thing to have.

Any monies owed to the company should be collected as soon as possible - remember the company has only ceased trading; it is not in liquidation yet. These monies will have the effect of reducing your bank overdraft, and hence your exposure to the bank's personal guarantee. Strictly speaking this could be viewed as treating the bank preferentially, but what option is there? All you've done is pay some cheques into the bank...

What is the nature of the personal guarantees? Are they secured by a charge on your house or are thay simply personal guarantees? It is a very important point.

If there is no charge on the house then the bank and Investment Co simply become unsecured creditors of you and your husband. They will be open to negotiation on a reasonable reapayment plan as if you go bankrupt they will get nothing.

If the guarantees are secured on the house then things may be more complicated. Do not lose heart, however.

You do not have much equity in the house - if the guarantees are secured on it then you don't have any! With a little nimble footwork you may well both be able to go bankrupt, keep your house, and agree a schedule of payments to the bank and Investment Co. The big advantage would be that your credit card debts and any other personal debt you might have would disappear overnight. Without these drains on your income repaying the secured creditors mighy well be possible over time, particularly if your husband is able to pick up the plum profitable business of the former company.

Keep us posted and good luck.

Bob

 

[Spongebob]

I can't see a way round this short of a very unpleasant time followed by bankruptcy.

I've been giving this a bit more thought while wandering round B&Q.

I suspect that with the level of personal debt and guarantees you have that bankruptcy might well be the best option, even if it means losing the house.

Maing the kind of commitments you would have to make to a repayment plan to the bank etc, together with your mortgage payments and servicing your credit card debt strikes me as bordering on the impossible given that your husband will be starting a slimmed down business with only himself as a revenue earner.

There is no reason why this should be an unpleasent time, however. Look on the bright side; your husband has the opportunity to make more money from his business than ever before. Everyone knows about the 80:20 rule - 80% of your profit comes from 20% of your customers. Well now your husband can grab the most profitable 20% of his old company's customer base and keep it for himself. This is a once in a lifetime's opportunity!

If you decide to go bust though, do it now. Too many people make repayments for years before circumstances change and they default, resulting in them going bankrupt anyway. That really would be a bummer...

 

[DavidSimpson1234]

Get in touch with Finance 7 Limited, just search them on Google, sorted out people i know who were in a similar predicament

 

[Geoff T]

Get in touch with Finance 7 Limited, just search them on Google, sorted out people i know who were in a similar predicament

CAB are free - and don't mention Phoenixed Businesses in the home page!

Depends on how the OP wants to be viewed by their creditors I suppose..

Personally, I prefer OEE's suggestions before...

Work with your creditors/suppliers to find an answer, rather than leave them with a Bad Debt write off...

"Do the honourable thing - or spread the stink?"