Is it best to move premises when a ltd co becomes insolvent?

[anonuk]

I was speaking to a good friend of mine this weekend and his business is really struggling. He said business has been slow for a couple of years and as a result he’s run behind on bills. He’s got arrears with Electricity Co (and subsequently is now on out of contract rates which to me look ridiculously high), arrears on his business rates, water rates and owes about £80k to HMRC for VAT.

He said the business has a payment arrangement with HMRC to repay the VAT monthly and has a temporary arrangement with the council to pay his business rates at a lower figure for 3 months but he’s even struggling to pay that. He’s not yet got an arrangement with electricity or water as he can’t afford what they are asking.

He’s already had a HMRC enforcement agent at the premises which is what prompted his payment arrangement.

Anyway, he was asking me whether, in his shoes, I would consider the company insolvent and therefore time to close it down, to which I said yes.

So, now he is looking at what steps he needs to take and was talking about trying to keep his business premises for his other business.

I said in my opinion he’d be better off finding a new premises where HMRC aren’t likely to turn up to try and collect the previous companies debt while he waits for the company to close but he’s being quite stubborn.

So, I thought I’d ask in here and see what you all think:

1) is it a good (or at least valid) idea to keep the same premises while you’re closing a company down with a fair amount of debt? Presuming he would tell energy co/council that company a has gone bust and so company b will start its liability with a clean slate.
2) say the company takes a year or more to close via the SpongeBob method, what is the likelihood of HMRC sending enforcement agents round to try and enforce their debt?
3) is there a generally accepted way of calculating what value the director should of the insolvent company for its minimal assets?

 

[ChrisCallaghan]

Hi @anonuk , welcome to UKBF.

Sorry to hear about your friend's circumstances, and kind of you to reach out on their behalf.

I am a fan of the Spongebob method, and even reccomend a similar route when appropriate. However it is far from ideal if your friend is looking at carrying on through a new company, especially if that will be at the same premises with energy and HMRC liabilities remaining outstanding. I think the likelihood of HMRC agents attending is likely over a long enough timeliness, and even more likely for the energy company, who will take a dim view of there being a new business at the site, whilst the old business still legally exists.

Truthfully Spongebob's guide is more appropriate for those looking to fully close an insolvent company where their are no funds or assets to fund a liquidator's costs.

I assume the business has some form of assets? Has your friend taken insolvency advice from a professional on all the options available?

 

[anonuk]

Hi @anonuk , welcome to UKBF.

Sorry to hear about your friend's circumstances, and kind of you to reach out on their behalf.

I am a fan of the Spongebob method, and even reccomend a similar route when appropriate. However it is far from ideal if your friend is looking at carrying on through a new company, especially if that will be at the same premises with energy and HMRC liabilities remaining outstanding. I think the likelihood of HMRC agents attending is likely over a long enough timeliness, and even more likely for the energy company, who will take a dim view of there being a new business at the site, whilst the old business still legally exists.

Truthfully Spongebob's guide is more appropriate for those looking to fully close an insolvent company where their are no funds or assets to fund a liquidator's costs.

I assume the business has some form of assets? Has your friend taken insolvency advice from a professional on all the options available?

Sorry, I should have been more clear. My friend already has a second company that could potentially use the premises/take over the lease, but I have said that I think the current premises is a bit big for his other business to occupy on its own. He’s not looking to set up a second ‘new’ company to take the premises over.

The ‘assets’ the company have got (to the best of my knowledge) are all over 5 years old so their value on the asset register will have reduced to very minimal levels. They don’t have any stock as such, so remaining assets will be computers etc which will have very low values and I don’t think it’d be enough to cover the costs of an IP.

I did wonder whether one possible route would be for my friend to get a virtual office address and change the registered address of the failed company to that address to show that the company has officially vacated the premises but I’m not sure if this would be the best move.

 

[anonuk]

I should also say, I do think my friend is being a bit lazy in not wanting to move as I think he’s coming purely from a place of it being easier/less effort to stay put rather than packing up and moving to somewhere smaller. However, when he initially moved to the current premises he did invest quite a lot in fitting out the premises and getting it right for him so I do get the reluctance to starting over but I personally think a clean break would be beneficial.

 

[ChrisCallaghan]

What does your friend do?

 

[ChrisCallaghan]

The ‘assets’ the company have got (to the best of my knowledge) are all over 5 years old so their value on the asset register will have reduced to very minimal levels.

Not really relevant. An agent acting for HMRC or the energy company isn't concerned about their value on the balance sheet, but their real world value. Is your friend intending to continue using these assets in their other company?

 

[ChrisCallaghan]

which will have very low values and I don’t think it’d be enough to cover the costs of an IP.

I was not necessarily suggesting that they have to pay for a liquidation - I was curious if they had taken advice on all the options available from a professional debt advisor.

 

[anonuk]

What does your friend do?

His failing business is in office supplies but his other company is largely unrelated.

 

[anonuk]

Not really relevant. An agent acting for HMRC or the energy company isn't concerned about their value on the balance sheet, but their real world value. Is your friend intending to continue using these assets in their other company?

I’m not entirely sure to be honest and that’s something I’d have to ask. As I say, it’s mostly computer equipment and I presume he uses the same computers for both businesses so potentially he would be wanting to use the assets for the other company which is why I wondered about how to come up with a fair price to purchase at. I will try and get some clarification from him.

 

[ChrisCallaghan]

Thank you for the clarification.

Short answer is that if he is considering following Spongebob's guide, then for his insolvent company he will be waiting for a creditor (likely HMRC) to come forward to wind up his company. For the level of debt you've described, we can safely assume that HMRC won't allow the company to be dissolved.

Whilst your friend is waiting for a creditor to start winding up action, any agents acting for the creditors can visit any address where they suspect company assets may be held, be that the current trading address, a new address where the director is operating a new/existing business from, or the director's home address.

Does that help answer your query?

 

[ChrisCallaghan]

(in short I'd agree that potentially staying at the same address would not be advisable, but I'm not in full possession of the facts. Rather than just assuming one plan of action is correct, I feel your friend would benefit from taking professional advice before making any final decisions)

 

[anonuk]

Thank you for the clarification.

Short answer is that if he is considering following Spongebob's guide, then for his insolvent company he will be waiting for a creditor (likely HMRC) to come forward to wind up his company. For the level of debt you've described, we can safely assume that HMRC won't allow the company to be dissolved.

Whilst your friend is waiting for a creditor to start winding up action, any agents acting for the creditors can visit any address where they suspect company assets may be held, be that the current trading address, a new address where the director is operating a new/existing business from, or the director's home address.

Does that help answer your query?

Thanks for that. Any idea if HMRC are likely to wind the company up for an £80k debt? Not something he’s specifically asked me but just curious.

I think that’s why my friend wants to get guidance on deciding fair market rates for any equipment he wants to keep so that he can demonstrate a legitimate sale if someone comes knocking but will definitely advise him to consider speaking to an IP

 

[anonuk]

(in short I'd agree that potentially staying at the same address would not be advisable, but I'm not in full possession of the facts. Rather than just assuming one plan of action is correct, I feel your friend would benefit from taking professional advice before making any final decisions)

Thanks. Yeh, it’s all a very new situation for him I think. I think he’s only just come to the realisation that he’s not likely to be able to climb out of the arrears he’s got (certainly from the way he was speaking to me anyway), so ill definitely suggest he gets professional advice.

My biggest concern for him is that if he’s to start afresh, he needs to be able to do that without the worry of hmrc coming knocking again.

 

[ChrisCallaghan]

Any idea if HMRC are likely to wind the company up for an £80k debt?

Eventually yes, but I'd expect it will be a while. They will first look at other enforcement options.

Really difficult to gauge what the timescales would be without a good working knowledge of your friend's past dealings with HMRC. Could be a month, could be 18 months.

ill definitely suggest he gets professional advice.

If your friend would like advice, myself or any of the regular insolvency advisors here at UKBF would be happy to offer cost free and confidential advice.

 

[anonuk]

Eventually yes, but I'd expect it will be a while. They will first look at other enforcement options.

Really difficult to gauge what the timescales would be without a good working knowledge of your friend's past dealings with HMRC. Could be a month, could be 18 months.

Thanks. I was specifically thinking about if my friend went down the SpongeBob route, are hmrc likely to go after a winding up petition.

Having spoken to my friend this evening, he says he would prefer to try and save the company by trying to reduce its monthly outgoings (though he still says he wants to try and keep his current premises which seems madness to me).

He is currently paying £1600 a month to HMRC for VAT and he’s just this past week had a letter from a DCA about a £6k debt for corporation tax penalties, then his electric company are asking for nearly £900 per month to cover his usage and to chip away at the debt, and the water company want £200 per month just for the debt plus about £90 per month for his ongoing bills.

He’s also just told me this evening that due to an incompetent accountant, he got behind on submitting corp tax returns because the accountant failed to submit them correctly and since then he’s buried his head in the sand and now has 6 years worth of Corp tax returns outstanding (apparently companies house accounts have been submitted and vat returns are done via MTD). He can’t afford to pay an accountant to do 6 years worth of tax returns all together so he’s likely to end up with another penalty for this years being late as well.

I’ve had to be blunt with him and told him he’s in a right mess. I think if I were in his shoes, I wouldn’t be trying to save the company but he can be quite stubborn.

 

[ChrisCallaghan]

It sounds like your friend has a lot of issues to work through.

6 years worth of Corp tax returns outstanding

That's a big issue to work through, I addition to everything else described.

I'm not suggesting that your friend necessarily take advice from me, but I would strongly reccomend that your friend take advice from an insolvency practice ASAP. Nearly all of us offer free, no cost consultations to provide a business review on ALL the options available. Just ensure whatever firm he speaks to employs licensed insolvency practitioners and has decent reviews.

 

[Lisa Thomas]

Your friend's company is insolvent. They need to take advice quickly from a licensed Insolvency Practitioner. Moving premises and trying to continue to trade could result in a wrongful trading claim being brought against them further down the line. If he wants to continue trading he needs to produce realistic, profitable cashflow forecasts and keep detailed records of all financial decisions.

Other than physical assets are there any outstanding debtors owed to the company, including any overdrawn directors loan account? Is there any cash in the bank account?

 

[anonuk]

Your friend's company is insolvent. They need to take advice quickly from a licensed Insolvency Practitioner. Moving premises and trying to continue to trade could result in a wrongful trading claim being brought against them further down the line. If he wants to continue trading he needs to produce realistic, profitable cashflow forecasts and keep detailed records of all financial decisions.

Other than physical assets are there any outstanding debtors owed to the company, including any overdrawn directors loan account? Is there any cash in the bank account?

My understanding is that he’s not technically wrongfully trading if he can trade out of this mess which he seems to think he can do (though I question his judgment at this point). If he can agree an affordable plan with electric and water and negotiate the payment plan with hmrc down a bit, he might be ok (even though he will still be on eye watering out of contract rates with electric) but I still think the fact he’s let things get so bad with being behind on tax returns etc are a sign he should just close it all down.

I do want to make it absolutely clear that he is not wanting to (or rather, I am not suggesting that he) start a new company to simply walk away from his debts. He already has the other company and that other company would become his full time job if he were to close this one. The question of moving to another premises came up because I suggested that HMRC might still send enforcement people to his current premises while that remains his premises and that could be stressful as he’d be looking over his shoulder constantly where a new premises would perhaps give some peace of mind (he would also be wise to find somewhere cheaper as he wouldn’t need to big warehouse he has now).

 

[Mark T Jones]

A couple of things I haven't seen in the above (but may have missed)

- PGs - are there any? Particularly on the property lease. This would have some impact on advice.

- Preference - Is the rent in arrears. If not, might they be guilty of giving preference?

In reality, you friend should be the one asking and, critically giving good information to get good advice.

 

[anonuk]

Other than physical assets are there any outstanding debtors owed to the company, including any overdrawn directors loan account? Is there any cash in the bank account?

My understanding is that the business is just about making enough each month to pay its bills without getting into further arrears. It's getting out of arrears that's the issue and things like the electricity provider forcing him to stay on out of contract rates isn't helping as it's making his electric bill about £200 per month more than it otherwise would be.

I'd have to specifically ask the question, but I don't believe there are funds in the account when each months bills have been paid. I think he starts each month virtually at zero.

I don't know the answer to the DLA account question but I will check.

A couple of things I haven't seen in the above (but may have missed)

- PGs - are there any? Particularly on the property lease. This would have some impact on advice.

- Preference - Is the rent in arrears. If not, might they be guilty of giving preference?

In reality, you friend should be the one asking and, critically giving good information to get good advice.

I do agree that he should be the one asking but he's feeling pretty rotten about it all and feeling quite depressed at the thought of losing the company. I will suggests he posts here himself but I am extremely grateful for the advice I'm able to pass on to him.

Re your questions - he has a PG on a loan that has about £14k remaining but I don't know if there's anything else with a PG. He has no overdraft on the company account, etc. There's also no PG on the lease but he says there was a £5k deposit paid when he moved in.

Preference - The rent is not in arrears but I'm not sure I'd agree that this is giving preference. If my friend were to fall behind on his rent, his landlord could change the locks and evict my friend just 21 days after the rent due date, which would prevent him being able to work at all.

 

[WaveJumper]

Well based on reading all the above and sorry, but the mess ("6 years work of corp tax") he seems to have made over this companies accounting history how sure are you his other company accounts are any better off

 

[anonuk]

Well based on reading all the above and sorry, but the mess ("6 years work of corp tax") he seems to have made over this companies accounting history how sure are you his other company accounts are any better off

Good question - his other company was only started a couple of years ago, after he ditched the accountant that dropped him in it so to speak, so as far as I know, everything with that company has been done properly and is overseen by a decent accountant.