Legal ramifications of anew company

[G. Lasagne]

Hi everyone, I’m after some much needed advice . I run a company with my wife of which we’re both directors, the business for various reasons has acquired an overdrawn directors loan and some debt around 30k we’re only a small Business so it’s quite a lot for us. Anyway I’m thinking of leaving this business and resigning as a director, then setting up a new business as a completely separate entity. This is a decision me and my wife have made as a safeguard should the original business become insolvent (it’s looking 50/50). My question is what happens to the directors loan should the original business become insolvent and we can’t pay. And finally is it legal to transfer customers who are on pay monthly contracts c (with there consent) to the new business whilst it’s not insolvent/bankrupt? And can we contact customers after insolvency (if it came to that)?

We’re at a loss at how best to act, we’re seeing our accountant next week to see what options we have.

We really don’t want to get a loan that we’re a guarantor for should the business still go insolvent a year or two down the line.

The second company is a safeguard for our families future should the original business fail.

Any advice whatsoever would be appreciated massively.

 

[Gyumri]

I can't see anything wrong in starting up under a new business name while the existing business remains in doubt. If you can trade for 12 months using the existing trading name then you can't be accused of starting a phoenix company if the old Co goes into liquidation.

The directors loan is a different issue and if it is not going to be paid back within nine months and a day after the financial year end then the company will have to pay a s455 charge at 32.5% of the outstanding loan. The company gets that back however from HMRC when and if the loan is repaid.

You might have to negotiate a time to pay arrangement to avoid HMRC winding the company up for non- payment of the s455 charge which might then expose you to a claim by the official receiver to recover the director's loan.

As for the new Co taking on the accounts of the old Co it seems to still be a free country although whether it amounts to a transfer of the business is not my area.

 

[G. Lasagne]

Thanks so much for your help, the 32.5% has already been paid that was last years problem ha. ok so if I set up company B whilst A was still trading and migrated all the customers over, they all pay via DD (go cardless) so that might be a headache but if we started now and company A traded for another 12 months you don’t see a problem with that? I would be the sole director of B and my wife the sole director of A

 

[Gyumri]

I can't see any problem at all especially now that you've said you have paid the s455 charge in your directors loan. I mean you are not doing anything wrong from what you say and your customers are free to give their business to whichever entity they wish. The new Co must have done some trade for 12 months before the old Co goes into liquidation in order to retain the same trading name. The 12 month period is to allow others to be informed that both companies are using the same trading name or style and so they can assess their risk in doing business with you. There might be other reasons which more experienced contributors can pronounce on.

 

[kulture]

I would strongly advise you to get professional advice. You resigning as director and then stealing all the profitable customers whilst your wife remains as sole director sounds like a fiddle. You could potentially be considered as a person of significant influence on the old company. The old company may already be insolvent. Talk to a proper insolvency practitioner, check the true status of the outstanding director’s loan, and establish properly that what you are doing does not have pitfalls.

 

[G. Lasagne]

S

I would strongly advise you to get professional advice. You resigning as director and then stealing all the profitable customers whilst your wife remains as sole director sounds like a fiddle. You could potentially be considered as a person of significant influence on the old company. The old company may already be insolvent. Talk to a proper insolvency practitioner, check the true status of the outstanding director’s loan, and establish properly that what you are doing does not have pitfalls.

sound advice thanks would that professional be an insolvency practitioner

 

[ChrisCallaghan]

Hello @G. Lasagne ,

Firstly I'm sorry to hear that your company is struggling. Currently you would be doing nothing wrong by resigning as director, and setting up a new company. However you would be opening up several areas of issues should your first company end up in liquidation (either voluntarily or compulsory, e.g. triggered by HMRC or any other creditor).

Resigning as a director will not undo the overdrawn director's loan issue. Whether you're a director or not, you are a debtor of the company and will remain so unless the balance is repaid. In liquidation, this would need to be addressed, however an insolvency practitioner would work with you about the best way to settle this, based on your personal financial circumstances.

Secondly, if the first company ends up liquidation, and it is seen that your new company took assets away from the first, insolvent company (e.g. customers and contracts) the liquidator would look to your new company, potentially to pay some amount for the assets it has taken.

It is not uncommon for struggling companies to go through a liquidation process and start up again, so long as it's done correctly.

I think it is right that you are exploring your options, but as others have suggested, it may be time to consider taking advice. Initial consultations with an insolvency practice are free and confidential. Most importantly, they're non-committal, meaning there is no harm in taking advice and exploring your options.

Myself, or any of the regular insolvency advisors here on UKBF, would be happy to advise you if you want to explore this further.

 

[ChrisCallaghan]

If you can trade for 12 months using the existing trading name then you can't be accused of starting a phoenix company if the old Co goes into liquidation.

Pretty much correct, however the trading name can be re-used straight away, so long as it is done correctly.

See below if you would like to do some reading on this:

Re-use of company names

www.gov.uk

 

[Gyumri]

That should help the OP. The rule is below.

The Insolvency (England and Wales) Rules 2016

These Rules set out the detailed procedures for the conduct of all company and personal insolvency proceedings in England and Wales under the Insolvency Act 1986 and otherwise give effect to that Act. These Rules supersede the Insolvency Rules 1986 (SI 1986/1925 as amended). Those Rules are...

www.legislation.gov.uk

 

[Frank Wessely]

S

sound advice thanks would that professional be an insolvency practitioner

Hi G. Lasagne

I can see that there is already useful information for you in this thread as a starting point.

The detail of how you and your wife navigate through this transition can be fleshed out through an exploratory discussion.

How I see it as an IP is that at this stage of uncertainty, the prerequisites from your perspective would be:-

1. Protect you and your wife,
2. Protect the business - especially the relationships with customers,
3. Protect the company.

The issue is to bring you clarity and direction.
Rules and procedures would follow but that's the job of the Insolvency Practitioner, if one is required.

Feel free to call or email to arrange a discussion.

Thanks.