liqudation vrs administration

[Shells]

Hi , wonder if anyone out there can help us, we have run our own business for the last 5 years but in the last few months things have got considerably worse and we are thinking of closing the company. we have met a insolvency practioner who quoted GBP 6.5K for administration and GBP 3.5k for liqudation. He also suggested keeping the company going but not trading. i need help on a couple of points below:

1. what is the difference between administration and liqudation
2. the prices quoted sound expensive too me and the company has not much assets and we have not much money to pay him
3. Can we keep company a non-trading companyand allow the creditors we owe to take us to court and wind the company down.

We also have Personal gurantees for business loans and overdrafts with HSBC to the value of GBP 45K, they want it paid back now , do you think they would consider freezing interest and we repaying the debt to them over the next 7-8 years at a sum we can afford

any suggestions will be helpful

 

[lesliedocherty]

bloody hell, horribe situation to be in, been there before, but luckily i had no personal guarantee and we owed the bank 300k.

i can imagine the stress you are going through, chin up and youll get there.

 

[Officebird]

Good Luck with this. I'm afraid I'm no help in answering your questions, just wanted to wish you well.

 

[Tungstone]

1. what is the difference between administration and liqudation
2. Can we keep company a non-trading companyand allow the creditors we owe to take us to court and wind the company down.

We also have Personal gurantees for business loans and overdrafts with HSBC to the value of GBP 45K, they want it paid back now , do you think they would consider freezing interest and we repaying the debt to them over the next 7-8 years at a sum we can afford

any suggestions will be helpful

Administration is where an "administrator" takes over the running of your company, you relinquish control

Liquidation is where the IP liquidates........ie: shuts down the company and pays off the creditors

If you have issued personal guarantees, then they may go after your assets.

You will have to negotiate

 

[i.m.]

You definitely need to negotiate with the creditors. Directors' duties change when there is an approaching insolvency such that the interests of creditors become important - you can be personally liable if you continue to trade when you shouldn't. Having taken the correct step in approaching an IP you will also be vulnerable to criticism if you do not follow their advice. Only you will really know whether the business can be salvaged - if it can, then administration provides the opportunity. If it is over and out then a liquidator will be appointed, but that liquidator has a duty to realize assets for creditors and he may well come after you on the guarantees. Bear in mind, though, that he may not do so if he is not funded himself. But you should negotiate - creditors are much more willing to negotiate if you are engaged with them. If they are feeling that they have been left to rot, then their attitude hardens. A CVA may be another alternative.

Best

BR

 

[Shahkti]

Shells,

This is a tough situation and the only consolation is that it happens to a lot of good business people and isn't usually a personal failure. It's down to the details, but unfortunately luck and timing are often part of the details.

The quick answer comes down to whether you think it is possible to rescue the company if your debts could be diminished (administration), or whether you think it really is time to wind it up (liquidation). It involves more than optimism/pessimism, because in many businesses any slow down can lead to a loss of skills, customers, irreplacable stock, etc which can make rescue practically impossible. Rescue isn't another word for 'delaying the inevitable', either.

You know you have to act when you fail an insolvency test. Two tests are the ‘cash flow’ and the ‘balance sheet’ tests. Cash flow test applies if a company is unable to pay its debts as they fall due. Balance sheet test is if the value of the company’s assets is less than the amount of its liabilities. Sounds like you are failing the first one. Once you know you are failing these tests you have to take action or risk damage to your ability to be a company director in the future.

There are different types of Administation and Liquidation. As I say above, rescue potential is the key difference between them. In Liquidation, another difference is whether you bring it on yourself (voluntary) or it is brought on you (compulsory). You don't mention angry creditors with court orders, so I will assume you are in the voluntary group.

If you are a small company look at the Company Voluntary Arrangement (CVA). It's fairly new legislation (2003) and could be useful. Best thing is that it puts a moratorium on creditors trying to wind you up - it's for 28 days initially but can run for a further 2 months i.e. 3 months total. The aim is to get some breathing space so you can work out the best deal for creditors - at least better than liquidation or administration. You need shareholder approval and 75% by value of creditors to agree. BUT - if you are more concerned about "future debt" i.e. the cost of running company until revenue comes it is not obvious that this will help much.

There are two types of voluntary Liquidation - Members' Voluntary Liquidation and Creditors' Voluntary Liquidation. Receivership and liquidation means that the company has no future and all that is sought is the maximisation of the proceeds of the sale of its assets or business. You have to be able to pass the solvency test (and affadavit that) in order to consider the first one, so most times companies find themselves in CVL (I think it is >80% by frequency). CVL requires a resolution from the shareholders (members) and from the creditors. You hire an IP to manage it for you - the prices you quoted seem reasonable in my limited experience, which hopefully is a sign that the debts are small.

The pay-out procedures are fairly complex but here's a simple version:

- First ones to get paid are preferential creditors. This is often employees and they can get paid by the Redundancy Payments Office (RPO) using form RP1. This is capped at the statutory maximum. This is then taken out of the assets.

- Next up are the Floating Charge Holders (FCH) - in this case the Bank. If there isn't enough in the pot, the Bank will call in your personal guarantees (but can do so up to the maximum you committed, and that may be between two or more of you).

- Then there are the unsecured creditors. These days they use a formula to hold back a portion (the "prescribed part") for these but it will still probably only be pennies in the £.

There is a lot more I could add but enough already. The goverment website - url will contain "insolvency" and ".gov.uk has a good page titled "howtowindupyourown.htm".

Best of luck and keep smiling as best you can.

 

[Ian J]

The bank will probably negotiate with you but according to one of your earlier posts your husband is a Chartered Accountant and should therefore be better placed to answer any of your questions.

 

[nigelmarsh]

we would usually be on the side of the Liquidator , however you seem to of found the emotional side of me !!!!!

There could be many areas to jump through hoops to remove debt , maybe CVA , or possible launch a newco

you have choices , at time like this its often difficult to see direction to go , give me a pm , i can help .

regards
Nigel

 

[Shells]

Wo guys thanks for all the advice. It is a lot to take in but after looking at the many options available to us we have decided to take the CVL route. I haven't told you guys the best part and mainly why the business has been affected and that is I am losing my eye sight as well. I have a rare genetic disease which means I will eventually lose my sight completly unless surgery is succesful.

I built a very successful brand name in the Asian community. I was competing with big boys who have been trading for voer 20years plus. It's so heart breakign but I feel relieved in some sense but feel so full of regrets that we invested so much personally and we've lost it all!

The stress is enormous but I am can't wait to put this all behind us if we ever can. Best advice I can give anyone is avoid building up debts but then again I was looking at the long term!!

Nigel forgive me ignorance but what is pm?? lol.

I wish I discovered this forum before as it's a brilliant place to discuss things with other link minded people.

 

[nigelmarsh]

personal message (pm) , on a one to one we can advise better then talking in public on a forum .

glad to hear you have mad decisions and decided on the direction to go .

all the best