Liqudation

[Mr Value]

Here’s the final post ready to copy:





Can I replace my daughter as director to protect her, and can a staff member take over to save the company?





Hi all, hoping for some advice on a difficult situation.





I have a company where my daughter is the sole director. Unfortunately, the company has fallen into difficulty. A previous co-director left and owed the company money, and due to my own health issues (I suffered from depression for several years), I was unable to provide the guidance she needed.





The company has faced a perfect storm of problems — we lost a major contract, the industry has been in a general downturn, and an attempt to expand the business cost more than expected. As a result, turnover has roughly halved over the past year. The company now faces a significant tax bill, a winding-up order has been filed, and the bank has closed the account.





The operating company has virtually no assets of its own — only some stationery and two old computers. All assets are held by the holding company, which leases them to the operating company. Over the last six months, the holding company has also taken on some of the operating company’s costs, including fuel and maintenance of company vehicles. This is the reason the holding company has accumulated a tax bill of approximately £120,000 — it was effectively subsidising the operating company to keep it afloat. The holding company has no other debt.





The holding company is also owed money — invoices have not been paid by the operating company, and there are outstanding insurance claims being pursued, including a loss of earnings claim. We would like to know whether the holding company can continue to pursue these insurance claims and recover that money even if the operating company goes into liquidation, as the holding company is legitimately owed those funds.





The night before the bank closed the account, the holding company transferred £30,000 to the operating company specifically to cover staff wages.





I have several questions:





1. Can I replace my daughter as director and take over that role myself, so that she is not personally exposed to any legal or financial consequences?


2. One of our staff members believes the business can still be turned around. Could he become director and take over the company to save it from liquidation?


3. Does the £30,000 transfer from the holding company to cover wages demonstrate good faith, and could it be used negatively against us — or does it show we were trying to do the right thing?


4. Can the holding company recover that £30,000, given the operating company’s account has now been closed?


5. The company has outstanding invoices billed monthly and not yet fully completed. Do these need to go to the liquidators, or can they be redirected to the holding company?


6. What are my options regarding the liquidation process itself? Is it possible to engage with the HMRC-appointed liquidators directly, or could I pursue a voluntary liquidation myself?


7. Are the holding company’s assets protected from the winding-up order, given that the operating company leased everything from the holding company and has no significant assets of its own?


8. Can the holding company continue to pursue its insurance claims and loss of earnings, even if the operating company is liquidated? The holding company is legitimately owed this money independently of the operating company’s situation.





Any advice would be greatly appreciated.

 

[Scalloway]

Replacing your daughter as director will not protect her from any consequences for things that happened before she resigned.

a winding-up order has been filed,

I would just walk away. Don't throw good money after bad.

 

[Lisa Thomas]

1. Can I replace my daughter as director and take over that role myself, so that she is not personally exposed to any legal or financial consequences?

You can replace her but it won't stop her being investigated (and potentially pursued) for any miscondut committed on her watch.

2. One of our staff members believes the business can still be turned around. Could he become director and take over the company to save it from liquidation?

It's probably too late. Unless the debt to the winding up creditor can be satisfied in full, or an agreement reached to their satisfaction then the liquidation will go ahead.

The only alternative would be if Administration is viable but this will need to be funded and regardless I suspect in these circumstances it won't be viable.

3. Does the £30,000 transfer from the holding company to cover wages demonstrate good faith, and could it be used negatively against us — or does it show we were trying to do the right thing?

It helps bolster an arguemnt that the directors were trying to keep the company afloat/plug the gap.

It could cause the directors of the holding company problems if that company is/becomes insolvent.

4. Can the holding company recover that £30,000, given the operating company’s account has now been closed?

I'm not being sarcastic here - recover it from what?

No. I assume it's an unsecured debt. Sounds like there are little assets available (unless there is a recovery from the ex directors assumed overdrawn DLA. That will first go in costs and expenses of the liquidation, then the preferential and secured creditors would get paid in priority to then unsecured creditors. Then all of the unsecured creditors would equally share anything that's left.

5. The company has outstanding invoices billed monthly and not yet fully completed. Do these need to go to the liquidators, or can they be redirected to the holding company?

The liquidators have a duty to collect in the company's debtors.

They do not belong to the holding company and taking them will likely be pursued by the liquidators as an illegal preference or a transaction at undervalue.

The Directors can also be pursued.

6. What are my options regarding the liquidation process itself? Is it possible to engage with the HMRC-appointed liquidators directly, or could I pursue a voluntary liquidation myself?

Depending on timescales the company's directors can appoint an insolvency practitioner to voluntary liquidate the company via a CVL instead of a court winding up.

Happy to give advice if required.

7. Are the holding company’s assets protected from the winding-up order, given that the operating company leased everything from the holding company and has no significant assets of its own?

As long as it can prove it owns those assets and they were simply rented by subsidiary co.

8. Can the holding company continue to pursue its insurance claims and loss of earnings, even if the operating company is liquidated? The holding company is legitimately owed this money independently of the operating company’s situation.

Which company has submitted the claim? If holding company then they are free to continue to battle it out with the insurance company.

Any advice would be greatly appreciated.

 

[Frank the Insurance guy]

8. Can the holding company continue to pursue its insurance claims and loss of earnings, even if the operating company is liquidated? The holding company is legitimately owed this money independently of the operating company’s situation.

Key here is who is the Policyholder on the insurance policy. For a set up with a holding company and operating company, I would expect both companies to be joint policyholders.

If the policy was only in the operating company name - the holding co has little prospects of success in pursuing the claim!

However, you say the claim is for loss of earnings - I assume this is a business interruption claim where an incident occurred (loss,damage, fire etc) that resulted in the business losing orders/revenue etc.. This may complicate matters if the trading company is no longer actively trading.

Ideally you need to speak to an insurance broker or claims specialist as too many variables to provide specific advice.

 

[Newchodge]

Here’s the final post ready to copy:





Can I replace my daughter as director to protect her, and can a staff member take over to save the company?





Hi all, hoping for some advice on a difficult situation.





I have a company where my daughter is the sole director. Unfortunately, the company has fallen into difficulty. A previous co-director left and owed the company money, and due to my own health issues (I suffered from depression for several years), I was unable to provide the guidance she needed.





The company has faced a perfect storm of problems — we lost a major contract, the industry has been in a general downturn, and an attempt to expand the business cost more than expected. As a result, turnover has roughly halved over the past year. The company now faces a significant tax bill, a winding-up order has been filed, and the bank has closed the account.





The operating company has virtually no assets of its own — only some stationery and two old computers. All assets are held by the holding company, which leases them to the operating company. Over the last six months, the holding company has also taken on some of the operating company’s costs, including fuel and maintenance of company vehicles. This is the reason the holding company has accumulated a tax bill of approximately £120,000 — it was effectively subsidising the operating company to keep it afloat. The holding company has no other debt.





The holding company is also owed money — invoices have not been paid by the operating company, and there are outstanding insurance claims being pursued, including a loss of earnings claim. We would like to know whether the holding company can continue to pursue these insurance claims and recover that money even if the operating company goes into liquidation, as the holding company is legitimately owed those funds.





The night before the bank closed the account, the holding company transferred £30,000 to the operating company specifically to cover staff wages.





I have several questions:





1. Can I replace my daughter as director and take over that role myself, so that she is not personally exposed to any legal or financial consequences?


2. One of our staff members believes the business can still be turned around. Could he become director and take over the company to save it from liquidation?


3. Does the £30,000 transfer from the holding company to cover wages demonstrate good faith, and could it be used negatively against us — or does it show we were trying to do the right thing?


4. Can the holding company recover that £30,000, given the operating company’s account has now been closed?


5. The company has outstanding invoices billed monthly and not yet fully completed. Do these need to go to the liquidators, or can they be redirected to the holding company?


6. What are my options regarding the liquidation process itself? Is it possible to engage with the HMRC-appointed liquidators directly, or could I pursue a voluntary liquidation myself?


7. Are the holding company’s assets protected from the winding-up order, given that the operating company leased everything from the holding company and has no significant assets of its own?


8. Can the holding company continue to pursue its insurance claims and loss of earnings, even if the operating company is liquidated? The holding company is legitimately owed this money independently of the operating company’s situation.





Any advice would be greatly appreciated.

Do you have any status with regard to either company? If not, then it is nothing to do with you.

 

[DontAsk]

Do you have any status with regard to either company? If not, then it is nothing to do with you.

That's what I was wondering. Who are the shareholders?

 

[MikeJ]

£30k in transfers, £120k tax bill, and you're asking on a forum? Get some proper, paid for advice.

 

[UK Contractor Accountant]

i would imagine the holding co invoices owed by the trading co should have been classified as bad debts in the holding co accounts thereby reducing its tax bill!

If the trading co is profitable then the only way out of this mess is to "phoenix" the trade (via a liquidator) to the holding co or to a newly formed company.

 

[Lisa Thomas]

That's what I was wondering. Who are the shareholders?

OP is asking quasi on behalf of his daughter.

 

[Lisa Thomas]

£30k in transfers, £120k tax bill, and you're asking on a forum? Get some proper, paid for advice.

My initial advice is free ;-)

 

[Daybooks]

You can replace her but it won't stop her being investigated (and potentially pursued) for any miscondut committed on her watch.


It's probably too late. Unless the debt to the winding up creditor can be satisfied in full, or an agreement reached to their satisfaction then the liquidation will go ahead.

The only alternative would be if Administration is viable but this will need to be funded and regardless I suspect in these circumstances it won't be viable.



It helps bolster an arguemnt that the directors were trying to keep the company afloat/plug the gap.

It could cause the directors of the holding company problems if that company is/becomes insolvent.



I'm not being sarcastic here - recover it from what?

No. I assume it's an unsecured debt. Sounds like there are little assets available (unless there is a recovery from the ex directors assumed overdrawn DLA. That will first go in costs and expenses of the liquidation, then the preferential and secured creditors would get paid in priority to then unsecured creditors. Then all of the unsecured creditors would equally share anything that's left.



The liquidators have a duty to collect in the company's debtors.

They do not belong to the holding company and taking them will likely be pursued by the liquidators as an illegal preference or a transaction at undervalue.

The Directors can also be pursued.



Depending on timescales the company's directors can appoint an insolvency practitioner to voluntary liquidate the company via a CVL instead of a court winding up.

Happy to give advice if required.



As long as it can prove it owns those assets and they were simply rented by subsidiary co.



Which company has submitted the claim? If holding company then they are free to continue to battle it out with the insurance company.

A great example as to how to answer these questions. Bet you would like to understand the £120,000 tax bill a bit better?

 

[Newchodge]

OP is asking quasi on behalf of his daughter.

Well, no, The OP is proposing to do things themselves. So what is their standing?

 

[Lisa Thomas]

Well, no, The OP is proposing to do things themselves. So what is their standing?

They have asked if they cane be appointed as Director to replace their daughter.

So OP appears to be trying to get an understanding of the ramifications if they were to do that.

Regardless, hopefully my answers to the questions are useful for other directors in this type of predicament.

 

[DontAsk]

OP is asking quasi on behalf of his daughter.

Yes, but he only states that shes is a director.

There are employees.

Who actually owns the business? The father may have shares, we just don't know.

 

[Newchodge]

Yes, but he only states that shes is a director.

There are employees.

Who actually owns the business? The father may have shares, we just don't know.

And it is the first question that needs answering before any of the others.

 

[UK Contractor Accountant]

Who actually owns the business? The father may have shares, we just don't know.

the Holding co owns the shares!

the father owns the holding so is the controlling party ( IMO).