Liquidation with Debts and Minimal Assets

[dutton86]

Hi Guys,

I've been looking over the the internet and this forum regarding the best apporach to closing down my company and am looking for some advice if possible. The company has been trading for just over 4yrs and unfortunately it looks like I may run out of money in the next month or so. As mentioned in the title, there are several outstanding debts to consider:

1/ BBL = ~£10k remaining
2/ Funding Circle Loan w/ personal gurantee = £25k (I have a PG insurance policy that will cover 60% of this fortunately)
3/ Business CC = ~£2k (No PG)
4/ Directors Loan Account = Currently querying this with my accountant

From what I've read so far the best approach would be to follow the spongebob plan, but I don't know if this is still applicable in 2024?

Ideally I would like to withdraw all remaining funds from the business account (~£4k) before proceeding in order to pay my bills whilst I look to re-enter employment, I know however that this may be viewed negatively in the future should any investigation take place.

With regards to assets, I have a few bits of equipment that could potentially be worth in the region of £1-3k.

Thanks in advance for any advice.

 

[WaveJumper]

Welcome to the UKBF sorry to here of your current problems I am pretty sure those who reside here with much more knowledge on the subject will be a long through out the day to point you in the right direction.

Only advice I would offer at this point would be don't take the funds out the business at the moment as this would be favouring yourself over the other creditors (so one to watch out for) also from a lot of other threads you will see on the forum banks / Gov these days are contesting any company being wound up that owes BBL so be prepared for the long haul.

Pretty sure some sound advice will be coming for you, wishing you the best of luck

 

[Porky]

@dutton86 i would suggest you have chat with @Lisa Thomas or one of the other experienced IPs here.

As @WaveJumper just pointed out, be careful at this precise second. My view is if you draw the£4K out and it’s treated as a directors loan account they will come after you for it so ultimately you won’t see it anyhow.

If it were me I would probably use the £4K to pay for a professional IP service to help you as this has a number of moving parts and if you don’t know what you are doing you could end in a whole world of pain.

Remember: you can talk to who you like at this stage, once an IP appointed it’s theirs to control then so use this time to get your ducks in order is my view, starting with your accountants and getting to the bottom of what is Directors loan - ultimately you will need that clarified for sure.

Good luck

 

[ChrisCallaghan]

Hi @dutton86 ,

I'm sorry to hear where you find yourself with your company. Both @WaveJumper & @Porky have raised some excellent points.

From what I've read so far the best approach would be to follow the spongebob plan, but I don't know if this is still applicable in 2024?

It is still a perfectly workable option, however it does not take BBLs into account. If this plan is followed, the BBL lender and/or Department of Business of Trade will object indefinitely to strike off action, and are not coming forward to wind up companies (aka compulsory liquidation). I think it is unlikely that your other creditors will come forward to wind, so your company could potentially be in the limbo state of a suspended strike off for an unknown period of time.

Only advice I would offer at this point would be don't take the funds out the business at the moment as this would be favouring yourself over the other creditors

Absolutely spot on. If you were to follow the Spongebob plan, you will need to safeguard the assets in readiness to hand over to any future liquidator. You should not treat yourself in preference knowing the company is insolvent.

If it were me I would probably use the £4K to pay for a professional IP service to help you as this has a number of moving parts

This is one option, and what I would personally choose.

Remember: you can talk to who you like at this stage, once an IP appointed it’s theirs to control then so use this time to get your ducks in order is my view, starting with your accountants and getting to the bottom of what is Directors loan - ultimately you will need that clarified for sure.

This is fantastic advice. Myself (or any of the regular insolvency professionals here on UKBF) would be happy to offer you a free, confidential consultation, but it would be highly advisable for you to get an up-to-date figure for any director's loan account first.

I'd be happy to discuss the above in more detail over a phone call if you feel it would be helpful.

 

[dutton86]

Many thanks for the feedback so far guys, that's all really helpful. If you'd be happy to jump on a call Chris that would be amazing, I'll drop you an email and hopefully we can arrange a quick chat.

 

[ChrisCallaghan]

Many thanks for the feedback so far guys, that's all really helpful. If you'd be happy to jump on a call Chris that would be amazing, I'll drop you an email and hopefully we can arrange a quick chat.

Hi,

Absolutely. Drop me an email with your contact details and availability when you can - [email protected]

 

[japancool]

Deleted, apologies, misread.

 

[Elliot Green]

Hi Guys,

I've been looking over the the internet and this forum regarding the best apporach to closing down my company and am looking for some advice if possible. The company has been trading for just over 4yrs and unfortunately it looks like I may run out of money in the next month or so. As mentioned in the title, there are several outstanding debts to consider:

1/ BBL = ~£10k remaining
2/ Funding Circle Loan w/ personal gurantee = £25k (I have a PG insurance policy that will cover 60% of this fortunately)
3/ Business CC = ~£2k (No PG)
4/ Directors Loan Account = Currently querying this with my accountant

From what I've read so far the best approach would be to follow the spongebob plan, but I don't know if this is still applicable in 2024?

Ideally I would like to withdraw all remaining funds from the business account (~£4k) before proceeding in order to pay my bills whilst I look to re-enter employment, I know however that this may be viewed negatively in the future should any investigation take place.

With regards to assets, I have a few bits of equipment that could potentially be worth in the region of £1-3k.

Thanks in advance for any advice.

Failure to file account and confirmation statements at Companies House is a criminal offence, so any strike off approach reliant upon such a strategy is something to think about carefully and not recommended.

In terms of hoovering up the residual £4k. You might reflect upon how it is you can do this ie. it is because you control the company cheque book, unlike the other creditors who don't.

It is the inescapable duty of a director to act in the best interests of the company; not themselves personally.

An approach whereby a director hoovers up the last remaining funds in partial settlement of monies owing to them risks being in clear breach of Section 239 of the Insolvency Act 1986 (Preference).

When a company is insolvent a director cannot pick and choose who they pay.

 

[Gyumri]

When a company is insolvent a director cannot pick and choose who they pay.

And that also applies if the company is heading in that direction. I do not know what is the leading case which has formulated the tipping point at which the interests of creditors start to intrude into the decision-making process such that they should begin to take precedence.

 

[Elliot Green]

And that also applies if the company is heading in that direction. I do not know what is the leading case which has formulated the tipping point at which the interests of creditors start to intrude into the decision-making process such that they should begin to take precedence.

The leading case is Sequana (BTI 2014 LLC v Sequana SA & Ors [2022] UKSC 25) from the Supreme Court. It endorsed the position in West Mercia Safetywear Ltd v Dodd [1988] BCLC 250, by saying the following in the press release:

"Where the company is insolvent, or bordering on insolvency, but is not faced with an inevitable insolvent liquidation or administration, the directors should consider the interests of creditors, balancing them against the interests of shareholders where they may conflict. The greater the company’s financial difficulties, the more the directors should prioritise the interests of creditors …"

The Creditor Duty has been slightly further elaborated in a case Hunt v Singh [2023] EWHC 1784 (Ch) in which the liquidator appealed a decision in which the judge on appeal said:

"The extent to which directors should act with a view to protecting creditors’ interests is likely to vary significantly, for example, depending on what it is the directors are considering doing. For example, there is a world of difference between, on the one hand, (1) directors proposing to continue trading, notwithstanding the risks of making further losses and, on the other hand, (2) directors proposing to declare dividends of all available assets leaving nothing to pay the disputed liability in the event that it is a good one.

…

In my judgment, therefore, the judge – in deciding that the creditor duty was not engaged, essentially because the directors acted reasonably in taking and acting upon advice as to the merits of HMRC’s claim and as to what provision, if any, should be made in the Company’s accounts – applied the wrong test for determining whether the creditor duty arose. Had he applied the right test, then I consider that he should have held that the creditor duty had arisen at the latest in September 2005, and continued thereafter throughout the relevant period.

The second limb of Mr Hunt’s appeal relates to the judge’s conclusion that, had the creditor duty arisen, it would have made no difference. I can deal with this shortly. The judge, of course, did not have the benefit of the deliberations of the Supreme Court in Sequana on the content of the creditor duty. Albeit obiter, I consider that the nuanced approach there suggested ought to be followed. That requires consideration of a range of factors. In this case, the economic effect of the directors continuing the Scheme was materially the same as if salaries had been paid which gave rise to an arguable tax liability, but all remaining assets were routinely distributed by way of dividend to the shareholders, leaving nothing to pay that liability in the event that it was later established to exist. It is not sufficient, in my judgment, to conclude that there was no breach of duty on the basis simply that “there was repeated assessment of HMRC’s status”, which is the only reason given by the judge. The issue needs therefore to be reassessed in accordance with the Sequana test."

Disclaimer: This post is not legal advice and should not be relied upon as such. It is provided for information purposes only. You should consider therefore taking professional advice derived from instructions applicable to the specific facts of your case.​