Ltd going down the drain

Discussion in 'Insolvency' started by OMGVape, Apr 23, 2020.

  1. OMGVape

    OMGVape UKBF Regular Free Member

    435 55
    I’ve been worried for weeks, and now can’t sleep, so here I am at 1am posting this. I’m sole director (two shareholders) of a Ltd company (been trading for 18 months) which will be insolvent unless a miracle happens soon. Business was just starting to ramp up when this virus happened.

    There is £20k in the bank, running out of stock, and a new order will cost in excess of £30k.

    VAT return due soon (£2k so far), previous Corp tax was minus. Rent on premises (£2000) due in July.

    £15k in bank is mainly from £10k corona business grant.

    Company owes me £20k+ from directors loan.

    Assuming the economy doesn’t have a miraculous recovery very soon......

    Is it reasonable to withdraw most of my directors loan during this uncertainty?

    Are there any possible implications for the other shareholder if it becomes insolvent?

    I’ve read the lease on business premises a dozen times and can’t see any mention of a personal guarantee on the rent (18 months still to run).

    Neither shareholder has ever taken a dividend.

    I’m also one of two directors of another Ltd which is doing very well and has its account with the same bank so I’m worried that insolvency of one Ltd will freeze the account of the other, as well as my personal account. (Accounts are linked through my name/address and online banking login)

    Any advice will be gratefully received.

    Now back to counting sheep....

    1, 2, 3, 4, 5.......
     
    Posted: Apr 23, 2020 By: OMGVape Member since: Jan 21, 2018
    #1
  2. Gavin Bates

    Gavin Bates UKBF Enthusiast Free Member

    664 133
    Hi

    I am sorry that like many others you are rightly concerned.

    You have an interesting situation because on paper you are currently not insolvent because your assets exceed your current liabilities (putting to one side the DLA).

    The main concern is that if you do pay back the DLA then the Company does then become insolvent. If the Company enters an insolvency process then clearly transactions between yourself and the Company are reviewed and are likely to overturned as a preference.

    In terms of your bank, it is now common to have your different business on one platform. If the bank isn't owed any money then they are unlikely to be bothered.

    I hope this helps.

    Regards

    Gavin
     
    Posted: Apr 23, 2020 By: Gavin Bates Member since: May 9, 2016
    #2
  3. JEREMY HAWKE

    JEREMY HAWKE UKBF Legend Full Member

    4,923 1,638
    Should the company become insolvent during this time The law covering trading while insolvent have been relaxed and should this business really be going to the wall because of this crisis
     
    Posted: Apr 23, 2020 By: JEREMY HAWKE Member since: Mar 4, 2008
    #3
  4. Mr D

    Mr D UKBF Legend Free Member

    21,996 2,586
    Not enough for a new order?

    Can you pivot the business to something slightly different that does not require such an order?
    Something that allows you to eventually trade to better conditions and ability to pull all director loan back out?
     
    Posted: Apr 23, 2020 By: Mr D Member since: Feb 12, 2017
    #4
  5. Gavin Bates

    Gavin Bates UKBF Enthusiast Free Member

    664 133
    Jeremy, whilst the wrongful trading laws have been suspended for 3 months from 1 March, the laws around preference, transactions at an undervalue and directors misfeasance have not and this is where the majority of claims will arise.
     
    Posted: Apr 23, 2020 By: Gavin Bates Member since: May 9, 2016
    #5
  6. The Byre

    The Byre UKBF Ace Free Member

    9,784 3,952
    One alternative is to just freeze the company. Make it clear to the landlord that no rent can be paid. Make it clear to the banks that you will not be trading until such time as the economy begins the 'thaw out' and put any staff on furlough.

    In other words, all you are doing is going to sleep (as a business!) and you can only come out of stasis when you can resume trading. Just make sure that there are no aliens in your stasis pod with you!

    If the landlord makes even the slightest fuss, move out. They will not be getting any new tenents any time soon and when/if they do, it will be at a far lower rent! i.e. you are their bird-in-the-hand!
     
    Posted: Apr 23, 2020 By: The Byre Member since: Aug 13, 2013
    #6
  7. JEREMY HAWKE

    JEREMY HAWKE UKBF Legend Full Member

    4,923 1,638
    I am aware of that but the Op may not be and while he can't scupper the business He should be given every chance
    I have already expressed my concerns that some of the experts on this site may be too eager to push some companies into a bankruptcy when they should not be going bust due to the situation
     
    Posted: Apr 23, 2020 By: JEREMY HAWKE Member since: Mar 4, 2008
    #7
  8. OMGVape

    OMGVape UKBF Regular Free Member

    435 55
    Thank you for the replies.

    @Gavin Bates it the insolvency process I'm mostly concerned about, and having the DLA sucked up.

    @Mr D No chance of a new order, it was a bespoke product which took 12 months (and a tidy sum) to produce and the factory have gone under! I've thought of other options but do I risk a new venture in these strange times?

    @The Byre Thats a good idea but if the landlord is happy for a freeze of rent, I'm sure he will want it eventually, probably at a time when I have even less in the bank. (I have no staff )
     
    Posted: Apr 23, 2020 By: OMGVape Member since: Jan 21, 2018
    #8
  9. The Byre

    The Byre UKBF Ace Free Member

    9,784 3,952
    If it was a bespoke product and the company making it has turned its face to the wall and handed in their dinner bowl, then I would be looking at the viability of using the stasis time to build it/them myself.

    In today's world of 3D printing and micro-sand-forging, there are very few basic and simpler products one cannot make oneself.

    Now is the time to be creating equity one way or another. Build machines that go ping, build a shed, build a warehouse, revamp the website, whatever!

    As for the landlord, I am one and I have left instructions that if tenants ask for a rent-holiday and they have a legitimate reason that can be proven (lost job, wife exploded, the dog died) they are to be given one within reason.

    I have persuaded my friends who are also landlords to take a similar attitude. One or two pulled long faces - until I pointed out that the economy is tanking and if they throw people out (which they cannot now anyway) they are very unlikely to get new ones unless they take a haircut.
     
    Posted: Apr 23, 2020 By: The Byre Member since: Aug 13, 2013
    #9
  10. Mr D

    Mr D UKBF Legend Free Member

    21,996 2,586
    Can you afford not to risk a new venture?

    If what you are doing isn't going to work long term then change a variable. Possibly several variables. Keeping on appears to not be viable as a solution.
    Experiment with say a couple hundred quid. Don't experiment initially with £20k.
     
    Posted: Apr 23, 2020 By: Mr D Member since: Feb 12, 2017
    #10
  11. OMGVape

    OMGVape UKBF Regular Free Member

    435 55
    I like the idea of stasis but where would I hide the cat ?
     
    Posted: Apr 23, 2020 By: OMGVape Member since: Jan 21, 2018
    #11
  12. atmosbob

    atmosbob UKBF Ace Free Member

    4,224 971
    If the factory was making a bespoke product for you I assume that the tools, patterns etc belong to you. Make sure you have them in your possession. There are many factories.
     
    Posted: Apr 23, 2020 By: atmosbob Member since: Oct 26, 2009
    #12
  13. The Byre

    The Byre UKBF Ace Free Member

    9,784 3,952
    There where the monkey hides his nuts.
     
    Posted: Apr 23, 2020 By: The Byre Member since: Aug 13, 2013
    #13
  14. atmosbob

    atmosbob UKBF Ace Free Member

    4,224 971
    Posted: Apr 23, 2020 By: atmosbob Member since: Oct 26, 2009
    #14
  15. alan1302

    alan1302 UKBF Ace Free Member

    1,398 258
    Posted: Apr 23, 2020 By: alan1302 Member since: Jun 2, 2018
    #15
  16. STDFR33

    STDFR33 UKBF Big Shot Free Member

    4,306 1,122
    Is there a personal guarantee on the rent?
     
    Posted: Apr 23, 2020 By: STDFR33 Member since: Aug 7, 2016
    #16
  17. OMGVape

    OMGVape UKBF Regular Free Member

    435 55
    I don’t think there is, I don’t recall signing one and I’ve read through the lease contract and I can’t find anything that stands out in the legal jargon.
     
    Posted: Apr 23, 2020 By: OMGVape Member since: Jan 21, 2018
    #17
  18. STDFR33

    STDFR33 UKBF Big Shot Free Member

    4,306 1,122
    Thought about shutting shop, sitting on the cash and seeing what happens? You’d obviously have to see what’s legally permitted with regards to any liabilities.

    To see the funds just vanish with no prospect of reopening would be gutting.
     
    Posted: Apr 23, 2020 By: STDFR33 Member since: Aug 7, 2016
    #18
  19. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,486 436
    I hope you have been able to get some sleep since your post.

    I agree you should try to 'suspend' the business for a while until a better picture becomes known.

    It's unlikely that creditors will begin insolvency proceedings against the Company for a while due to the current crisis and any such proceedings will be delayed in any event so you do not have to make any rush decisions.

    I agree with Gareth's comments about the DLA so you do need to take a little precaution with this.

    With a worst case scenario please note that insolvency doesn't have to be the end of the business - you can rescue it via a Phoenix or a Company Voluntary Arrangement ("CVA") could be considered.
     
    Posted: Apr 24, 2020 By: Lisa Thomas Member since: Apr 20, 2015
    #19
  20. OMGVape

    OMGVape UKBF Regular Free Member

    435 55
    Are you talking about the spongebob plan?

    I don't know if I could do that, I've read plenty of posts on here from people/directors who have stopped trading ages ago and haven't submitted accounts, vat returns etc. I've never seen further posts about the end result but I'd be constantly looking over my shoulder :-(

    Are you talking about the spongebob plan?
     
    Posted: Apr 24, 2020 By: OMGVape Member since: Jan 21, 2018
    #20