My company is going to run out of funds imminently. I need to some advice

[Chris0207]

I'm looking for some assistance from people who know more about this than I do. My company is going to run out of money, and the company owes a small amount of debt. There is no money in the company to pay for liquidators or to continue paying the debts etc. There is around 7 thousand debt between a lease on a small shop and a lease on a coffee machine.

I’m a single father of a 9-year-old, and I'm worried about not being able to continue keeping a roof over our head if I have to continue servicing the company debt. Without these debt payments, i would be able to make enough to keep myself and my daughter going. I make baked products and sell them at markets. I can scale down production, move it to my home and make enough money to get by at least in the short term. I have discussed this with the local environmental health officer, and she is satisfied that I can do this without issue

I have never defaulted on personal or company debt, and I'm worried about what is going to happen. The debt is the name of the company only, and I am not a guarantor. I’ve been researching my options, and as far as I can see, my only option is to either let the company go silent, stop filing returns etc and hope the company eventually gets struck off or try the “SpongeBob” method

I’ve been holding on all year, servicing the company debt and scraping by. I have no money after doing this, other rent, food and bills, and the pressure of living without being able to properly provide for my daughter is making me physically ill. I just need to finally survive.

If anyone can offer some advice, I would be very grateful

 

[Ozzy]

Purely for the avoidance of doubt; can you confirm when you say 'company' you are referring to a Limited Company and that you are not a Sole Trader?

Also, have you signed any personal guarantees on the lease (or coffee machine, although I'd be surprised if a coffee machine lease required one)

 

[Chris0207]

Purely for the avoidance of doubt; can you confirm when you say 'company' you are referring to a Limited Company and that you are not a Sole Trader?

Also, have you signed any personal guarantees on the lease (or coffee machine, although I'd be surprised if a coffee machine lease required one)

Thank you for replying. It's a limited company and I'm not a guarantor or either the shop or the coffee machine. It's solely in the company name

 

[Lisa Thomas]

I'm looking for some assistance from people who know more about this than I do. My company is going to run out of money, and the company owes a small amount of debt. There is no money in the company to pay for liquidators or to continue paying the debts etc. There is around 7 thousand debt between a lease on a small shop and a lease on a coffee machine.

I’m a single father of a 9-year-old, and I'm worried about not being able to continue keeping a roof over our head if I have to continue servicing the company debt. Without these debt payments, i would be able to make enough to keep myself and my daughter going. I make baked products and sell them at markets. I can scale down production, move it to my home and make enough money to get by at least in the short term. I have discussed this with the local environmental health officer, and she is satisfied that I can do this without issue

I have never defaulted on personal or company debt, and I'm worried about what is going to happen. The debt is the name of the company only, and I am not a guarantor. I’ve been researching my options, and as far as I can see, my only option is to either let the company go silent, stop filing returns etc and hope the company eventually gets struck off or try the “SpongeBob” method

I’ve been holding on all year, servicing the company debt and scraping by. I have no money after doing this, other rent, food and bills, and the pressure of living without being able to properly provide for my daughter is making me physically ill. I just need to finally survive.

If anyone can offer some advice, I would be very grateful

Sorry to hear about your difficulties.

What assets does the company have - physical and non physical. i.e assets, bank balance, cash, debtors etc.

Have you been taking any drawings as a director and if so, how have those drawings been treated - i.e do you owe any overdrawn director loan account?

Thank you

 

[Chris0207]

Sorry to hear about your difficulties.

What assets does the company have - physical and non physical. i.e assets, bank balance, cash, debtors etc.

Have you been taking any drawings as a director and if so, how have those drawings been treated - i.e do you owe any overdrawn director loan account?

Thank you

Hi Lisa, thank you for replying

Physical assets, not much at all. There's a few stainless steel chef tables and other low value cake decorating equipment and there's an old chest freezer and fridge. Total value of assets can't be more than 300 - 500 pounds.

After I pay myself my salary this month there will be around 3k in company bank account but around 1k of that is owed to the bakery supply company who will be paid shortly after I take my salary

Debts - I owe 4.5 thousand on the shop lease before I can terminate it in August 2026 and the coffee machine has 1 year remaining or 3 thousand pounds so total debt around 7.5k

I'm certain the directors account is not overdrawn. I'm sure there is a small surplus in the director account. I haven't been drawing it down

Thank you again for replying

 

[Lisa Thomas]

It sounds like you might have just enough to liquidate the company through the court as that cost c£3,000.

However take care - you may have personally guaranteed the lease and the coffee machine contract so suggest you want to check that.

 

[Chris0207]

It sounds like you might have just enough to liquidate the company through the court as that cost c£3,000.

However take care - you may have personally guaranteed the lease and the coffee machine contract so suggest you want to check that.

Sorry, I should have been a bit clearer. After the bakery company has been paid and rent has been paid at the start of October there will about 1.5k left and the lease fee for th coffee machine will be due on the 15th October which take funds in the company account down to around £1200

 

[BubbaWY]

Sorry, I should have been a bit clearer. After the bakery company has been paid and rent has been paid at the start of October there will about 1.5k left and the lease fee for th coffee machine will be due on the 15th October which take funds in the company account down to around £1200

I assume you are still trading given you are still paying yourself a wage, paying the bakery company and have £1,500 in the bank. Has something happened which means you cant trade through your current difficulties or is it just a case of there being a decline in trade?

 

[Lisa Thomas]

Sorry, I should have been a bit clearer. After the bakery company has been paid and rent has been paid at the start of October there will about 1.5k left and the lease fee for th coffee machine will be due on the 15th October which take funds in the company account down to around £1200

Instead of paying the creditors, you can use the funds to cover the costs of liquidation.

 

[Paul Kelly ICHYB]

@Chris0207 Sorry to hear of your predicament and reaching out for help was the right thing to do (sadly, too many do not!).

You are getting good advice on closing your business but I am intrigued as to why you are not asking how to increase sales and profitability to save your business?

I am sure that as things appear to be falling down around you and it doesn't make you feel good, but if you could turn that around to make money, maybe it would give you the boost you probably deserve!

Where are you based?

 

[Chris0207]

@Chris0207 Sorry to hear of your predicament and reaching out for help was the right thing to do (sadly, too many do not!).

You are getting good advice on closing your business but I am intrigued as to why you are not asking how to increase sales and profitability to save your business?

I am sure that as things appear to be falling down around you and it doesn't make you feel good, but if you could turn that around to make money, maybe it would give you the boost you probably deserve!

Where are you based?

Thank you for the response,

I trade at markets and send others out with my product as well. When winter comes there are many cancellations because of weather and January is a complete shutdown, which seriously disrupt cashflow. I knew this was coming so I started supplying a few local shops to help put some cash away to get me through the winter but 2 of the shops i supplied, owned by the same person, is refusing to pay what he's owes (about 2k) I extended credit to him because I thought he was a good person but I've obviously miss judged his character. This has left me on the bring of running out of cash. I wish I could increase business but I can't because I'm sole guardian for my daughter so I can only work weekends and even that is only because of assistance from friends and family. What is going to happen to me if I stop paying? I need to be able to survive and keep a roof over me and my daughter and the only way I can see this happening is if I scaled everything back, stopped paying for h creditors and worked from home. Christmas is coming and I can't see how I'm going to give my daughter a nice Christmas. I've never felt stress and anxiety like this

 

[Chris0207]

I assume you are still trading given you are still paying yourself a wage, paying the bakery company and have £1,500 in the bank. Has something happened which means you cant trade through your current difficulties or is it just a case of there being a decline in trade?

Business has decreased whilst costs have increased. A couple of shops I supplied have let me down with money owed too. I wish I could trade my way out but I'm the sole guardian for my daughter which means I'm restricted to only being able to work weekends.

I don't know what I'm going to do.

 

[Paul Kelly ICHYB]

The first thing to do is get the money owed. Use basic debt chasing procedure/letters:

1. Speak to the debtor and tell them the basic truth - pay or to prevent you closing, you will go legal
2. Send letter stating how much you are owed from when (saying how many days late would be handy) and highlight failure to pay in 7/14 days will lead to further action
3. After said days, send 'letter before action' which formally states that failure to pay in x days will lead to cour action to recover funds
4. If they still haven't paid, after a final call, go to small claims court/moneyclaimsonline/

Then, increase your business - local markets, pop up, social media, home delivery service, etc

Speak to your local council and see if they are running events you can attend. FInd out how to get onto farmers' markets lists to become a regular attendee.

You can push your way through this.

Business has decreased whilst costs have increased

Increase your costs.....

 

[ctrlbrk]

2 of the shops i supplied, owned by the same person, is refusing to pay what he's owes (about 2k)

I would second what Paul Kelly said about getting the money owed to you.

2k is about 1/3 of the total debt you're concerned about - in relative terms it's quite significant.

 

[japancool]

What is going to happen to me if I stop paying?

To you, not a lot. You'll be bombarded with emails, letters and calls, but they can't take any action against you personally, since you are not a guarantor, just your business. Just be very confident that there are no clauses in your contracts that means the liability reverts to you in the event of non-payment, especially on your lease.

 

[UK Contractor Accountant]

which means I'm restricted to only being able to work weekends.

at 9 years old isn't your daughter at school most of the day?

 

[jimbof]

the coffee machine has 1 year remaining or 3 thousand pounds so total debt around 7.5k

I'm sure you've probably worked this out already, but if you do go down the premises route again, for heaven's sake don't lease / rent another coffee machine. Perfectly good machines can be had used for the equivalent of a few months' payments, if you're worried about breakdowns, buy two. The whole coffee machine rental thing is a massive racket; it sounds like yours is costing you not far off what your premises rent is, which when you think about it, is ludicrous...

 

[Daybooks]

Instead of paying the creditors, you can use the funds to cover the costs of liquidation.

Do you mean line the pockets of the liquidators at the expense of the genuine creditors?

 

[Chris Ashdown]

Do you mean line the pockets of the liquidators at the expense of the genuine creditors?

No to totally relax after their visit and stop all the worry of fighting to win a impossible war. and Years of waiting for the company to signed off. The next day you can start again refreshed

 

[DWS]

No to totally relax after their visit and stop all the worry of fighting to win an impossible war. and Years of waiting for the company to signed off. The next day you can start again refreshed

I would still rather try and come to an agreement with the creditors and then pay £50 to have the Company dissolved rather than pay circa £3k and still might have to hang around for years!

 

[Chris Ashdown]

You appoint your ISP and that's it for you, the ISP takes over and your involvement is finished, but do check ISP's some are just out to get as much money out of you whilst the good ones give you a fixed price and that's it Never, heard a bad word about the ones who regularly post on this forum

 

[Daybooks]

No to totally relax after their visit and stop all the worry of fighting to win a impossible war. and Years of waiting for the company to signed off. The next day you can start again refreshed

This justification obviously does not change the outcome but appears to prioritise the benefit accruing to directors over creditors.

As I understand ‘creditor duty’ applies when insolvency is more than ‘just a risk.’

Circumspection seems the order of the day.

 

[Lisa Thomas]

Do you mean line the pockets of the liquidators at the expense of the genuine creditors?

Yes. Although in this case I am referring to the Official Receiver liquidator, rather than a private IP.

Figures are small in this case, but in general Directors often use company funds to keep paying the creditors, but eventually they have run out of fund and can no longer afford liquidation, leaving them in limbo which can often cause many more issues, especially when there are employees involved owed money.

 

[Daybooks]

Yes. Although in this case I am referring to the Official Receiver liquidator, rather than a private IP.

Figures are small in this case, but in general Directors often use company funds to keep paying the creditors, but eventually they have run out of fund and can no longer afford liquidation, leaving them in limbo which can often cause many more issues, especially when there are employees involved owed money.

From the creditors viewpoint is there a difference? It still seems funds that could have been used to settle their bill is being used to pay another 'creditor'! Am sure it is never simple. Would your view change if the liquidator fees were not paid preferentially over unsecured creditors?

 

[Lisa Thomas]

From the creditors viewpoint is there a difference? It still seems funds that could have been used to settle their bill is being used to pay another 'creditor'! Am sure it is never simple. Would your view change if the liquidator fees were not paid preferentially over unsecured creditors?

As I said - in this case the figures are small.

If the director uses the £3k to pay towards some of the company's debt, there will still be debt remaining so it doesn't solve the Director's problem of insolvency.

OP's options are to use the funds to pay for a compulsory liquidation, or to pay some of the debt and then look to try and dissolve the company.

They appear to be someone who is anxious about the whole situation so the potential to leave the company in limbo and trying to get it dissolved, with the (very small) risk of a potential investigation by the insolvency services further down the line might not be the preferred route.

I'm not sure what you mean about if the costs were not deemed a priority/necessary expense. If OP doesn't pay the OR's costs, they won't be able to liquidate unless they pay for it out of their own pocket, which they are not obliged to do.

 

[Daybooks]

As I said - in this case the figures are small.

If the director uses the £3k to pay towards some of the company's debt, there will still be debt remaining so it doesn't solve the Director's problem of insolvency.

OP's options are to use the funds to pay for a compulsory liquidation, or to pay some of the debt and then look to try and dissolve the company.

They appear to be someone who is anxious about the whole situation so the potential to leave the company in limbo and trying to get it dissolved, with the (very small) risk of a potential investigation by the insolvency services further down the line might not be the preferred route.

I'm not sure what you mean about if the costs were not deemed a priority/necessary expense. If OP doesn't pay the OR's costs, they won't be able to liquidate unless they pay for it out of their own pocket, which they are not obliged to do.

I appreciate it is always a delicate matter. The scenario being played out appeared to me (whether the case or not) that a genuine creditor may get a decent percentage of his £3k paid out - but by going through the liquidation process gets nothing.

I did feel an explanation offered for going through the liquidation process serves a director’ interest not the creditor. I totally understand but perhaps if liquidator’s fees ranked equally with unsecured creditors there might just be a sense of fairness.

 

[Lisa Thomas]

Yes, unfortunately that can often be the case.

Sometimes it suits the creditors, because there will be someone in office who can then investigate, and pursue and monies or claims owed by the directors.

The Directors have a duty to mitigate the position too.

If Liquidators fees ranked with the unsecured creditors we would never get paid. The Redundancy Payments Service, and HMRC are preferential so get first dibs.

Personally, I think Directors should have to pay a deposit to cover a liquidation base cost when they set up a limited company...

 

[Daybooks]

Personally, I think Directors should have to pay a deposit to cover a liquidation base cost when they set up a limited company...

I was thinking the same; or some form of mandatory insurance. The deposit would be more enforceable - but somehow cannot see it happening!

 

[Lisa Thomas]

Me neither!

 

[ThatDevAaron]

Personally, I think Directors should have to pay a deposit to cover a liquidation base cost when they set up a limited company...

damn she ain't got a heart </3

 

[Ozzy]

Personally, I think Directors should have to pay a deposit to cover a liquidation base cost when they set up a limited company.

This could in theory be brought in if the cost of incorporation was increased to a grand or so then a chunk of that money could be placed in 'trust' (for want of a better word) to fund insolvencies.
Paying a couple of grand to setup a company should still not be a deterant for setting up a company; might also encourage some folks to have realistic budgets in place for their new start business.

 

[Lisa Thomas]

This could in theory be brought in if the cost of incorporation was increased to a grand or so then a chunk of that money could be placed in 'trust' (for want of a better word) to fund insolvencies.
Paying a couple of grand to setup a company should still not be a deterant for setting up a company; might also encourage some folks to have realistic budgets in place for their new start business.

Exactly.

It might also stop people who have zero experience of running a business from setting up a limited company, becoming directors, and racking up thousands of pounds of debt...

FYI the base cost of a compulsory court liquidation is currently £3k so not sure £1k is going to go far enough...

 

[Ozzy]

FYI the base cost of a compulsory court liquidation is currently £3k so not sure £1k is going to go far enough...

Not every company will fail and require insolvency though

 

[Paul Kelly ICHYB]

The UK has, probably, the easiest approach to starting a business in the world.

This has its pro's & con's.

The main pro is that it makes the path to formalising entrepreneurship easy. The down side is anyone can do it and, in reality, many shouldn't.

If you put the price of registering a business up to, say, £99, a portion of that could go into a fund - remember, over 800k (formal) businesses are started every year. An increase in costs might bring it down to 500k, but £20 of the fee in a fund would generate £10m, which would be a small contribution to the admin costs of closure.

But why should I pay for someone else's failure....?

I also believe that all businesses should register for VAT at a far lower rate, even £0. This could be another barrier to entry.

 

[DontAsk]

Not every company will fail and require insolvency though

Once there's a pool of money like this to be tapped, insolvency will mysteriously get way more expensive.

 

[Lisa Thomas]

Not every company will fail and require insolvency though

Good point, but if it's a deposit specifically for insolvency then... Could potentially also be used for a solvent MVL exit, if the company is successful...

 

[Lisa Thomas]

Once there's a pool of money like this to be tapped, insolvency will mysteriously get way more expensive.

Why? The deposit will cover the compulsory official receiver & court fees, not a private IP.

 

[DontAsk]

Why? The deposit will cover the compulsory official receiver & court fees, not a private IP.

Ah, OK.

 

[Daybooks]

Exactly.

It might also stop people who have zero experience of running a business from setting up a limited company, becoming directors, and racking up thousands of pounds of debt...

FYI the base cost of a compulsory court liquidation is currently £3k so not sure £1k is going to go far enough...

How do we make it happen?

 

[Daybooks]

Not every company will fail and require insolvency though

When they finally dissolve they can distribute the funds back to the shareholders. As with the share capital and any remaining reserves.