personal guarantee / liquidation

[wshouse]

Hi All,

we have recently ceased trading with view to liquidation, with 1.4million owed in , we owe 90k to bank and have personal guarantees, the bank are calling in their debt and dont appear to want to wait for funds to come in from liquidation, anyone had experienc of this? how can we stall? can we tell them to wait? can we strike a repayment deal? bank is hsbc

 

[Dave Shaw]

Depends on the situation and how the liquidation is dealt with. It is not unusual for banks to immediately call on the guarantee but normally there is a negotiation to be had. PM me if you want a chat.

 

[Method Man]

You'll need an estimated outcome statement from your proposed Insolvency Practitioner to show what the bank could reasonably expect to receive from realisations in the liquidation and also a personal statement of assets and liabilities to show the bank how much you have (or haven't) got to meet the obligation under the PG.

More importantly you'll need a decent hard-nosed lawyer who'll fight your corner with them. Otherwise you might get a right good mullering.

Your solicitor of choice ought to be able to advise you on how much info on your personal finances to disclose to the bank and when to disclose it.

It's a game of high stakes chess but very winnable with the right people behind you and with the right information.

Game on!

 

[Chris Ashdown]

You are going into liquidation and owe the bank £90.000 yet have invoices out for £1,400,000 leaving £1,310,000 what amount from this sum is owed to other debters

From the banks point of view they may think companies owe your company £1,400,000 but your company owes £1,400,000 plus £xxx leaving nothing for them

 

[wshouse]

Depends on the situation and how the liquidation is dealt with. It is not unusual for banks to immediately call on the guarantee but normally there is a negotiation to be had. PM me if you want a chat.

Thanks David, prior to IP's taking over end of March we are working on getting in money to feed straight into bank account whilst it is still active such as sale of assetts, small quick accounts, leaving the bulk of the money to be collected after IP take control of which we are chasing now, hopeful creditors will see something of a return but after reading threads are not confident of much more than 15% return on 1.4 mill

 

[Ian J]

hopeful creditors will see something of a return but after reading threads are not confident of much more than 15% return on 1.4 mill

I don't know what threads you have been reading but is there any reason why the majority of the £1.4 million should not be collectable.

If you have taken the decision to liquidate I guess that you have already ceased trading so you have a couple of weeks to collect in as much as possible before the IP takes over. You will obviously pay the proceeds of collections into the bank account and equally obviously you won't be paying anything out so there won't be any fraudulent preference.

Surely you can collect in £90,000 out of £1.4m in two weeks

 

[Tom McClelland]

If the £1.4million is genuine debt and even if you have poorish debtor days of eg 60, then with some moderate pressure on the debtors (basically just working the 30-60 day column of the aged debtor ledger on the phone, which the guarantors are highly motivated to do) you should get about £30,000/working day in. Let's say the debtor days are a terrible 90; you should *still* be able to get £20,000/day in perfectly easily.

 

[David Griffiths]

You will obviously pay the proceeds of collections into the bank account and equally obviously you won't be paying anything out so there won't be any fraudulent preference.

That is a fraudulent preference! Reducing the bank balance to the benefit of the directors, who won't have to pay out on the guarantee, at the expense of ordinary creditors who lose out. Once the decision is made to liquidate all money received should be paid into a separate account.

 

[Spongebob]

Once the decision is made to liquidate all money received should be paid into a separate account.

How?

No bank is going to open a new account for an insolvent company; therefore paying any monies collected prior to a liquidator being appointed into the company bank account is perfectly defensible. What else are you supposed to do with cheques arriving in the post? What about direct transfers?

While a technical beach of regulations, chances are very much that the directors will get away with it. The potential sanctions are merely that the directors will be returned to same position that they were in to start with.

In these situations, the decision should be based on a risk/reward calculation. In this particular case, it's got to be worth a punt!

 

[wshouse]

I think the key thing here is we have ceased trading liquidation for us starts when ips take over in march 27 th, i have already agreed with valuer who works for ips that sale of company assests vehicles 40k will be paid into existing account which will be gobbled up by bank

 

[Chris Ashdown]

I would imagine that from the date you ceased trading the IP will consider the bank balance that day as the cut of point and any money received after that to be used to pay the ip and creditors, but with life as it is, i could be totaly wrong

 

[David Griffiths]

How?

No bank is going to open a new account for an insolvent company; therefore paying any monies collected prior to a liquidator being appointed into the company bank account is perfectly defensible. What else are you supposed to do with cheques arriving in the post? What about direct transfers?

While a technical beach of regulations, chances are very much that the directors will get away with it. The potential sanctions are merely that the directors will be returned to same position that they were in to start with.

In these situations, the decision should be based on a risk/reward calculation. In this particular case, it's got to be worth a punt!

I don't share your optimism that the directors will get away with it. The incoming IP will look at these transactions and may well choose to pursue the matter. The OP needs to be at least aware of the possibility, so that a claim doesn't come completely out of the blue.

They probably won't be any worse off by paying the money into the bank and reducing the balance. but they might not be as well off as they think. Certainly agree that it's worth a punt!

It will be interesting to hear Alan Price's view on this, and whether an incoming IP would look at this as a matter of course.

 

[businessfunding]

I think the key thing here is we have ceased trading liquidation for us starts when ips take over in march 27 th, i have already agreed with valuer who works for ips that sale of company assests vehicles 40k will be paid into existing account which will be gobbled up by bank

It's a good start, but surely the reak key point remains collecion on the book?

Is there a specific reason why you are setting your collections figure low? Pre-invoicing/ mom- performance etc

An IP will charge a fortune to collect and will probably have less impact than you doing it yourself. This must be a good use of your time - and possibly a PR exercise to retain customers?

 

[Tom McClelland]

I agree. I can see no downside to pursuing debtor ledger collection as actively as possible, assuming that collecting the debts is actually realistic. In fact it is difficult to imagine a better use of the time of the guarantors over the next few weeks. If you're not selling and you actively collect your debts AND the debts are real then you ought to be able to pull that £1.4m down a lot to the considerable benefit of the creditors and guarantors. With the agreement of the ip you could presumably even continue to do that after the ip is installed.

Or is there a lot of dodgy/bad debt sitting on the ledger? What is so difficult about collecting it?

 

[Method Man]

Just get the money in.

It's better to argue over cash collected than merely a right to collect the cash in months after insolvency when everyone is claiming set offs etc because warranties and the like can't be honoured and the lawyers are charging £75 for every letter they send.

There are dangers of potential preference if you pay the debtors direct into an overdrawn current account or an account subject to set off against a loan but if you're that worried about that aspect then just ask the IP to open a client account for your company/case and pay the money into that.

 

[Tom McClelland]

I agree. I can see no downside to pursuing debtor ledger collection as actively as possible, assuming that collecting the debts is actually realistic. In fact it is difficult to imagine a better use of the time of the guarantors over the next few weeks. If you're not selling and you actively collect your debts AND the debts are real then you ought to be able to pull that £1.4m down a lot to the considerable benefit of the creditors and guarantors. With the agreement of the ip you could presumably even continue to do that after the ip is installed.

Or is there a lot of dodgy/bad debt sitting on the ledger? What is so difficult about collecting it?

I'll just modify that thought a little. If the debt relates to future service agreements (for example up-front maintenance or support contracts) then collecting it in the knowledge that the service won't be honoured is probably a very poor idea indeed.

 

[wshouse]

If the £1.4million is genuine debt and even if you have poorish debtor days of eg 60, then with some moderate pressure on the debtors (basically just working the 30-60 day column of the aged debtor ledger on the phone, which the guarantors are highly motivated to do) you should get about £30,000/working day in. Let's say the debtor days are a terrible 90; you should *still* be able to get £20,000/day in perfectly easily.

We are unfortunetly in construction sector and every single excuse thinkable is being used, on contracts were we hadnt finished they are adding increased uplift in costs for new contractors, holding back money on top of retention incase of defects, holding costs on other jobs unaffected by the action etc etc
Any advice on dealing with these excuses?

 

[Tom McClelland]

We are unfortunetly in construction sector and every single excuse thinkable is being used, on contracts were we hadnt finished they are adding increased uplift in costs for new contractors, holding back money on top of retention incase of defects, holding costs on other jobs unaffected by the action etc etc
Any advice on dealing with these excuses?

I sympathise, and in retrospect my comments about the ease of getting the money in were too dismissive. I'm used to credit control in commercial supply rather than construction.

1. If they're suffering additional costs because in effect you've walked out of an ongoing job that you were contracted to do then it is reasonable and to be expected that they'll be very slow paying you (if ever)
2. Holding back money for completed work on top of retention sounds unreasonable. Retention is there for defects (isn't it?) so there is no need to hold back additional money for defects. As presumably you won't be around to solve snagging problems I guess you can wave goodbye to the retentions right now on those contracts. But there is no reason to not pursue the rest of the money vigorously.
3. Holding back payments on completed jobs because of costs on other jobs is unreasonable, unless they're claiming that the damage caused to them by you failing to complete those other jobs exceeds the amount they owe you on those jobs.

In all cases be pragmatic and get in what you can. If they offer 50% then maybe grab it (though presumably this needs liquidator approval for the write-off...)

 

[Alan R Price]

There's a lot to digest here however, David G, the concept of fraudulent preference has been replaced by a simple preference. If the over-riding purpose of the transaction is to prefer the creditor benefiting from it, then it is a preference and can be overturned. If the bank has a debenture (which appears likely, but I have not read the thread in fine detail), and there are sufficient funds to pay the preferential debts (holiday pay and up to £800 per employee wages arrears), the lion's share of the surplus will fall into the debenture and so a payment of £90,000 out of receipts of £1.4m is, in practical terms, unlikely to fall foul of the rules.

That said, and assuming that the bank does not want to appoint its own administrator under its debenture, the "proper" way of dealing with the matter would be to collect in the debts and allow the proposed IP to clear any cheques through a designated client account. The funds in there would be held for the benefit of the liquidation. It would be for the liquidator to assess the validity of the debenture (banks do foul up) and then distribute the funds in the statutory order of priority. In the meantime, the guarantor should take specialist legal advice on the enforceability of the guarantee and open a dialogue with the bank. It is unlikely the bank would commence proceedings until the outcome of the liquidation could be assessed with any degree of certainty. The bank will of course have to go through its normal procedures of calling up the guarantee and requiring payment but usually banks are prepared to be sensible about these things.

As regards doing deals and making compromises with customers, strictly-speaking this should be a job for the liquidator, although the directors remain in executive control of the company until it is formally in liquidation. My recommendation would be to consult the IP before agreeing any compromise - after all, that it what he is being paid for! At my company we use the services of a couple of excellent quantity surveyors who have "been around the block" once or twice and know all the tricks contractors and other customers use to try to avoid paying their debts when their (sub)contractor goes bust. They usually get pretty good results.

 

[Ian J]

the "proper" way of dealing with the matter would be to collect in the debts and allow the proposed IP to clear any cheques through a designated client account.

My credit control knowledge is a bit out of date which is why I'm asking if companies still pay their accounts by cheque?

 

[Alan R Price]

My credit control knowledge is a bit out of date which is why I'm asking if companies still pay their accounts by cheque?

Some do, some don't, and it can be difficult to persuade customers who have previously paid by BACS or similar to pay by cheque, which is why I put "proper" in speech marks. Ideally, the bank should place any funds received in a separate account once it receives notice of a pending insolvency however they rarely cooperate with such requests and usually try to hang onto the money as long as possible before handing it over to the IP. One of my team has been dealing with such a case this afternoon, where it has taken three letters and four phone calls before the bank has agreed to send the balance in the company's account to us as liquidators. The creditors will have to bear the cost of the bank's incompetence/intransigence.