Prioritised Creditors - HMRC Implications?

[Zlatan]

Hi,

I've been running a franchise for the past 1.5 years and am looking to wind up the company with an oustanding VAT bill of about £7500. In order to come out of my franchise agreement the franchisor advised that I needed to pay off all the suppliers they have provided me with. Having borrowed some money I have paid them off (£4300) from my business account but have been advised by an IP this will have serious implications with HMRC as it will look like I've prioritised creditors. IP said they would charge £6k to take on the case but if I had that kind of money I'd just pay HMRC off! Would appreciate any advise on the best way to tackle this as I am seriously stressed and worried and have bad news after bad news lately with no end in sight. Thanks in advance.

 

[Mr D]

Yes can imagine HMRC will want their share of that £4300 you were paying between creditors.


As for not being able to afford an IP - you could maybe have done with that £4300?

Have a look at the SpongeBob plan (yes, that is what its called).

http://www.ukbusinessforums.co.uk/t...ich-to-pay-an-insolvency-practitioner.316523/

 

[Zlatan]

Thanks Mr D. I've read the Spongebob plan but wasn't sure if it would apply in my situation. If I'd have used that £4300 for an IP I wouldn't have been released from the franchise and there could have been additional legal cost implications I guess.

 

[Zlatan]

I was also advised by the IP that if I paid HMRC an equivalent amount quickly (£4300) it might be looked at more favourably and that I haven't prioritised creditors. Having set up another company the IP's comments about potentially being struck off as a director for not paying HMRC also worries me

 

[Mr D]

The experts on insolvency will know more but reading through the insolvency forums the likelihood of being struck off as a director are pretty low. Bunch of them will probably be online daytime tomorrow or Friday.

 

[Spongebob]

Did you borrow the money personally and then use it to pay off the outstanding trade creditors via your company bank account?

If so, I don't think you have much to worry about. What you could (and should) have done is to pay the creditors personally without putting the money through the company bank account. This would have been perfectly lawful and would not constitute preferential treatment of creditors. The Official Receiver - should he ever get appointed - will simply put it down to you being inexperienced and/or an idiot rather than crooked.

Having said that, it is unlikely that the OR will ever be appointed. HMRC will have to wind the company up first, and they probably won't for the sum involved. Simply send them the standard Spongebob letter and forget about it. Let them do their worst.

The IP you consulted is a charlatan.

 

[Lisa Thomas]

You say you borrowed money but your post also seems to imply you used the Company's account to pay the franchisor back?

Can you clarify please - did the funds come from your own pocket or the Company's?

If the Company's then yes I'm afraid this does amount to an illegal preference as you have ultimately preferred yourself and any Liquidator appointed could pursue you for repayment.

It would costs c£4k to liquidate through the Court or £4-5k to liquidate via a CVL. With hindsight unfortunately it might have been better to Liquidate instead of paying the franchisor back.

Your options now are:

• Liquidate
• Send dissolution notices to all creditors (and hope HMRC don't objct but they liely will)
• Wait for companies house to strike the company off for non-filing of returns and hope HMRC don't liquidate the company in the meantime.

 

[Zlatan]

Hi Lisa, I borrowed funds and transferred them from my personal account into my business bank account (a stupid move I now realise) to pay my creditors. My only creditor will now be HMRC and maybe councils business rates. I still have a few jobs remaining to be completed (I haven't taken in any new business since the end of August). Having spoken to Business Debtline they've advised I can't file a DS01 form until 3 months after the last job is completed. I'm assuming HMRC will initiate the process themselves prior to that? Thanks to everyone for your replies by the way, it's much appreciated

 

[Lisa Thomas]

HMRC could issue a petition to wind up but it's not certain and timing is unknown.

Best of luck with dissolution procedure.

https://www.gov.uk/government/publications/company-strike-off-dissolution-and-restoration