Setting up again after liquidation

[Chevvychase]

After over 7 years it looks very likely that our company is going to run out of cash next month.

My fellow directors and I can't put anymore money into the company and the ongoing costs are crippling.

A quick history...

We are another web design company.

After trading successfully for a number of years we grew too rapidly, taking on more staff than we eventually needed, entering costly lease agreements on hardware and software that we now no longer need and of course like many businesses, when the recession took hold, much of our work started to dry up.

6 Months ago we entered into a CVA on the advice of a consultant that in hindsight was pretty shocking. There and then we should have perhaps folded, but whilst there was a glimmer of hope in trading out it seemed an appropriate action.

The CVA was pretty much imposed by HMRC after we fell behind in PAYE, CT and VAT payments. There was and still is very little other creditors. Our bank pulled our overdraft invoking our directors guarantees and relying on our debtors list has quickly dried up. Add into the mix some bad debt and an unusually low sales output for the last 2 months the outlook is now very bleak. We simply can't afford the fallout from the boom to the bust.

Our plan is to wind the company up (in effect the Insolvency Practioner who manages our CVA will impose this) and start again with a much reduced team and very minimal overheads like the good old days.

My questions are (sorry its taken so long to get to this bit):

1. As a web company we have a number of clients on hosting contracts with us. Essentially we rent servers and pass the cost onto the client. If we set up new co tomorrow can we pay for the servers from new co and therefore automatically transfer the clients to new co? This also protects them from any disruption of their services.
2. Can we retain the client base at all?
3. Can we take on new work now and put that into new co (collecting deposits for work) whilst old co is being wound up? We've been instructed on 4 new projects this last week. No invoices have been posted yet.
4. There are projects in production now - we aim to complete them in old co but if we don't can we complete them in new co? If so can the remaining balances be invoiced/collected via new co?
5. We have 4 staff who will be made redundant. Do we have to take them on in new co? Some staff we wish to take on.

Sorry for so many questions, but faced with the timescales (I think we're talking days not weeks) these are the questions we're frightened of getting wrong.

Of course as directors we are aware that we should serve the interests of our creditors (except the HMRC) first and we aim to do this, but due to the directors loans on the overdraft that we are faced with we're keen to protect ourselves and our families as much.

Thanks so much.

 

[Big Pete]

1 yes
2 yes
3 yes
4 yes
5 NO

 

[Chevvychase]

Thanks Big Pete. Much appreciated.

 

[Michael Gerard]

Following Big Pete's reply, I thought that I would provide some additional and expanded advice as follows:

1. Qualified yes. The new company must enter into new contracts with both the supplier of the servers and the customers. However, the the appointed IP's of the insolvent company may view these contracts as 'assets' and seek to sell the same.

2. No. The client base is/was the property of the insolvent company and therefore the new company (like any other company) has no valid claim on it. No doubt you will make a secret copy of the client base and attempt to use it, but the new company cannot "retain" the client base as it was not theirs to retain in the first place.

3. No. It is the old company that has received orders and hence the contracts are between the particular clients and the old company, not the new company.

4. No. See 3 above.

5. No. All liabilities fall at the door of the old company (privity of contract).

If you wish to keep everythng above board (and I suggest you do), regarding 3 and 4, make a nominal offer to the appointed IP for the new company to purchase the contracts / WiP and perhaps even the outstanding debtors on the book.

Regarding 2, I would strongly recommend that your new company's name is different from the old company and thus it cannot be confused with the old company (this is otherwise called a phoenix company which can get you into a lot or trouble and personal liability), and that you then write to your old client base and offer them your services, without referring to the old company.

 

[Chevvychase]

Thanks so much Charlie.

I was hoping it would be as simple as Big Pete suggested but my uncertainty and reason for posting suggests I thought there was much more to it.

 

[Spongebob]

And here's some advice from someone who's been through exactly the same experience a couple of times...

1. Yes. Simply sign up the clients on new contracts with the new company.

2. Technically No, in reality Yes. Simply continue trading with your old clients under the new company.

3. Yes. All new work should be put with NewCo.

4. Technically No, in reality Yes. Any work in progress should be completed and invoiced by NewCo.

5. No



You mention appointing an IP to liquidate OldCo. Do not do this!!!

Your only unsecured creditor appears to be HMRC. Inform them that OldCo has ceased trading due to insolvency. They will chase OldCo for the debt; ultimately initiating winding up proceedings. The Official Receiver will then be appointed liquidator.

There are two distinct advantages in this;

1 It is absolutely free - an IP will charge you £4-5k

2 It takes a long time - upwards of a year. This gives you plenty of time to get up and running with NewCo, obscuring any cross-over between the two businesses, and drawing a cloak over any transfer of clients and/or equipment.

By the time the OR gets to ask any questions your clients will have forgotten the name of OldCo and you will be in the clear.

Good luck.

 

[david9108]

I just wanted to say good luck however it turns out.

 

[Spongebob]

I forgot to mention;

Are you in rented premises? If so and you want to stay get a new lease drawn up under NewCo.

If you intend relocating find new premises now and move as soon as possible. Take all the equipment of OldCo with you. Ownership can be established a year or so down the line when you meet with the OR. Until then just treat it as the assets of NewCo.

This way, should a bailiff ever turn up from HMRC, OldCo will no longer be there, and neither will any of its assets.

If OldCo has a lease outstanding without personal guarantees, or rent arrears, you might consider a moonlight flit. Bank holiday weekends are always a good time for this!

 

[Big Pete]

Thanks so much Charlie.

I was hoping it would be as simple as Big Pete suggested but my uncertainty and reason for posting suggests I thought there was much more to it.

go with spongebob he is right ..

i stand by what i said , just do it...

 

[consultantUK]

Been through this more than once, some good advice given but there is loads more. So much I want to say, but I can't on a public forum.

 

[Spongebob]

Charlie Paynter has given you the dry legal position; it is good to know this.

I though, have tried to guide you as to what you can get away with. This is far more important and useful than simply knowing the dry legal position.

I suspect in his oblique way that this is what Consultant UK is saying. I have no problem with giving such advice on a public forum however, as I am not a professional advisor - I'm just a bloke who knows a thing or two about surviving insolvency with your assets and business intact.

Bob

 

[Spongebob]

go with spongebob he is right ..

i stand by what i said , just do it...

What you said to do is right, Pete. The caveat is that it isn't strictly lawful and the OP should be aware of this.

He should still do it though, because he will get away with it!

In such circumstances the risk of every action should be assessed. If the potential reward greatly outweighs the risk of taking an unlawful action, then you might as well take it. I would never suggest that anyone does anything illegal, however.

There is a huge difference between 'not strictly lawful' and 'illegal'.

 

[Chevvychase]

Thank you soooo much for all the help and guidance so far. I've got to say this is the most stressfull, awful thing ever!

We've not gone bust or liquidated yet, but word on the street is we have already! Funny how rumours spread so fast!!!

I've been told by the person who entered us into the CVA that we risk prison if we ste up as directors again after filing so recently for a CVA. Nice eh? Also she said as there hasn't been enough contributions to the CVA there is not enough for her to liquidate us. If we try and get someone to petition for it, such as HMRC it actually may never happen and the compnay could be in limbo for months. What a nightmare.

The bit that worries us the most is all the domain names and hosting contracts we have for clients - sorting that is gonna be such a ballache!!!

 

[harvey_harvey]

Hi, I just wanted to say that I hope you get things sorted and back on track.

 

[David Griffiths]

A man dying of thirst in the desert should not ask a vulture for directions to the oasis.

I've been racking my brains to work out if that has anything to do with insolvency practitioners.

 

[Spongebob]

I've been racking my brains to work out if that has anything to do with insolvency practitioners.

Might be!

 

[Spongebob]

Thank you soooo much for all the help and guidance so far. I've got to say this is the most stressfull, awful thing ever!

Stick with it. The whole process takes balls of steel, but it is well worth it and you will be out the other end in no time.

We've not gone bust or liquidated yet, but word on the street is we have already! Funny how rumours spread so fast!!!

Use this to your advantage. Set up a new company immediately (Friday morning!) and get your server contacts moved over to it. Make sure that all payments to your suppliers of these services are up to date.

Then contact all your customers individually in person and reassure them that it is 'business as usual'. Explain that the bank and the taxman have been giving you terrible problems and that you are starting afresh with a new company. Stress that your primary concern is maintaining a continuous service to your customers and not leaving then high and dry. Then blame the bank and the taxman some more.

Your customers will understand, empathise, and appreciate that you have not just cut and run. If they are happy with your services to date then they will want them to continue; they will certainly not want the hassle of having to find a new provider. Whatever the external stresses concentrate on your customers and the services you provide them. They are what will get you through this. Make sure you get them signed up on new contracts, though!

I've been told by the person who entered us into the CVA that we risk prison if we ste up as directors again after filing so recently for a CVA. Nice eh? Also she said as there hasn't been enough contributions to the CVA there is not enough for her to liquidate us. If we try and get someone to petition for it, such as HMRC it actually may never happen and the compnay could be in limbo for months. What a nightmare.

This is typical of insolvency practitioners; my particular pet hate, and the subject of my signature below.

You most certainly do not risk prison for setting up a new company in these circumstances. Utter bollock$! Anyone can set up a new company whenever they want - the only exceptions being if you are personally bankrupt or otherwise barred from being a director.

OldCo being in limbo for months before being wound up by HMRC is a good thing! Just forget about it and get on with making NewCo a success. The only person who can stick his nose in and make noises about contracts and clients drifting from OldCo to NewCo is a liquidator. Put off the day that a liquidator is appointed and you buy yourself more time to get NewCo properly established. By the time that the OR is given the job of liquidating OldCo most of your clients will have forgotten its name. Time muddies waters. Far from being a nightmare, the delay works in your favour!

IPs really are the scum of the earth. In good faith people consult them seeking advice. Inevitably, given the field that IPs work in, these people are on their uppers.

Yet almost uniquely amongst 'professionals', insolvency practitioners seemingly never give good advice; instead they home straight in on what is really important - how much money they can extract from the poor sap in front of them!

I would have a modicum of respect for these parasites if I heard the occasional report of one of them offering genuinely helpful advice to an insolvent person in exchange for a fair fee; maybe £100 for an hour's consultation. But no - that's just never going to happen! Instead they thrive by tying their 'clients' in to IVAs, CVAs etc, or the real big money spinner - voluntary liquidation. 4 or 5 grand for a week's work; most of it done by a low level clerk and a secretary!

The bit that worries us the most is all the domain names and hosting contracts we have for clients - sorting that is gonna be such a ballache!!!

Not at all. Just get on with it!



Cheers
Bob

 

[Chevvychase]

Thanks again Spongebob!

With regards to just contacting the clients and therefore the liquidator not receiving any money for them, what's the likely punishment for that?

I was told that you have to pay between 5 and 10% of turnover for them. I don't want to pay £25k upwards for them!

I also don't want them to be without their websites or email though!!!

 

[Spongebob]

With regards to just contacting the clients and therefore the liquidator not receiving any money for them, what's the likely punishment for that?

If you were to appoint an insolvency practitioner to liquidate the company, they would in all probability place a value on the contracts with your customers and seek to raise money from selling them on.

If however, you do not appoint a liquidator and simply let OldCo wither on the vine, the contracts quickly lose any value that they may have had. OldCo, by not supplying the services specified under the contracts, is clearly in breach of them. NewCo is perfectly free to sign up these clients on new contracts, just as any of your competitors is free to lure them away.

By the time the Official Receiver is appointed liquidator of OldCo months or even years later, the contracts will completely worthless and he will not even consider them.

I have personal experience of this process. I had a company making and fitting kitchens which became insolvent. At the time it ceased trading it was holding deposits from several customers who had placed orders. I fulfilled all these orders and collected the final payments through a new company while OldCo was in limbo. At my subsequent meeting with the OR I explained exactly what had happened and they were completely happy that nothing untoward had taken place. Indeed, they congratulated me for ensuring that no customers of OldCo lost their deposits.

This is another example of why the delay between ceasing trading and the OR being appointed works in your favour.

 

[drunknmonk]

I had to do something similar June last year, be very careful with the existing staff, if you take them back on with in 3-4 months you could be liable to pay there redundancies through your new company, if you are a director of the old and new company doing the same kind of work.

Gary

 

[Leaveyfreya]

I just wanted to say good luck and I hope you work it all out.

Have just been through all of this and set up a newco at the same time. Luckily we went into CVL on 22 Dec 2009 so we had two weeks of shut down to get on with the new company set up. We bought the WIP for next to nothing and completed it in the new company myself allowing me to get some decent money into the newco.
The bad news is we had a PG with the bank for £85K so gotta do some hard work to sort that one out!

The best thing we ever did was go to see all our customers face to face and ensure them that we would look after them if they were willing. We managed to retain 99% of them which was good.

I have also recently helped a newco set up near me as well after going through the same thing - just remember that sometimes it will be hard but it will all be worth it in the end.

We also made the mistake of paying someone to help us try and keep the old company going (not my choice) before we decided it really was too late - a total crook who only lined his own pockets! I wish we had spoken to our accountant a bit more beforehand. Hindsight is a wonderful thing!

Good luck.

Freya

 

[Chevvychase]

Thanks for this - its really reassuring!

Its a proper daunting time though isn't it.

Good luck with those PG's!!!

 

[Chevvychase]

Quick question - How do you respond to all the customers calling you whilst you were closed down???

 

[internetspaceships]

Good luck with it.

There seem to be an awful lot of people here with experience of losing companies and phoenixing..... :-(

 

[Leaveyfreya]

We were lucky with regard to customers calling us as the company went into liqudation at Christmas time so most of our industry closed for two weeks (Accept us who gethered everything for the administrators).

Before the Liquidation i was as honest as possible with anyone we owed money to and kept in touch with them as agreed. Once the liquidation went ahead we gave them all their telephone number and they dealt with it from there.

I did have one person storm into the office and demand that they be paid there and then but on the whole mostly the people we owed money to were okay with us as they knew the reasons behind it. (Big company decided to shut the gates on a housing project we were working on and then finally a year later they went into liquidation themselves and the directors are under investigation).
Liquidators said I could collect outstanding debts and get a percentage of monies collected so i did this and it was worth while. However, some companys did try to get away with not paying!

Good Luck!

Freya

 

[DaiHO]

My Ltd company is going through liquidation need some wise advice on the following.
1. I have had 2 threats by creditors to sell the debt and will get people knocking on my door has this happened to anyone.
2. How soon could I start trading again, if so could I use an existing company which we had set up some years ago to handle a seperate deal. This company is still active but has a very similar name to the company in liquidation. Could I fall foul of company law.

Thanks in anticipation

 

[Alan R Price]

My Ltd company is going through liquidation need some wise advice on the following.
1. I have had 2 threats by creditors to sell the debt and will get people knocking on my door has this happened to anyone.
2. How soon could I start trading again, if so could I use an existing company which we had set up some years ago to handle a seperate deal. This company is still active but has a very similar name to the company in liquidation. Could I fall foul of company law.

Thanks in anticipation

Your liquidator should be able to advise on this however:

1. The debt is not yours and you are not liable to pay it. If anybody approaches you to pay a debt that is not yours, tell him/her you will report them to the police under the Protection from Harassment Act 1997 if they don't stop.

2. You can start trading again at any time. Section 216 of the Insolvency Act 1986 prohibits the use of a similar name but in summary, there are three exceptions:

1. Where a company acquires the whole or substantially the whole, of the business of an insolvent company, under arrangements made by an insolvency practitioner acting as its liquidator, administrator or administrative receiver, or as supervisor of a voluntary arrangement.
   
2. Where an individual affected by section 216 obtains leave of the court to use the prohibited name.
3. The court’s leave is not required where the company, though known by a prohibited name within the meaning of the section has:
   
   • been known by that name for the whole period of 12 months ending with the day before the liquidating company went into liquidation, and
     
   • has not, at any time in those 12 months, been dormant [my italics].

 

[DaiHO]

Thanks Alan
I have been in touch with the local police and they have been very helpful, I have had an incident where a vehicle has been vandalised and received a couple of upsetting calls, the local officer has given me some constructive advice and I have seen him twice patrolling the area (maybe its because I am at home more that I have noticed him)
With regard to the other Co it has been incorporated since 2003 and has not been dormant, I guess take legal advice to be sure.

 

[David A]

... could I use an existing company which we had set up some years ago to handle a separate deal. This company is still active but has a very similar name to the company in liquidation. Could I fall foul of company law.

There can be problems if you do what is colloquially called phoenixing - where New Co's name is similar to Old Co.

So, what you do is a little forward planning, even just 24 hours before Old Co goes into liquidation. What you do is have a board meeting and pass a resolution to change the company name to something completely different to the current one. If you are (and you should be) registered with PROOF, Companies House on-line service, then the change can be registered over the net. As soon as you have confirmation that Renamed Old Co has been registered, then you are pretty much covered.

It works, as a chap I had the misfortune to be acquainted with did this having run up supplier and tax debts of over a million (with him paying himself £40K a month until liquidation). He even had the cheek to change the name of the indebted company to Out With The Old Limited just a day or so before liquidators were called in.

Within a week, with the original Old Co name being available - it no longer being connected with Out With The Old Limited - he registered a new company using this name. The liquidators did not like it, but they said there was nothing they could do about it.

 

[Alan R Price]

David

OP's post indicates that his other company qualifies for the third exemption under s216, so on the face of it he can just carry on with that company.

 

[The Resolver]

Love the Charlie/Bob contrast which is why UKBF is so great!

Charlie is , of course, absolutely right 'on paper' whereas SpongeBob, as ever, is right as to what goes on 'on the field', where blind eyes are turned due to too much work being covered by too many poor quality (using the term generically and delicately to cover a range of other characteristics) IPs.

One qualification I would make to Charlie's response which would make following SpongeBob's advice safer from an 'after the event' claim by the IP for the value of the client base/contracts, would be if the existing web development agreements entered into with the clients contained an insolvency clause (they all should!) which would state that the contracts came to an end automatically on an act of insolvency - thus denying the opportunity for the IP to claims them as assets.

 

[The Resolver]

Oh No! Done it again. Forgot to read the date and find I'm responding to 2 year old messages! Right will just have to re-adjust messages to read latest first

 

[The Resolver]

As to the latest posts:-

What you do is have a board meeting and pass a resolution to change the company name to something completely different to the current one..

Great practical advice.

Just point out that to be effective the change should be by Special Resolution of the shareholders (75% plus) called at an EGM to which all shareholders agree in writing to be held without notice. If not all the shareholders are directors this may give a problem if there is disagreement You can change that rule- eg to give the name change power to the Board, by a provision to that effect n the Articles. So as names are so important- especially with the importance of domain names - David has raised an interesting potential variation to consider for the Articles!

Of course, CH will still change the name anyway without proof of resolution and the liquidators won't bother - unless there is a challenge eg by someone else wanting to bid for the assets/old name. Better to be safe and do properly.

 

[Alan R Price]

Yes, Graham but there is no necessity for a name change!

 

[The Resolver]

Alan- I was responding generally to David A's creative name change solution not to Daiho's specific problem (which, as you have pointed out, is solved without name change).

 

[Alan R Price]

Alan- I was responding generally to David A's creative name change solution not to Daiho's specific problem (which, as you have pointed out, is solved without name change).

Sorry, I was just trying to make sure that Daiho didn't get confused!