Stat Demand, DLA, Bankruptcy, Marital Home

Discussion in 'Insolvency' started by Woodstain Wally, Apr 28, 2016.

  1. Woodstain Wally

    Woodstain Wally UKBF Newcomer Free Member

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    Hi all

    Excellent forum.

    Sorry for long post, but looking for some insight and possibly advice. My one man (wife and I directors) Ltd company was wound up three years ago by HMRC as I was behind on my CT. I wanted to trade out of it but they did not. So I let them wind it up and I set up another company so that I could continue with my work as a freelance project manager.

    Went through the OR interview etc, no showstoppers, felt like a formality. Eventually a firm of solicitors wrote to me demanding payment of the whole of the outstanding DLA, £36,000, which was accrued over several years of trading, through (in hindsight) overpayments made to me, by me. No other company creditors, other than the bank loan on which I had given a personal guarantee. I have since received a statutory demand from the liquidator for £82,000 which runs out on 6th May (next week).

    (This may read like I know what I am talking about but, believe me, this is only because I have been on a very steep learning curve over the last five years from idiot newbie company director who new nothing about company law and accounting, to the verge of bankruptcy. This site has also been an invaluable source of information).

    I have taken independent legal advice and my solicitor has written to the liquidator's solicitor, claiming the stat demand is an abuse of process since the debt is in dispute/not proven, as it is partly substantiated by filed accounts, partly by what I said in the OR interview (my guesswork) and partly by reference to bank statements for the remaining period of trading, for which no accounts were filed. If they had been filed, I believe they would have shown that the DLA owed by me had increased. However, the liquidator is relying on the fact that now they have shown via bank statements that payments were made to me, the burden of proof is on me to show they are legitimate, which I cannot, as I naively assumed all of that information would be the responsibility of the 'specialist' accountant I was paying £125 per month to. I have no records.

    In short, although I could try to dispute that there is insufficient evidence to substantiate their massive claim and instruct my solicitor to apply to have their stat demand set aside while we argue over whether I can substantiate a lower DLA figure, that would put me at risk as to further costs and as I have seen on this forum, who can tell how a district judge will see it? Maybe I should simply let the demand expire and see if they intend to follow through with bankruptcy, or whether it is simply a debt collection strategy?

    Some other facts, then;

    1. My marital home is owned jointly with my wife on a mortgage. The value is currently approximately £250,000 (my estimate) and the mortgage value is approximately £208,000. However, there are two further legal charges worth a total of approximately £45,000. The property is in need of major refurbishment and updating inside and out, with evidence of substantial subsidence and therefore very little prospect of a sale at the full market value. We live there with our five children (8, 11, 13, 19 and 23). What little equity in the property that could be realised on a sale would obviously be halved, after fees, to arrive at my share. There is a second property of which I am the legal owner – a flat – which is rented out but does not make a profit. It was purchased some years ago at a price of £130,000 but now has a value of only about £110,000 and a mortgage of £98,000. The very small amount of equity which does exist in the property (before estate agent fees and the like) is attributable to an investment by relatives and therefore held on trust to them (I had a declaration of trust drafted which sits on file but has not been registered at HM Land Registry). My wife and I both own a car, each worth less than £1,000. We live frugally; we have not taken a foreign holiday since we were married in 2003. My wife is a part-time dinner lady at a local school. We do not own any other assets of value. Since we do not have credit cards, our house has generally been furnished with second hand goods via e-bay and we support our eldest daughter who is at university. We are, relatively speaking, poor in terms of both cash and property.

    The question is, how might this play out in bankruptcy? I want to keep working and I want to keep out family home, but not for another £82K. I'd rather be bankrupt, learn from it and rent a house for us all, if that's even possible for a family our size. The limited equity in our house, once verified, would not seem to vindicate making me bankrupt.

    Just worth saying, we have been trading with our new company since 2013 and all VAT, PAYE etc, CT is bang up to date. Why? Because we have successfully learned from our experience. Unfortunately, or ironically, the threat of bankruptcy and all that goes with it now threatens the ongoing success of the current venture.

    I would be very grateful for any helpful advice, especially IPs on this forum who seem to be very helpful from what I've seen.

    Thanks

    WW
     
    Posted: Apr 28, 2016 By: Woodstain Wally Member since: Apr 27, 2016
    #1
  2. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

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    Hi WW

    Lots of questions and points to be considered here. Probably a bit much for a forum so feel free to ring me.

    Is your Solicitor a specialist insolvency lawyer?

    On the basis of what you have said in BKY the o.R/Trustee would likely disclaim any interest in the marital home on assumption no/nominal equity. They have three years to realise any interest so could sit back and wait and see whether the equity changes materially but I suspect that is unlikely. Worst case scenario you wife could make an offer to buy out the interest for an (assumed) nomial sum.

    The flat is different - the 3 year rule doesn't apply and the Trustee might try and attack the trust. Again however it seems like there is little equity and a third party could make an offer to buy out your Trustee. The Bank could appoint Receivers to collect the rent.

    However regardless of all of this the point is to do a deal with the Liquidators. The argument over the legality of the Statutory Demand is academic if ultimately they do have a claim against you and will move to get a Court Order instead.

    Personally I would make a settlement offer to them, however small, to put this behind you and avoid BKY and I would think that your solicitor would be recommending something along the same lines.

    I have had a similar case where I could either accept a small settlement from the Director or make them bankrupt/wait for them to make themselves BKPT and get absolutely nothing. Of course I did a deal....

    You could also consider an IVA however I can't see from the information that you have anything to offer - you would therefore probably base it on income contributions of up to 5 years but I don't know what your position is on this.

    Better to try and avoid personal insolvency full stop if you can.
     
    Posted: Apr 29, 2016 By: Lisa Thomas Member since: Apr 20, 2015
    #2
  3. Woodstain Wally

    Woodstain Wally UKBF Newcomer Free Member

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    Thanks for your reply, very helpful.

    I tried to settle, in vain, and have now received notice of a bankruptcy petition.

    If you could supply contact details and suggest a convenient time/day, I would like to speak further on the phone, if possible.

    Thanks

    WW
     
    Posted: Aug 20, 2016 By: Woodstain Wally Member since: Apr 27, 2016
    #3
  4. Newchodge

    Newchodge UKBF Big Shot Free Member

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    is there anything wrong with accepting the bankruptcy. Appointing someone else as director of your business, perhaps your wife, and starting afresh. In this scenario your wife would actually have to be the director, not just acting as your puppet. On those figure you will not lose the house, although you may lost the flat.
     
    Posted: Aug 21, 2016 By: Newchodge Member since: Nov 8, 2012
    #4
  5. Gavin Bates

    Gavin Bates UKBF Regular Free Member

    417 80
    WW

    I agree with Lisa, on the basis of what you have said, there seems very little point in disputing the statutory demand. I also agree that you may be best to agree a settlement. I would send them a personal statement of affairs and income and expenditure account. Hopefully, the liquidator will see that bankruptcy will lead to little or no return, therefore a small offer now is the best option for them.

    Gavin
     
    Posted: Aug 22, 2016 By: Gavin Bates Member since: May 9, 2016
    #5
  6. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    The bank loan with the PG - why does this form part of the Statutory Demand from the Liquidator?

    Should you be negotiating seperatley with the Bank for repayment/deal?
     
    Posted: Aug 22, 2016 By: UK Contractor Accountant Member since: Sep 18, 2013
    #6
  7. Woodstain Wally

    Woodstain Wally UKBF Newcomer Free Member

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    Thanks for chipping in. I don't have a massive issue with bankruptcy per se. Some points of clarification -

    My wife is already co sec and a shareholder, so she will continue trading as sole director with me merely as a fee-earning employee (but remaining a shareholder). She already does our payroll, pensions, banking and bookkeeping and so taking sole control is not a problem.

    What concerns me is the potential loss of the flat, the ~£30k deposit for which was provided by my grandfather towards the end of his life. It is in my sole name and whilst I had decs of trust prepared and held on file, they were never registered. The beneficiaries of his estate have instructed me to keep it rented out until sale prices improve and the equity can be released. If a sale is forced, do I have a case to protect their beneficial ownership? Or am I powerless to stop the sale, in which case I will have Australian beneficiaries looking to me for their £30k? More debt!

    NB a restriction has recently been placed on the title for that property, but not my home- so far.

    Thoughts welcome.

    WW
     
    Posted: Aug 22, 2016 By: Woodstain Wally Member since: Apr 27, 2016
    #7
  8. Newchodge

    Newchodge UKBF Big Shot Free Member

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    When you state that decs of trust have been prepared and held on file, I take that to mean that there is no evidence of their existence outside your file? That might prove awkward.
     
    Posted: Aug 22, 2016 By: Newchodge Member since: Nov 8, 2012
    #8
  9. Woodstain Wally

    Woodstain Wally UKBF Newcomer Free Member

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    Replying to UKCA,

    I dont know why the PG is included but aim to find out before the petition hearing next month. Presumably it should be wiped out by my impending bankruptcy.

    All very confusing.

    WW
     
    Posted: Aug 22, 2016 By: Woodstain Wally Member since: Apr 27, 2016
    #9
  10. Gavin Bates

    Gavin Bates UKBF Regular Free Member

    417 80
    In terms of flat, I think it is up to the estate of your grandfather to argue the point. In terms of the property, they could say that they have a beneficial interest in the property and if they can prove that they put the money in and it wasn't a loan or gift then that could be helpful.
     
    Posted: Aug 22, 2016 By: Gavin Bates Member since: May 9, 2016
    #10
  11. Woodstain Wally

    Woodstain Wally UKBF Newcomer Free Member

    19 0
    Replying to Newchodge.

    Correct. I had the dec drafted but held off on the registration, thinking a sale might be imminent. It never happened and I failed to go back round the loop and register the dec of trust.

    I am hoping that their existence on the file and related correspondence will evidence the source of the funds, the will of the parties and make it unpalatable to the liquidator. In my layman's brain there is a trust there of some kind, protecting that equity. Albeit not registered on the title.

    If a sale is forced and all net proceeds go to the liquidator, any available employment income from me to pay them under an arrangement will be zero if I have to find funds to pay back the beneficiaries....
     
    Posted: Aug 22, 2016 By: Woodstain Wally Member since: Apr 27, 2016
    #11
  12. Newchodge

    Newchodge UKBF Big Shot Free Member

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    I think you'll find it's the other way around. If you owe the beneficiaries they will be part of the list of creditors who the liquidator will pay from your arrangement.

    If they are not considered creditors, the fact that you feel a moral obligation to pay them will be irrelevant in calculating any payment you need to make to the liquidator.
     
    Posted: Aug 23, 2016 By: Newchodge Member since: Nov 8, 2012
    #12
  13. Woodstain Wally

    Woodstain Wally UKBF Newcomer Free Member

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    Thanks.

    I have requested a copy of the conveyancing file as it should contain correspondence and the drafted dec of trust that wasnt registered. Just in case it is helpful.

    Meanwhile, I am worried that the TIB will assume title, collect all rent and meet all outgoings but I will still be left with the mortgage to pay every month. That would be painful.

    Aside from negotiating to buy the beneficial interest (this seems counter-intuitive as the dec of trust shows I do not have any interest in it) my only other option would seem to be to get the beneficiaries on the list of creditors.

    I should add I intend to appear at the hearing on 26/9 but not oppose it. I want them to know that I intend to fully cooperate. However, I might point out the apparent conflict if the Liquidator also applies to be TIB. Just feels like if they dont get their fees in the liquidation, they'll get them in priority with my bankruptcy.

    And yes, my solicitor was a very helpful insolvency associate. However, I now have no funds to meet fees so we agreed to close the file.
     
    Posted: Aug 23, 2016 By: Woodstain Wally Member since: Apr 27, 2016
    #13
  14. Newchodge

    Newchodge UKBF Big Shot Free Member

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    You cannot continue to have a mortgage when you are bankrupt.
     
    Posted: Aug 23, 2016 By: Newchodge Member since: Nov 8, 2012
    #14
  15. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

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    That is not correct.
     
    Posted: Aug 23, 2016 By: Lisa Thomas Member since: Apr 20, 2015
    #15
  16. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

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    Hi I am available on 01752 786800 call me anytime between 9-5.
     
    Posted: Aug 23, 2016 By: Lisa Thomas Member since: Apr 20, 2015
    #16
  17. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

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    If you were Bankrupted and the Australian beneficiaries became creditors as a result, this would be wiped as part of your Bankruptcy so 'more debt' would be academic.
     
    Posted: Aug 23, 2016 By: Lisa Thomas Member since: Apr 20, 2015
    #17
  18. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

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    Other costs have to be paid before TIB - such as the petitioning creditor, the Official Receiver and the Bankruptcy Taxes (£6k). Unless there were net recoveries of over £10k the TIB is unlikely to have any funds to meet their costs. In which case suspect Lqr wouldn't want the appointment in any event...
     
    Posted: Aug 23, 2016 By: Lisa Thomas Member since: Apr 20, 2015
    #18
  19. Newchodge

    Newchodge UKBF Big Shot Free Member

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    How would that work, then, please?
     
    Posted: Aug 23, 2016 By: Newchodge Member since: Nov 8, 2012
    #19
  20. Woodstain Wally

    Woodstain Wally UKBF Newcomer Free Member

    19 0
    Thanks for all the responses on here - it is a really good resource. It would be helpful to get some detailed facts about the mechanics of what will happen immediately post-hearing. Is there a particularly good online resource detailing all of this?

    Eg.,
    • What about the fact that the (current) company and personal accounts for both myself and my wife are all held at Barclays? We don't want to lose access to the unaffected accounts.
    • Lenders for the marital home (joint names) and the rental property (my name only) - what timeframe might we have to arrive at a deal with the liquidator/TIB?
    • Should I stop paying certain things?
    • Is there anything I should be doing now, ie., pre-hearing?
    • What about household and other bills, like water, electric, phone - will half of outstanding contract balances be written off? (NB there are no arrears on any of them). How does that physically work in practice?
    • Assuming we can show that there is no/nominal equity in either property either to sell or buy back and there is effectively little or no disposable income from which to arrive at an acceptable arrangement over eg., 3 to 5 years ( I work on short term contracts) - what will happen then? Will we have to detail the value of all personal effects etc? It feels unlikely but could they seize and sell personal effects? What about the personal effects of the wife and kids; are they at risk?
    • How could it pan out when they liquidator sees my figures are sound, ie., there is no meaningful equity, no cash, no goods, stock - no assets to be realised; do the existing creditors all get dealt with by a TIB who may not realise enough funds to get paid..?
    • I intend to fully cooperate and be as helpful as I can, but I also need to see into the future somewhat, so that I can keep my wife - and possibly the kids - informed as to what could happen. This is the most difficult part, because nothing is certain.
    Thanks in advance... apologies for rambling.
     
    Posted: Aug 23, 2016 By: Woodstain Wally Member since: Apr 27, 2016
    #20