Supplier threatening to wind up company

[Shellsbells]

Hi, I'm new so please be gentle...my husband and I are both Directors of our limited company. We owe £7,800 to a supplier. They have demanded this be paid within 7 days or they will petition for winding up the company. We also have a £5k overdraft which is OK and another supplier whose account is 2 weeks late but it will be paid (luckily they are very understanding). We have work coming in and so I think we are a company which is having problems at the moment, but can continue to trade. VAT is up to date.

We have spoken with an insolvency practitioner and he has suggested an Company Voluntary Arrangement but is this the best course of action? The only assets we have are some tools. Whats the best way to go about this? Many thanks

 

[Lisa Thomas]

A CVA seems a bit excessive for such a low amount of debt and small amount of creditors. I would think in the first instance negotiating a payment plan might be better and will probably cost a lot less.

Explain to them that they will receive nothing in Liquidation and it will cost them several thousand pounds to go about it (I suspect they are bluffing) instead show them when you are expecting funds and try to reach a reasonable repayment plan.

 

[Shellsbells]

Hi

I have tried and tried to negotiate with them. They have said its not about the money but the principle and they want to be known as a company who does not tolerate people owing them money in any shape or form :-( I have written letter after letter but they wont budge.

 

[Lisa Thomas]

Either get an IP to initially write and convince them or a solicitor. Either way will be cheaper. Ultimately you could call their bluff and tell them to go ahead but only if you're willing to let the Company go.

If they are genuinely not willing to negotiate they are not going to agree to a CVA...

 

[Shellsbells]

If a creditor doesnt agree to a CVA whats the alternative?

 

[UK Contractor Accountant]

Alternative - liquidation CVL.

 

[Shellsbells]

Doesnt that cost alot of money though? Could I write to my creditors and tell them that we have ceased trading (and do so). Then when this creditor still petitions for winding up and its passed to liquidator surely he will see that theres no assets (which there arent) and take no further action? Is this do-able? Sorry if I sound clueless Ive never been here before

 

[Newchodge]

If they won't accept your proposals your company will be closed down.

Then, start another one. You will be free of debt, and can develop your new company with a better understanding of cash flow issues and so on.

 

[Ian J]

I have written letter after letter but they wont budge.

Have you tried actually talking to them rather than writing letters?

 

[Shellsbells]

I have tried everything, writing, calling and emailing. They just wont budge. I have tried explaining that by accepting my payment plan they will get their money but if they wind the company up they'll get nothing....still they're not not interested. I have recently heard that they made a sole trader bankrupt for £1700 and so they are defo gona be after us for £7800, theyre nasty

 

[Ian J]

If you have tried everything you can think of to reason with them but they won't listen it's time to start planning for the future. Let them wind up the present company on the basis that there is nothing you can do to stop them and set up newco

 

[Chris Ashdown]

Could you not get a loan for this relatively small amount

 

[Gavin Bates]

Hi

I agree with a CVA isn't the right answer. Personally I can't understand the creditors position because given the recent changes to the fees that came in recently they will be required to pay about half the value of the debt again.

The bankruptcy you mentioned must have been a while ago as the debt has to be over £5,000 for a bankruptcy petition.

Perhaps a further letter explaining the above may bring them round.

Otherwise as mentioned above plan for a new company

Gavin

 

[Lisa Thomas]

If a creditor doesnt agree to a CVA whats the alternative?

You will be back to square one again, minus the amount of costs to put the CVA proposals to creditors and facing Liquidation again.

As Gavin says you can't Bankrupt someone unless there is a debt of over £5k so either they are lying to you, they did it together with another creditor (unusual) or it was done some time ago when the threshold was only £750.

Either get someone else to write to them so they take the information seriously or let them Liquidate and start again.

 

[Shellsbells]

Thank you so much for all your replies, I really do appreciate it. Its an absolute minefield! I have spoken with my accountant this morning and he has advised that as we cannot pay the debt, to just start a new company (we have opted for partnership for time being) and just let them wind the company up. He has advised to write and say we are no longer trading. The thing that worries me most is that he said that the official receiver will come after us personally for any wages we have taken out of the company because we have taken it as dribs and drabs (as and when the money has been there) rather than one monthly salary.....is this right??

 

[Newchodge]

Did you run a payroll to demonstrate what you were being paid, or did you just take the money as it was available or needed?

 

[Shellsbells]

My accountant runs payroll for us and he suggested my husband takes £850 a month and I take £650. but in reality, the money to take all this in one go just wasnt an option. Therefore, we took money (probably not even the full amount) as and when it was there although he put thru the full amount each month

 

[Lisa Thomas]

If it didn't go through PAYE properly as a wage it will either be treated as a Directors Loan Account or an illegal dividend - both of which the O.R/Liquidator can pursue for repayment.

 

[Newchodge]

If you ran payroll and actually took less than the payroll amount, leaving the balance in the Directors' Loan Account, the company owes you money, not the other way around.

 

[MikeJ]

that as we cannot pay the debt, to just start a new company (we have opted for partnership for time being)

Be aware that if you're a partnership and this happens again, your assets will be at risk. Get in to trouble, and be prepared to lose your home.

Also, the business is struggling to pay you £1500 /month between you. That's not even minimum wage. Either you've got some decent plans to turn this around, or you need to find something else to do.

 

[Shellsbells]

Sorry one last question....do I have to cease trading for 3 months before submitting DS01? Can I submit a DS01 if I know a creditor is threatening a winding up and I am technically insolvent? (sorry thats 2 questions )

 

[Lisa Thomas]

You can't apply for strike off until 3 months after the Co has ceased trading.

Formal procedure for dissolution here:

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

If the creditor is genuine and you don't/cant rescue the Company then you may as well let the creditor Liquidate it.

 

[Shellsbells]

Thanks Lisa....are there any benefits of voluntary insolvency over just letting the creditor wind up the company?

 

[Lisa Thomas]

Voluntary will be quicker, which tends to be good news for any employees in claiming any monies back through the redundancy payments office scheme, but I don't think that implies to you.

If there are assets the Liquidator and their agents will ensure they are dealt with properly so there can be no comeback on you for misconduct such as selling at an undervalue.

In your circumstances if the creditor is threatening to wind up invite them to go ahead.

 

[Shellsbells]

And presumably now I should stop paying any creditors anything otherwise it could appear im favouring creditors and also write to say we have ceased trading?

 

[Lisa Thomas]

If you pay all creditors pro rata you won't be favouring any.

Options:

• pay money out pro rata
• hang on to it for a while in case the creditor does not Liquidate and you need funds to do it youself
• leave it in the bank account for the Liquidator to deal with if liquidated and/or Bona Vacantia (AKA The Treasury Solicitor) to deal with if struck off.

Personally I would not pay anything out now and see what happens.

 

[Shellsbells]

do i write a one line letter to creditors advising them that we have ceased trading?

 

[Chris Ashdown]

If there are any creditors who you may want to use again then you could pay them and wait a few days before you send the cease trading letter to make sure there is a clear gap between the actions

 

[Spongebob]

Open a new bank account today either as a partnership or a new limited company.

Undertake any new work or finish any existing contracts as NewCo and deposit all monies received from now on in NewCo's bank account.

Cease trading completely as OldCo and send out the Spongebob letters to creditors. Call the suppliers who you want to continue trading with and assure them that all outstanding debts will get paid by NewCo.

Within a few months all your customers and the "friendly" suppliers will have forgotten that OldCo ever existed. If the creditor follows through with their threat to wind OldCo up all well and good. The subsequent compulsory liquidation will cost you nothing and them several thousand pounds on top of the debt.

I suspect however, that they are bluffing. If nothing has happened three months after ceasing trading apply to have the company struck off. The creditor may well object, but simply re-apply three months later.

Don't bother compiling or submitting any further accounts or returns for OldCo. Before long Companies House will strike off the company anyway for non-submission of returns..

Keep copies of all the correspondence you have had with the creditor as this will be useful should the Official Receiver ever get involved. Do not however, have any further discussions or negotiations with the creditor.

 

[Don Smith]

Brilliant advice here, you've failed once so leave suppliers out of pocket and close the company. Then, for a joint if wage of less than £1,500 a month, have another go and **** it up again.

Forget Spongeblob's advice, read his threads and you'll see he's a serial business failure and currently unable to pay his CT in full, but going on holiday instead. Best to ignor this unqualified sponger (suitable user name I have to admit!).

The question you have to ask is "why will it work second time round?". If nothing's changing then don't phoenix and get a job instead.

And keep in mind your suppliers are not being unreasonable, they just want paying for the goods they supplied. For all you know the amount you haven't paid may well be putting them on the brink on collapse.

 

[UK Contractor Accountant]

The company has only been going since April 16 so I have to agree with above unless you are prepared to invest some of your own money into the company to build up and support the business forget it and go find paid employment.

 

[Don Smith]

The company has only been going since April 16

I missed that. Well in that case the business was never viable and they've basically been paying themselves from the overdraft and suppliers money. They have never made a profit. Why would anyone recommend they have another go?

 

[Glenn Martin]

Open a new bank account today either as a partnership or a new limited company.

Undertake any new work or finish any existing contracts as NewCo and deposit all monies received from now on in NewCo's bank account.

Cease trading completely as OldCo and send out the Spongebob letters to creditors. Call the suppliers who you want to continue trading with and assure them that all outstanding debts will get paid by NewCo.

r.

Pay money from existing contracts into Newco. Pay the suppliers you want to keep happy from Newco and bugger the rest.

Spongebob your advice is shameful and disrespectful to Lisa and the like who give up time to genuinely help people on here. You are not some sort of Robin Hood helping the less fortunate but a rouge advising others to scam people just because you have and seemed to have got away with it.

Have you ever considered how many small firms you may have put out of business with your actions. If you were so smart we don't create a business of note make money and create jobs as opposed to cutting corners and making money by simply not paying your way.

 

[Shellsbells]

We havent been going since April 2016. We have been going since October 2015 and so I dont know where you are getting your information from!! How dare you make assumptions about me!! You have absolutely no idea why we are in this situation!!

 

[STDFR33]

The company was formed on 10th September 2015.

Not sure where April has 16 come from.

 

[Don Smith]

We havent been going since April 2016. We have been going since October 2015 and so I dont know where you are getting your information from!! How dare you make assumptions about me!! You have absolutely no idea why we are in this situation!!

I didn't miss it then, it was never there!!

Still foolish to be giving it another go. In the last year you should only have paid yourself £2,500 each to remain solvent. Can you survive on that this time round? Or what has changed so substantially that you're 100% sure it's going to work?

 

[Shellsbells]

I have no choice but to try! I am not going into detail about my personal circumstances on here but I have to keep a roof over my head and children fed! I HAVE applied for a job thank you. I really dont need your "judgement" and Im grateful for the advice and information others have given

 

[STDFR33]

I have no choice but to try! I am not going into detail about my personal circumstances on here but I have to keep a roof over my head and children fed! I HAVE applied for a job thank you. I really dont need your "judgement" and Im grateful for the advice and information others have given

Michelle, just for one moment take a step back and consider the viewpoint of other members.


You have come to a forum where the member base is predominantly small businesses.


Yourself and Scott have started a company that has failed, leaving suppliers owed money. Every time a business goes bump owing suppliers, it potentially puts its suppliers at risk of insolvency.


Starting another company without addressing what has gone wrong is silly.


The reality is that some people are just not cut out for running a company, but perhaps make great employees.


Many small businesses on these threads have been the victim to companies like yours, and get very irritated by dubious advice given by people like Spongebob.


It is therefore not unreasonable that members don’t want you starting another company which may potentially end up making theirs insolvent.

 

[Shellsbells]

I already feel like total ***** so thanks for that! Do you think Im enjoying this? As I say you know nothing about my circumstances. I didnt plan for this to happen but sometimes things are beyond your control. I need practical advice on the best way to deal with this. This is my first business, I am NOT a serial business failure as you put it! Although this is no way makes it right because I feel like total rubbish but my creditor is multi million pound company and I hardly think me taking more than 6 weeks to pay £7,800 is going to push them under!!

 

[STDFR33]

What you need to do is calm down.


Had you have been calm and then read my post, you would have seen it for the constructive post it was intended to be.


Let me spell this out for:

1. Starting another company without addressing what went wrong will mean that your new company is just as likely to fail

2. Don’t rush into starting another company. It might be that employment is the best option to both you and Scott.

3. The audience you have sought advice from are small business owners themselves. Companies that go bust on them threaten their livelihood.