The Spongebob plan !!

[Spongebob]

Mr Anchovy,

I have repeatedly made the point that my advice on this forum is meant for owner/directors of small companies who find themselves to be in a situation where their company is insolvent, they do not have the money to appoint an insolvency practitioner, and they potentially face personal bankruptcy if they make an injudicious decision.

I have helped hundreds of people in these circumstances get their lives back on track. I receive regular updates on how people are faring in their new businesses or jobs and how valuable my advice was in surviving the perils of insolvency.

I have never had one - not one - piece of negative feedback regarding the effectiveness of my plan or my advice. It works because broadly it stays on the right side of all relevent legislation and where it may stretch the line a little it is only where the chances of repurcussions are minimal if not non-existent.

The most illuminating post that you have made in the last few days was in response to Homshaw suggesting that there was nothing to stop anyone 'fiddling the system'.

Well the threat of 10 years inside is enough to stop me doing it

No suggestion of any moral imperative; no argument that pushing at the boundaries of the law is impirically wrong or ethically indefensible; simply that the potential sanctions are sufficient to keep you on the straight and narrow.

In this you show yourself to be little different to the rest of the human race. Most of us obey laws because we fear the repurcussions of getting caught transgressing them, not because of any particular inate adherence to a moral code. The decision whether or not to obey a particular law boils down to a cost/benefit calculation based on the potential gain, the liklihood of being caught, and the sanctions the state is likely to enforce against us.

Yet in other posts you come across as an insufferable self-righteous prig who has never so much as parked on a yellow line!

What I would ask you is this;

What advice would you offer to a hard-working and very honest small businessman whose company has seen its turnover fall off a cliff over the last twelve months, and whose cash reserves have been exhausted merely covering day-to-day expenses. CGT of £10k is due and he is 6 months behind with his VAT returns and PAYE/NI

The company has no cash and negligable assets. He has an overdrawn Directors Loan Account of £10k due to his accountant not explaining properly the 'low salary/pay yourself dividends' scheme that is now ubiquitous. He is desperate, depressed, and contemplating suicide. He also has a wife and small family.

This is exactly the type of person I routinely help to get themselves back on their feet. What practical advice would you offer, or would you simply comdemn them for being so incompetent as to get into such a mess?


I'd love to know.

 

[lesliedocherty]

I was using the word because Spongebob used it...



... perhaps I have overdone it a little - the problem is Spongebob spouts so much rubbish it was just too easy!

Your a tad unfair on Spongebob, who it seems to be talks a great deal of sense and has been talking sense for years now, he's helped loads of folk out and everyone in trouble could do with someone like him giving practical advice.

 

[MrAnchovy]

Yet in other posts you come across as an insufferable self-righteous prig who has never so much as parked on a yellow line!

Really? I think the only moral judgement I have expressed is that it is wrong to set out a course of actions that is not lawful whilst stating that it is, and shout down anyone who contradicts you.

Do you consider that priggish or is it something else?

What practical advice would you offer, or would you simply comdemn them for being so incompetent as to get into such a mess?

What I would NOT do is advise them to write a letter stating that the company has no assets when it clearly has at least £10,000 of assets and tell them this is within the law.

 

[arcon5]

What I would NOT do is advise them to write a letter stating that the company has no assets when it clearly has at least £10,000 of assets and tell them this is within the law.

The Directors Loan Account of £10k is as valuable as the debtor... in this case worthless, in the aspect the director cannot pay the debt and enforcing it will probably just lead to insolvency of the debtor.

 

[Spongebob]

What I would NOT do is advise them to write a letter stating that the company has no assets when it clearly has at least £10,000 of assets and tell them this is within the law.

Ah, but what would you advise them to do?

Everything you write is a negative condemnation; you appear incapable of constructive thought. Some might say that you are little but a Troll.

As it happens in this particular case however, I think you may have a point. The original letter which I recommend is sent out to all creditors and which forms the core of my strategy to facilitate the dissolving of an insolvent company with the minimum of pain and expense was drawn up some years ago when the full potential implication of overdrawn Directors' Loan Accounts was not apparant to me.

Since then however, it has become standard practice for accountants to advise clients to trade under the umbrella of a limited company rather than as a sole trader or partnership. The advice given is that by paying oneself a minimal salary full National Insurance contributions are earned but no PAYE paid. Remuneration is made by way of dividends thereby saving several thousand pounds per year in tax.

All this is fine and dandy so long as the company is making a profit. Unfortunately what happens in all too many cases is that when profits decline or even turn to losses the directors carry on paying themselves the money they need to live on via a weekly or monthly standing order and it is only at the end of the year that their accountant tells them that they now owe the company a considerable sum via their Directors Loan Account.

My accountant never allows his clients to run up overdrawn DLAs in this way, but it appears that many accountants are not so competent and on the ball as he is. The majority of people asking me for advice these days have large Director's Loan Accounts which they ran up without their knowledge.

While clearly an overdrawn DLA is an asset of the company, in the type of cases I am asked for help with it is an asset which is unrealisable. Directors of such very small insolvent companies have generally ploughed all their savings into the business and are unable to raise any money against their house in the current climate. To compound matters they now have no income. Being forced to repay the overdrawn DLA would almost certainly result in their personal bankruptcy and the debt being written off anyway.

To take all this into account I have therefore updated my standard letter as follows;

As you will see, the changes make absolutely no difference to the impact made on the recipient but there is now no question that any attempt is being made to hide the existence of assets from creditors.

Thank you for bringing this to my attention.

Merry Christmas!

 

[Spongebob]

It should also becoming clear to readers why, if there is an overdrawn Directors Loan Account, it is preferable to have the company struck off by Companies House than being liquidated by the Official Receiver

The Official Receiver is duty-bound to pursue the director for repayment of his overdrawn DLA, although he may well be open to negotiation.

If the company is struck off however, no-one will pursue the director for repayment of his overdawn DLA.

 

[internetspaceships]

Nice to see you've considered Anchovies words and not just backed into a corner and tried to shout the loudest because he's actually committing the cardinal sin of questioning you Spongebob.

Oh.. wait!!

 

[Spongebob]

Nice to see you've considered Anchovies words and not just backed into a corner and tried to shout the loudest because he's actually committing the cardinal sin of questioning you Spongebob.

If he really had questioned my advice rather than simply rubbishing it out of hand I would have been even more receptive to considering his words seriously.

As it is, his contribution has helped strengthen the legal status of the letter at the core of 'The Spongebob Plan' and for that I am grateful. He has also given me some further ideas for improvements to the overall strategy.

Watch this space...

As ever, my only concern is for desperate individuals battling through the unknown and terrifying minefield that is insolvency. If I can help guide a few successfully to the other side with their lives intact I will be very happy.

 

[JEREMY HAWKE]

Rubbish.

The Crown has nominated the Treasury Solicitor, operating through the bona vacentia office, as its agent in administering these assets, although it is true that in many cases it will disclaim them.

If the crown has done this it is because they suspect the company has assets . !!!
If your company has assets do not follow the spongebob plan !!!

Some people are very confused about what this plan is intended for !!!!

It is intended for companies that simply have no money left nothing else !!!

If you try to hide money and still follow the plan then you deserve whats comming to you !!!!

Its a good plan but only if you are honest and tell the truth .!!

 

[OldWelshGuy]

An axe can be used to chop wood to warm a house and keep people alive, but equally it can be used to kill people. Is the axe bad?

 

[MrAnchovy]

While clearly an overdrawn DLA is an asset of the company, in the type of cases I am asked for help with it is an asset which is unrealisable. Directors of such very small insolvent companies have generally ploughed all their savings into the business

Er no, if they have 'ploughed all their savings into the business' then the company will owe them money. This is in fact the situation I come across more often - genuinely honest people who are pushed to the edge, taking out a second mortgage on their own home to pay staff before having to let them go, sometimes pushed over the edge by disappearing debtors with phoenix companies.

So whilst I wouldn't wish to see anyone in the personal circumstances you describe, I don't think that that there is much room on the moral high ground for someone who has decided to follow a route which increases their income by minimising tax and having taken that income plus at least 25% more now finds that he is in a position to illegally, but inconspicuously, evade tax altogether.

 

[internetspaceships]

Also for my 2 pennyworth - I don't think there's anything wrong with your plan Sponge - provided it's used correctly and by the people who have a genuine need to be using it.

The problem seems to be that it's being taken out of context and potentially abused.

 

[MrAnchovy]

Also for my 2 pennyworth - I don't think there's anything wrong with your plan Sponge - provided it's used correctly and by the people who have a genuine need to be using it.

The problem seems to be that it's being taken out of context and potentially abused.

That's the difficulty with setting out a scheme to evade the law - you just can't trust criminals not to use it.

 

[MrAnchovy]

An axe can be used to chop wood to warm a house and keep people alive, but equally it can be used to kill people. Is the axe bad?

No, but an axe with a loose head that can fly off and strike an innocent bystander is, although I don't think we can learn anything from that analogy.

 

[arcon5]

Er no, if they have 'ploughed all their savings into the business' then the company will owe them money. This is in fact the situation I come across more often - genuinely honest people who are pushed to the edge, taking out a second mortgage on their own home to pay staff before having to let them go, sometimes pushed over the edge by disappearing debtors with phoenix companies.

So whilst I wouldn't wish to see anyone in the personal circumstances you describe, I don't think that that there is much room on the moral high ground for someone who has decided to follow a route which increases their income by minimising tax and having taken that income plus at least 25% more now finds that he is in a position to illegally, but inconspicuously, evade tax altogether.

Clearly you've never been in a situation whereby borrowing money from the business literally is the only way of putting food on the table and money in your home LLs pocket. Until you've been at the point you have to search the house for pennies because you don't even have enough money to pay for a tin of beans in your wallet or bank account (literally) as you've lowered and lowered and lowered your wage to next to nothing just to keep yourself afloat, you won't fully be able to appreciate how easy it is for things to get out of control. Yes you could take it out as a wage instead of a DL, but under extreme pressure people don't always think straight, so if your accountant is useless you will of course dig yourself a huge hole with no way out of it.... by the time you get to this point, even the smallest amount of tax due can be overstretching you.

These are the type of people this plan is for... people who are already at rock bottom. At this point morals aren't as important as say buying some formula for your baby or stopping your LL from evicting you. So at this point if there is £50 that's just come in to the business, unlawful or not, immoral or not... i'm betting even you would use this to keep your personal life somewhat afloat.

The spongebob plan may technically have huge flaws, but realistically it's a good approach for those in need.

 

[kulture]

That's the difficulty with setting out a scheme to evade the law - you just can't trust criminals not to use it.

The plan is not designed to evade the law. Its designed to follow the law. The plan is not to encourage people to break the law or lie.

 

[OldWelshGuy]

No, but an axe with a loose head that can fly off and strike an innocent bystander is, although I don't think we can learn anything from that analogy.

So now you speak for all of us? my oh my!

The point is that it isn't the instrument here that is at fault, it is the use of the instrument.

if you can't see that then it is because it doesn't fit into your agenda. Take the blinkers off and actually read what people are saying and CONSIDER it!

you just seem intent on dismissing out of hand or completely rubbishing anything that doesn't agree 100% with YOU.

You are not really debating are you, you are just fighting.

 

[MrAnchovy]

Which of your statements would you like to stand by?

A lot of rubbish has been said in this thread about the dubious legality of this strategy. Let me reiterate once and for all that it it is competley lawful in every way.

It works because broadly it stays on the right side of all relevent legislation and where it may stretch the line a little it is only where the chances of repurcussions are minimal if not non-existent.

 

[MrAnchovy]

So now you speak for all of us? my oh my!

No, I don't think we can learn anything from that analogy, I have no idea what anyone else thinks.

If you want to distract from the issues by attacks on the person and his choice of language (both strange and IMHO unworthy actions of a moderator) you will have to do better than that.

 

[OldWelshGuy]

No, I don't think we can learn anything from that analogy, I have no idea what anyone else thinks.

If you want to distract from the issues by attacks on the person and his choice of language (both strange and IMHO unworthy actions of a moderator) you will have to do better than that.

I certainly didn't attack you, and as well as being a moderator I am also a member, and it is in this capacity that I post in this thread. I am only a moderator when I am carrying out moderating activities.

Again you state "WE cant learn anything from that analogy", yet one of the 'we' has actually thanked my post, so with respect you are not talking for others, your statement should be that YOU can't learn anything from it. It was this that I was pointing out to you when you decided I was attacking you and not your argument.

I have stated what I think about things and am not distracting from anything, you do however seem intent on just arguing with everyone who disagrees, so I shall no longer post in this thread, as I have no intention of getting into an argument with you

 

[MrAnchovy]

The point is that it isn't the instrument here that is at fault, it is the use of the instrument.

if you can't see that then it is because it doesn't fit into your agenda. Take the blinkers off and actually read what people are saying and CONSIDER it!

No, my point is that the instrument is at fault, specifically

1. A company cannot lawfully state to creditors that it has no assets when in fact it does (Fraud Act 2006 S2)
2. If a company has received a notice to submit a tax return it cannot lawfully fail to file that return. (Finance Act 1998 Sch 18 Para 3)
3. If a company has not received a notice to submit a tax return it cannot lawfully fail to notify HMRC that it is chargeable to tax. (Finance Act 1998 Sch 18 Para 2)
4. A company cannot lawfully fail to declare to HMRC that Corporation Tax is due intending to benefit by that omission (Fraud Act 2006 S3)
5. A person cannot lawfully be a party to actions of a company intended to defraud its creditors or any fraudulent purpose (Companies Act 2006 S993)
6. A person cannot lawfully, dishonestly appropriate property belonging to the Crown with the intention of permanently depriving the Crown of it (Theft Act 1968 S1)

...

• HMRC may commence an action in pursuit of taxes which have been fraudulently evaded up to 21 years after the event.
• The Registrar of Companies may restore a company to the register for 20 years after it has been wound up.

Spongebob has conceded the first point, that only leaves 5 more fundamental flaws and two pieces of information the omission of which is misleading.

you just seem intent on dismissing out of hand or completely rubbishing anything that doesn't agree 100% with YOU.

No, I am intent on dismissing out of hand statements that do not agree 100% with the law, and completely rubbishing statements that are false. I wouldn't normally adopt such an agressive tone, but it seems to me that nothing else would have any effect.

If Spongebob had set out a plan on how to rob a bank, would it be appropriate to discuss its merits and suggest improvements?

 

[MrAnchovy]

Again you state "WE cant learn anything from that analogy

For the record, that is not what I said.

 

[MrAnchovy]

The spongebob plan may technically have huge flaws...

Try telling him that.

 

[internetspaceships]

Guys, don't you all need to take a step away from this and start looking at it as you originally did?

i.e In a cold way instead of slinging around emotion and calling each other names? There's no need for it gents.

Feel free to all turn on me now for being the one who chucks a bucket of water over fighting dogs but it's about time this conversation grounded itself again.

It's a good topic for debate. Reasoned debate.

 

[Spongebob]

1. [FONT=&quot]If a company has received a notice to submit a tax return it cannot lawfully fail to file that return. (Finance Act 1998 Sch 18 Para 3)[/FONT]
2. [FONT=&quot]If a company has not received a notice to submit a tax return it cannot lawfully fail to notify HMRC that it is chargeable to tax. (Finance Act 1998 Sch 18 Para 2)[/FONT]
3. [FONT=&quot]A company cannot lawfully fail to declare to HMRC that Corporation Tax is due intending to benefit by that omission (Fraud Act 2006)

1. [/FONT]

[FONT=&quot]OK Mr Anchovy,


Let's say that as soon as the letters are sent out to creditors, the director(s) resign, leaving the company without officers. For reasons best known to themselves, Companies House allows this to happen, as I know from personal experience.


The company is then quite literally unable to file any returns or notify HMRC of any tax due, because there is no-one there responsible for doing it.


The company may be guilty of technical offences under The Finance Act, but the erstwhile director(s) are guilty of nothing.


You know as well as I do that in these circumstances the company will either be struck off as a matter of course for non-submission of returns, or wound up by HMRC and The Offical Receiver appointed liquidator.


Either way, any fines or penalties levied against the company will be written off if there are insufficient realisable assets for a dividend to be paid to creditors.


I'm still waiting for any constructive advice you may have for director/owners of small insolvent companies.


Until you furnish us with your pearls of wisdom I shall consider you a troll and feed you no further.[/FONT]

 

[Sky Racer]

Just a little update on my own situation.... I followed the spongebob plan with no problems. The letter was sent to all concerned although they did seem to ignore it judging by the letters that arrived on the doormat over the following weeks. The end result was the company being dissolved by companies house and the debts owed to the bank I have arranged to pay myself as the loan and overdraft were covered by a personal guarantee.

The bank have given decent terms that suit both parties and the business is no more.... No more stress, no more time spent busting my chops to keep the company solvent.

Thanks SB....some may not agree with your plan but those will inevitably be the ones who don't need it and the best of luck to them. There will always be differences in opinion regarding the plan but I can say it worked for me and thank you.

 

[lesliedocherty]

Great news, bet the weight taken from your shoulders is a great relief, good luck with the future.

 

[Spongebob]

Thanks SB....some may not agree with your plan but those will inevitably be the ones who don't need it and the best of luck to them. There will always be differences in opinion regarding the plan but I can say it worked for me and thank you.

Glad to be of assistance, mate.

Pedants will get into a stew about the legal technicalities of 'The Spongebob Plan' but for anyone struggling with an insolvent company and without the means to finance a voluntary liquidation it offers salvation.

The simple facts are;

a. No-one is ever going to get into serious trouble with the law by following this strategy properly.

b. It fookin' works!

 

[Alimal456]

PM sent SB...

 

[Alan R Price]

Just a little update on my own situation.... I followed the spongebob plan with no problems. The letter was sent to all concerned although they did seem to ignore it judging by the letters that arrived on the doormat over the following weeks. The end result was the company being dissolved by companies house and the debts owed to the bank I have arranged to pay myself as the loan and overdraft were covered by a personal guarantee.

The bank have given decent terms that suit both parties and the business is no more.... No more stress, no more time spent busting my chops to keep the company solvent.

Thanks SB....some may not agree with your plan but those will inevitably be the ones who don't need it and the best of luck to them. There will always be differences in opinion regarding the plan but I can say it worked for me and thank you.

I'm glad things are working out for you. It's a shame there are a few people who post here who are more interested in judging others than actually offering constructive advice and help.

 

[justin2it]

Glad to be of assistance, mate.

Pedants will get into a stew about the legal technicalities of 'The Spongebob Plan' but for anyone struggling with an insolvent company and without the means to finance a voluntary liquidation it offers salvation.

The simple facts are;

a. No-one is ever going to get into serious trouble with the law by following this strategy properly.

b. It fookin' works!

Hello sponge bob, I've been following your posts very closely and really appreciate the information you provide. Would you mind if I pm you with about a situation I have. Could really do with your advice. The liquidators are quoting fortunes.

Thanks

 

[nikkikenney]

I would also like to say thanks to Spongebob, your posts and advice on here have been a great help. My hubby and I are going through the cease trade route etc. at the moment and it is of course daunting but it will be worth it fairly soon I'm sure.

 

[Monstersball]

I have initiated this plan and am now being asked for IP details and have creditors saying they are going to instruct debt collectors. Isn’t the letter supposed to stop that type of thing?

 

[Lisa Thomas]

Hi you are replying to a post that is 6 years old!

Best to put your own post up and put it under the Insolvency section of the forum.

The 'spongebob' plan is only supposed to be used where an insolvent Company cannot afford to pay for Liquidation and invites creditors to liquidate, failing which you will apply for dissolution (which creditors can object to).

Creditors have the right to continue to recover their debts unless and until the Company is Liquidated or dissolved.

Did you take advice on Liquidation from an IP before you decided to try and dissolve the Company?

Does it have any assets?

Are there any outstanding overdrawn Director Loan Accounts?

 

[Monstersball]

Hi you are replying to a post that is 6 years old!

Best to put your own post up and put it under the Insolvency section of the forum.

The 'spongebob' plan is only supposed to be used where an insolvent Company cannot afford to pay for Liquidation and invites creditors to liquidate, failing which you will apply for dissolution (which creditors can object to).

Creditors have the right to continue to recover their debts unless and until the Company is Liquidated or dissolved.

Did you take advice on Liquidation from an IP before you decided to try and dissolve the Company?

Does it have any assets?

Are there any outstanding overdrawn Director Loan Accounts?

Sorry! Yes. I have another company in liquidation with an IP- costing an arm and a leg. No overdrawn DLA here and no money for an IP. No assets at all. A couple of trade creditors and some wages. Biggest creditor is the Pensions Regulator- £4,400 fine for failing to click a button and some rent £4000. No tax owing. What happens if the creditors take me to small claims for the money? As a Ltd company aren’t I protected from that?

 

[JEREMY HAWKE]

Yes they can only take the limited company to court and not you personally .
Did you personally guarantee the rent ?

 

[Monstersball]

No, I didn’t guarantee the rent.

 

[JEREMY HAWKE]

Then you should not be liable

 

[Lisa Thomas]

Sorry! Yes. I have another company in liquidation with an IP- costing an arm and a leg. No overdrawn DLA here and no money for an IP. No assets at all. A couple of trade creditors and some wages. Biggest creditor is the Pensions Regulator- £4,400 fine for failing to click a button and some rent £4000. No tax owing. What happens if the creditors take me to small claims for the money? As a Ltd company aren’t I protected from that?

They can only pursue the debt owed by the Company from the Company (unless you gave a personal guarantee).

The Limited corporate veil protects you as a Director unless you have given PGs or committed offences as a Director which can be overturned/pursued personally by an IP.

Out of interest are you paying your IP personally or are they being paid from Company assets?