Voluntary liquidation

[maty1974]

Some advise would be much appreciated!

I have been company director for the past two years of a limited company which is a relatively successful small company, this is my main job and I work here full time.

Back at the beginning of the year I decided to go into business with a close friend and in May this year we set up a seperate company, unfortunately despite our best efforts this has not worked out and we took the decision last week to cease trading due to the fact that our takings have not reached a point where they cover our outgoings. Up until this point we have been paying our own personal money into the company to boost the cash flow. At no point have either myself or my friend (who is also a director) taken a salary. We gave notice to our staff and we have just paid their final salaries. We have about £6K worth of asset but unfornately we have a £15k business loan, we have a few small creditors who in total are owed in the region of £1500 and we will have a VAT bill that would be due next month of approx £3K.

We went to see an IP who advised us that she would basically take over and put us into Voluntary Liquidation and her fee would basically be about £4-6k so as long as all of our assets sold for that amount then it would cover her fee.

Firstly I am worried how all of this will effect my position with my other company, I have in no way acted inproperly but does the fact that I have a business going into liquidation effect my directors role with this company.

Would you recommend that I hand everything over to the IP in order to make sure everything is carried out as it should as I am petrified if we do it ourselves we will make a mistake and this will go against me. But in following this route I am aware that what assets we do have wont actually go towards paying any of our creditors and this does not sit comfortably with me!

Secondly it has become apparent that we signed a Directors Guarantee with the bank for the loan we were not happy to sign this at the time however we were told by the business manager that it was just a formality they would never come after us!! I know now how ridiculous this sounds but at the time we never assumed that the business would not succeed 'Hindsight eh'. We have just paid the first months loan repayment so have not actually told them yet that we have ceased trading.

Any advise would be much appreciated!

 

[David A]

Personally, I don't think the 6K level of assets justifies getting an IP involved.

Here is my personal opinion:

Your first priority is that you need to protect your position, because as sure as night follows day, the bank will want their money back and will use the personal guarantee you gave without any scruple. So, liquidate the assets and use this any any other cash to reduce the bank loan liability. You will still owe, but the amount to pay back will be lessened by using the assets in this way.

If it were possible, I would hope that you would be able to look after the smaller creditors - sadly this does not appear workable.

Next, close the company bank account.

After this write to creditors stating that as a responsible director, you have taken the decision to cease trading as the company has become insolvent.

Then consider resigning as a director of the company (together with your fellow director). Companies House will then eventually simply strike off the company from the register.

 

[Phil Richardson]

There are a lot of posts on here so it'd be worth searching for them.

My advice is not to use an IP, they will certainly take your £6k and if you don't get the full asking price for your assets you will be personally liable.

Do you really need to go into liquidation, instead of giving £6k to the IP why don't you use that to pay off all of your creditors and the remainder to pay off as much of your bank loan as possible.

You have to pay the bank loan anyway so going into liquidation for the sake of £4.5 k just isn't worth it in my mind.

Going into liquidation doesn't affect your role as a director at all if you have done nothing wrong. However it will remain on your record and you will find it a lot harder to get credit, business finance, insurance, leases etc for any company. If you can avoid it do everything possible.

If you do need to go into liquidation do it yourself, my business went into liquidation about 18 months ago and I don't have a good thing to say about IP's.

 

[Spongebob]

The very last thing you need is an IP milking you of five grand or so!

It all sounds very straightforward. You have done the right thing by ceasing trading and so have fulfilled your responsibilities as directors of an insolvent company.

Liquidate the assets and reduce the liability to the bank. Technically this could be viewed as preferring the bank as a creditor and improving your own positions as guaranteurs, but the amounts involved are so small that in reality no issue is ever going to be made of it.

Do not submit any more VAT returns. This way, HMRC will be unaware that any money is due and so will not object when you apply to Companies House to have the company struck off the register. It is highly unlikely that any other creditors will either. If one does, pay them!

 

[maty1974]

thanks so much for your advise, I have spoken with our Accountant and he is of the mind that if we liquidate our assets we will only realise about £2-3k so we would not be able to settle our creditors. He is of the mind that we appoint the IP. And leave them to deal with it as this is the least stressful and will ensure my interest in my other company would be best protected I.e no mistakes made on our part not distributing the funds correctly!

He then seems to think we will be able to negotiate a settlement direct with the back.

 

[David A]

He then seems to think we will be able to negotiate a settlement direct with the back.

He may 'think' a settlement might be negotiated, but if they have guarantors who have assets you can be sure that they will be playing hard ball.

Don't forget, it's you the bank will chase, not your accountant.

 

[Soulenler]

He may 'think' a settlement might be negotiated, but if they have guarantors who have assets you can be sure that they will be playing hard ball.

Don't forget, it's you the bank will chase, not your accountant.

There is a difference between what people think others will do and what they actually do
Go and talk to your bank yourself. First things first, try to negotiate with the bank yourself as it's you who has to pay and not the accountant.

 

[Alan R Price]

Your first priority is that you need to protect your position, because as sure as night follows day, the bank will want their money back and will use the personal guarantee you gave without any scruple. So, liquidate the assets and use this any any other cash to reduce the bank loan liability. You will still owe, but the amount to pay back will be lessened by using the assets in this way.

David

What you are suggesting is actually illegal. To prefer one creditor deliberately to another when a company is insolvent is called a preference and the liquidator can sue the recipient of the payment and the directors who were responsible for making it. It can also be grounds to support an application for disqualification against a director. I do however agree with Spongebob that the amounts involved are unlikely to result in action being taken although it does not alter the facts.

Any bank will be prepared to negotiate over a personal guarantee liability however it appears to me that the bank may not have followed its own procedures. maty1974, you should have been advised to go and take independent legal advice about the consequences of signing the document. The fact you weren't might well invalidate the guarantee. I recommend you take legal advice on the matter - Clare Kaudeur of Clarkmans is a specialist solicitor who posts here and will probably be happy to have an initial look-see free of charge.

Whether you want to put the company into liquidation will depend on how long you want the matter hanging over your head. If you take action now you will have a defined path forward and the problems will largely be taken out of your hands. The bank will come after you at some stage, come what may, and it is really only a question of what deal you do, assuming the guarantee is valid.

As regards DIY liquidations, here is an article I recently wrote on the matter: http://www.marshmanprice.co.uk/business-rescue-insolvency-news/111006-diy-liquidations.htm.

The price you have been quoted by the IP is perfectly reasonable in the circumstances. In the final analysis however it is a very small company and it is unlikely there will be any ramifications for you except as regards the guarantee - subject to my comments above. There have been some observations here about the practical aspects of the situation and I have tried to balance things with a couple of more technical points. You have to decide which you feel more comfortable with: your accountant will have referred you to an IP he knows and has confidence in and has probably referred clients to before. Alternatively you may feel a DIY liquidation is more appropriate, with the risk, however small, that it might come back to bite you on the backside.

 

[maty1974]

Thank you Alan for your very detailed response. We had been advised on preferential creditors etc and what you said has reaffirmed this for us.

I think we are likely to appoint a IP in order that we can then have the peace of mind that everything has been carried out correctly.

Thank you for the advice relating to the Personal Guarantee, we certainly were not advised to seek any form of legal advice and in fact his words when we questioned whether we should sign it or not was 'dont worry they arent really worth the paper they are written on, we will never pursue you for it'

Thanks once again.

 

[Alan R Price]

. . . we certainly were not advised to seek any form of legal advice and in fact his words when we questioned whether we should sign it or not was 'dont worry they arent really worth the paper they are written on, we will never pursue you for it'

It sounds as though the bank may well have a problem then. I really do recommend talking to Clare.