Walking the walk with Spongebob

[Andy Hunt]

I’ve been reading this forum for a while but always hoped I’d not be in the situation I am in today.

I’m sole director/shareholder of a Ltd company which is now on its last legs and I think the Spongebob plan is my only option so I am asking for help with the plan. I have not signed any personal guarantees.

There is about £500 in the business bank account. The company has an outstanding vat return owing £2000 and a suppliers bill is due next week (£1200+vat). Without this supplier I simply cannot continue.

Projected income during COVID 19 is realistically zero!!

Company accounts due in November should show dividends paid are covered by retained earnings.

I took a small dividend of £500/months up until March when everything went COVID crazy.

Is the company now technically insolvent?

If I can delay payment of my suppliers bill for a month does this mean I am not yet insolvent? Or should I now just take the bull (spongebob) by the horns and hold on tight ???????

I’m stressed out and I’d welcome any advice here because I can’t afford professional advice.

 

[bovine]

Speak to your supplier, explain the situation and see what they say. Ask for an extension. Worst they can do is say no and you are left with no choice but to close.

Do you think the business will perk up again soon if things start to get back to the new normal? If you don’t, spongebob it. If you do, can you operate at your pre-covid level if the supplier won’t supply you until the debt is settled.

I’ve been there, it’s stressful but you will get through it.

 

[Mr D]

The money in the account should go between creditors on a pro rata basis.

The projected income going forward - if that is zero or too little then yes sounds like business is insolvent. Get professional advice from an insolvency practitioner (free ideally) - SpongeBob is not always the sole option though does appear so from the information given.

If the business has assets besides the cash in bank then that affects things too.

You will almost certainly not be the only business going under owing a particular creditor. They had better get resigned to it. Remember the company owes the debt not you personally. Do not get talked into making payments the company cannot afford.

 

[Andy Hunt]

Thank you for the reply bovine.

I have drafted a letter to my supplier asking for an extension to my due payment. If the answer is yes then I have some breathing space. I’ve submitted my vat return but delayed payment as allowed by gov guidance. Government rules on lockdown, business closures, social distancing seem to be changing every day so I haven’t a clue what will happen in the future. I’m just confused about at what point do I become insolvent???? My account is a Tide account and they are saying that bounce back loans will be available soon but I’m thinking that might just be digging a bigger hold for myself.

 

[Andy Hunt]

The money in the account should go between creditors on a pro rata basis.
.

This is part of my confusion. Creditors as of now are suppliers bill and VAT. Should I divide the £500 in bank between them on a fair percentage calculation? As for final year accounts, that 500 isn’t enough to pay accountant so corporations tax due is unknown.

Sorry about all of the “what if”s

 

[Lisa Thomas]

The Company is insolvent, albeit for a small sum.

I would sit tight and ride it out to see if you can trade out of it - nothing will happen overnight.

If it become obvious that it cannot trade on then dissolution seems to be the best option. You can try and do this yourself, see if HMRC do it (unlikely for the small amount owed) or let Companies House do it for non filing of statutory returns.

https://www.gov.uk/strike-off-your-company-from-companies-register

Most IP's will have an initial chat for free.

 

[Andy Hunt]

No hope of recovery now..

I've managed to raise as much money as possible by selling bits & pieces. I have just paid for final accounts to be made up (half way through company year). Company showing a loss of £1000ish so there is no corporation tax due, although accounts have not been submitted yet.

£900 in bank
£2100 vat owed
£1200 owed to one creditor
£70 owed to another creditor
£45 owed to another creditor

I'm ready to send off the 'spongebob' insolvency letters but I don't know what to do about the £900 in the bank. Shall I pay off the two lesser creditors ? Or leave the £900 in the bank and see what happens?

Should I submit the final accounts first ?

 

[RobinBHM]

I'm ready to send off the 'spongebob' insolvency letters but I don't know what to do about the £900 in the bank. Shall I pay off the two lesser creditors ? Or leave the £900 in the bank and see what happens?

I did what Spongebob recommends: take the money out and put it in another account, leave it there and see if HMRC investigate.

I kept HMRC informed -I rang both VAT and PAYE, its best as sending a letter doesnt mean it gets picked up by all departments.

They never did anything, Companies house did their proposal to strike off and it went through first time.

I had customer default on a major contract, HMRC was up to date, suppliers mostly current month.

 

[Mr D]

Spread the £900 between all creditors pro rata. Don't try paying off any in full, its an illegal preference.

Leave the money in the bank and eventually the bank freeze the account and some time after that the assets (ie money) is transferred to the Crown Solicitor. Ideally do something before handing it over to them.

 

[Ian J]

I did what Spongebob recommends: take the money out and put it in another account, leave it there and see if HMRC investigate.

To what end?

 

[Mr D]

I did what Spongebob recommends: take the money out and put it in another account, leave it there and see if HMRC investigate.

I kept HMRC informed -I rang both VAT and PAYE, its best as sending a letter doesnt mean it gets picked up by all departments.

They never did anything, Companies house did their proposal to strike off and it went through first time.

I had customer default on a major contract, HMRC was up to date, suppliers mostly current month.

So you sent a cheque to the Crown Solicitor for this company asset you were holding?

 

[Lisa Thomas]

Either pay the money out to all creditors pro rata, or leave the funds in there for the Treasury Solicitor/Bona Vacantia for them to pick up post dissolution.

 

[Chris Ashdown]

You cannot pay just to some of the creditors it needs to be to all including HMRC. or none as D states pro rata to the debt owed
hmrc £2100=£554
£1200= £316
£70= £18
£45= £11
Total = £899

Blow the rest on wine and women

 

[UK Contractor Accountant]

To what end?

to hide assets away for own self interest -it's tax/debts avoidance SpongeBob style.

The plan is now out of date and needs to be rewritten with new rules coming in regarding third party tax debts and overdrawn loan account write offs.

 

[RobinBHM]

To what end?

as Lisa said: "leave the funds in there for the Treasury Solicitor/Bona Vacantia for them to pick up post dissolution"

 

[RobinBHM]

So you sent a cheque to the Crown Solicitor for this company asset you were holding?

as Lisa said: "leave the funds in there for the Treasury Solicitor/Bona Vacantia for them to pick up post dissolution"

 

[Mr D]

as Lisa said: "leave the funds in there for the Treasury Solicitor/Bona Vacantia for them to pick up post dissolution"

Bit difficult to leave the funds in there after taking them out. Would require putting them back.

 

[RobinBHM]

to hide assets away for own self interest -it's tax/debts avoidance SpongeBob style.

no, I didnt do it for that reason.

It was less than £1k -I couldve paid some out to all the creditors but one was a preferential creditor, so I wasnt in a poistion to make any decisions what to pay to who.

I could of course have done the correct thing: appoint a liquidator, who would taken his fee then distributed nothing and cost me £4k to do that.

 

[Mr D]

no, I didnt do it for that reason.

It was less than £1k -I couldve paid some out to all the creditors but one was a preferential creditor, so I wasnt in a poistion to make any decisions what to pay to who.

I could of course have done the correct thing: appoint a liquidator, who would taken his fee then distributed nothing and cost me £4k to do that.

So what was the reason you were unable to pay to preferential creditor?

 

[RobinBHM]

So what was the reason you were unable to pay to preferential creditor?

it was a dispute over notice period and holiday pay -employee took it to a tribunal.

 

[Lisa Thomas]

Bit difficult to leave the funds in there after taking them out. Would require putting them back.

Apologies, I didn't realise the funds had already been spent.

 

[Spongebob]

Either pay the money out to all creditors pro rata, or leave the funds in there for the Treasury Solicitor/Bona Vacantia for them to pick up post dissolution.

There is absolutely no legal requirement to leave any funds in the company bank account for the Treasury Solicitor.

It is perfectly lawful to remove such funds and keep them in a place of safe keeping. If a liquidator is appointed hand them over to him. If no liquidator is appointed and the company is dissolved wait for the Treasury Solicitor to come looking for the funds. When he does hand them over to him.

You will have a long wait.

 

[UK Contractor Accountant]

It is perfectly lawful to remove such funds and keep them in a place of safe keeping

what's the point of that. As @Lisa Thomas points out it needs to be paid out pro-rata to creditors to stay lawful.

 

[Spongebob]

what's the point of that. As @Lisa Thomas points out it needs to be paid out pro-rata to creditors to stay lawful.

Nonsense!

It either needs to be paid out pro-rata to creditors or kept safe and not paid out to anyone.

All I'm saying is that it doesn't have to be kept in the company bank account. Under the mattress would do just as well and be perfectly lawful so long as it is accounted for and available to be handed over to a liquidator or the Treasury Solicitor.

 

[UK Contractor Accountant]

It either needs to be paid out pro-rata to creditors or kept safe and not paid out to anyone.

Im sorry didn't know it was a choice when creditors are owed money.

I'm inclined to believe a trained Insolvency Practitioner is correct with years of service rather than someone posting as Spongebob.

 

[Red Wood]

What is the threshold that needs to be met for HMRC to appoint a liquidator, a large CT or VAT bill outstanding?

 

[simon field]

Im sorry didn't know it was a choice when creditors are owed money.

I'm inclined to believe a trained Insolvency Practitioner is correct with years of service rather than someone posting as Spongebob.

It’s a moral choice which comes down to either paying what’s owed, or taking the selfish route!

 

[Mr D]

It’s a moral choice which comes down to either paying what’s owed, or taking the selfish route!

Oh that is all right then. People will use their own morals.

The morals you were taught or developed may well be different than what others have regarding a particular issue. Or indeed someone may have no moral stance on what to do with the money and ignore it.

 

[Ian J]

Oh that is all right then. People will use their own morals.

The morals you were taught or developed may well be different than what others have regarding a particular issue.

Quite right. Many people were taught that it is acceptable to steal money that doesn't belong to them which is in effect what Spongebob is alluding to without actually coming out and saying so

 

[Mr D]

Quite right. Many people were taught that it is acceptable to steal money that doesn't belong to them which is in effect what Spongebob is alluding to without actually coming out and saying so

There is nothing wrong with that for them - and nothing anyone else can do to change them.

 

[simon field]

There is nothing wrong with that for them - and nothing anyone else can do to change them.

Quite right. It’s greed.

“I want the money so my suppliers can go without”

 

[UK Contractor Accountant]

Isn't it the Directors Legal duty in an Insolvency situation to take very step to protect the interests of creditors? Don't think morals come to it. Its the Law!

Yes you can take the funds out of the company bank account to protect them from going to the Treasury Solicitor but as already mentioned you should have already dealt with the pro-rata payment to creditors before it gets to that stage.

Its been mentioned a few times that the lead Sticky on the Insolvency Forum is out of date, contains some incorrect advice and needs to be rewritten/updated by a competent IP.

 

[Adam93]

Isn't it the Directors Legal duty in an Insolvency situation to take very step to protect the interests of creditors? Don't think morals come to it. Its the Law!

Yes you can take the funds out of the company bank account to protect them from going to the Treasury Solicitor but as already mentioned you should have already dealt with the pro-rata payment to creditors before it gets to that stage.

Its been mentioned a few times that the lead Sticky on the Insolvency Forum is out of date, contains some incorrect advice and needs to be rewritten/updated by a competent IP.

Better still, just removed from sticky for the sake of all taxpayers. I bet that sticky thread has cost the taxpayers £millions over the years.

 

[simon field]

Its been mentioned a few times that the lead Sticky on the Insolvency Forum is out of date, contains some incorrect advice and needs to be rewritten/updated by a competent IP.

Perhaps it’s time for @Ray Newman to have a look at it. Yes, it can help skint directors wriggle out of the mess they’ve made, but it also shafts multiple small businesses along the way - the very people this whole forum is aimed at!

 

[Mr D]

Better still, just removed from sticky for the sake of all taxpayers. I bet that sticky thread has cost the taxpayers £millions over the years.

Is there anything in it that is illegal?
No?

So what based on current laws and government actions would you put up to replace it?
Businesses will still have no cash and no assets. Keep them on as zombie companies for others to waste money with letters, calls and home visits? For how many years should they remain open?

 

[Adam93]

Is there anything in it that is illegal?
No?

The thing is most DIY directors don't even know what an overdrawn directors loan is, what an illegal dividend is, what allowable expenses are, was a P11d is, the list goes on and on.

I would say non-compliance is rife in companies that follow this spongebob route - you're being naive if you think otherwise.

 

[Ian J]

I would say non-compliance is rife in companies that follow this spongebob route - you're being naive if you think otherwise.

The so called Spongebob plan is supposed to be for companies that have no assets and that doesn't include companies with money in the bank whether it's in the normal bank account or has been squirreled away to another bank account in the hope that no-one notices

 

[Mr D]

The thing is most DIY directors don't even know what an overdrawn directors loan is, what an illegal dividend is, what allowable expenses are, was a P11d is, the list goes on and on.

I would say non-compliance is rife in companies that follow this spongebob route - you're being naive if you think otherwise.

Then educate them.
Those are aspects that exist separately from the spongebob plan.

People don't just non comply with them and all choose spongebob plan - the problem will be much bigger and over a length of time.

 

[nelioneil]

Part of the problem is the spongebob plan is stickied on this forum so of course that method is constantly promoted - maybe the forum mods need to review this...

It should certainly not be stuck if the end message is all about doing things to the detriment of creditors.

 

[Ian J]

Part of the problem is the spongebob plan is stickied on this forum so of course that method is constantly promoted - maybe the forum mods need to review this...

It should certainly not be stuck if the end message is all about doing things to the detriment of creditors.

I wonder if the mods have actually read the sticky as I have just read it for the first time and found the contents quite disturbing.

Whilst there are no direct instructions to do the wrong thing it is hinted at several times with allusions of how to rip off HMRC and other creditors whilst lining one's own pockets and I'm not sure that it's the sort of thing that an honourable forum should be actively promoting.

By all means have a thread devoted to how the "Spongebob Plan" works but leave out the suggestions of hiding the assets