When a Ltd Company ceases trading what happens to the lease

[CoffeeShop]

Does anyone know anything about leases please?

If a ltd company ceases trading what happens to the outstanding premises lease? Can the landlord/agent make us pay it personally even if the company has closed? There were no personal guarantees in the lease and none were given seperately.

Also, how does a company officially cease trading? Do we have to have an IP or can we simply register it's closure at company's house, close the bank account etc and write to the landlord ourselves? (The company has no debts or assets - only the outstanding lease).

If we do cease trading and one of the Directors owns another company which they are sole Director of will this have any impact?

Thanks for your help.

 

[Spongebob]

When a company ceases trading you do not have to 'do' anything officially. After 3 months you can apply to Companies House to have the company struck off using form DS01 and unless a creditor or other interested party objects the company will cease to exist.

I would write to the landlord however, using this standard letter.

Needless to say, the landlord will do nothing - he is not going to spend money winding up a company that has no money!

If the company has no assets and is no longer trading then it is insolvent as it is unable to fulfil its obligations under the lease. Congratulations by the way, for managing to negotiate a lease for a limited company without having to give personal guarantees. That was a good day's work!

Your landlord will be left cursing his stupidity, but there is nothing he can do!

All this will have no impact on any other directorships.

 

[smo]

The answers to the questions you ask depend entirely on your lease.

If you gave a personal guarentee against the lease when you signed then yes, the landlord can and probably will make you personally pay. If you didnt and it was signed entirely by the Ltd company then no.

 

[CoffeeShop]

Many thanks for both of the replies - they are very helpful.

I'm 99.9% certain we didn't give any personal guarantees. They were never discussed or mentioned by anyone, there is nothing in the lease like this (that I can see) and we didn't sign anything additional to the lease. No-one who looked over the lease for us mentioned anything about it having a personal guarantee (although we didn't specifically ask this question) and so I am almost certain there isn't one. Surely it would be apparent (even to me) reading the lease if there was a clause giving a personal guarantee?

 

[Spongebob]

It sounds like you're in the clear, then.

Simply move out all your stuff from the premises and then send the letter to your landlord. Refuse to speak with him or his agent personally and insist that all correspondence is conducted in writing.

Do not be scared by any bullying tactics he may employ. He only has any power while you remain in his premises. Once you have left, and he has no personal guarantees, he is completely impotent. Always remember that his contract was with the company, not you.

He may object to the striking off once or twice out of spite, but just keep applying every three months until it goes through. There's no real rush, anyway.

Concentrate on the next phase of your life. Good luck.


Edited to add: I am right in assuming that the lease was in the name of the company, and not your own name?

 

[antoine82]

There is nothing he can do if you did not agree on a personal guarantee. However, you might lose your desposit which can be quite high sometimes. DO you know the amount of yours?

 

[gordano]

Commercial leases can sometimes be complex, especially if you are not familiar with them. My advice would be to have a legal person check over the contract, it may not use words such as "personal guarantee" there could be other clauses that refer to a director acting as guarantor, you really should get the lease document checked by an expert.

One other point. Even if your company ceases trading you may still have net assets? If you do then these could be forfeited under the lease to cover any rents owing, repairs, etc. If you give notice to the landlord that you are ending the lease and are unable to pay rent, then you subsequently sell any net assets of the business you could be liable - again it comes down to the detail of the lease agreement that you have signed.

Get some legal advice on your lease, a small investment now could prevent a bigger problem later.

 

[Spongebob]

One other point. Even if your company ceases trading you may still have net assets? If you do then these could be forfeited under the lease to cover any rents owing, repairs, etc.

Which is why I suggested clearing everything out of the premises before writing to the landlord.

It is always important in these situations to vacate the premises before giving notice to the landlord.

 

[gordano]

Which is why I suggested clearing everything out of the premises before writing to the landlord.

It is always important in these situations to vacate the premises before giving notice to the landlord.

That is good advice Spongebob however if there are other assets, such as vehicles, bank deposits etc, and the business has net assets at the time of notice sent to the landlord to default on rent then it could result in further issues.

For example "after" giving the landlord notice to terminate the lease prematurely there is an unpaid liability (the lease), if the business owner then subsequently sells off assets and pockets the proceeds they may have (inadvertently or otherwise) committed a fraud against the landlord.

I still recommend that legal advice is sought before sending the letter.

 

[gibby]

This is why a personal gaurantee should never be given on a lease.
A friend of mine made this mistake in a shopping centre and sadly there was not enough trade to make the biz viable.
As a result the shopping centre took every bit of action they could when he gave notice to leave. They actually were obstructive in letting a new tenant into the premises and demanded almost 100k for the remaing years.
He has now lost everything and got an order on his house.

 

[Alan R Price]

For example "after" giving the landlord notice to terminate the lease prematurely there is an unpaid liability (the lease), if the business owner then subsequently sells off assets and pockets the proceeds they may have (inadvertently or otherwise) committed a fraud against the landlord.

I'm not sure it would be fraud against the landlord however any director who disposes of a company's assets when it has debts and trousers the cash to the detriment of the creditors is guilty of misconduct, possibly even of a criminal offence.

 

[Wild Goose]

I'm not sure it would be fraud against the landlord however any director who disposes of a company's assets when it has debts and trousers the cash to the detriment of the creditors is guilty of misconduct, possibly even of a criminal offence.

As Alan rightly says, the directors have a duty not to dispose of company assets at an undervalue during the period leading up to liquidation. The Insolvency Act (s238) defines such occurance as "where the company confers a benefit without obtaining due consideration at a time when the company is unable to pay its debts". In other words, you are likely to be in breach of your director's duty if you flog stuff off on the cheap - be aware that the courts have the power to go back two years; a director's only real defence would be that he had reasonable grounds to believe at the time of the transaction that the company would be able to continue trading.

I'd be more concerned about what becomes of the proceeds of any such asset sales, or for that matter any last monies that trickle in from the company's remaining debtors. Ordinarily, when things are going well, a director's prime duty is to the shareholders. However, when a company becomes insolvent that changes in so much as a director's overriding duty is to the company's creditors. So a director cannot, for example, pay one (ordinary) creditor in preference to another; a matter that often comes to the fore when the director's loan account - the amount he is owed by the company - is repaid by the company in preference to amounts owed to other creditors.

By the way, if the director's loan account is such that the director owes money to the company then the liquidator / official receiver is able to pursue the director for that.

Creating a preferential creditor is a complex area, as it can extend back to the final trading period (to the point at which it should have been reasonably obvious to you that the company was insolvent and unlikely to be able to trade its way out of financial difficulty). So although there is some really good practical advice from Spongebob and others, you should OP also be aware of the potential pitfalls outlined above: director's duties; director's loan account; and creating a preferential creditor. You won't be out of the woods until you address these matters.

I have to ask OP, have you asked your accountant about your company's insolvency? The course of action you take would IMO depend upon your specific circumstances. For example, I mightn't be keen to invite the landlord to instigate winding up action if your director's loan account is overdrawn ie if you yourself owe money to the company. For that reason, I think professional advice tailored to your specific circumstances is essential if you are to give yourself the best shot at avoiding the sand-traps.