Insolvency / liquidating a Ltd Co
Discussion
James P said:
An insolvent PSC will make me think whether either or both illegal dividends (ie more than available reserves) have been paid or funds drawn to create an overdrawn loan account. The liquidator can/ will recover both. Therefore the OP needs advice specific to him not on a forum. If either/ both apply it’s likely to be cheaper to pay off the creditors directly rather than paying a liquidator as well.
That was exactly what I was thinking. I was wondering how the company had got itself into this position in the first place. Not paying HMRC is not very clever, in my view.Like a lot of things, the lack of information makes offering useful advice difficult even for the most willing poster.
A couple of points to think about, i
Is there a bigger issue looming in the background such as historical claims from HMRC
If you close it down and settle the debts before by personal funds, will that be the end of it.
Is there any issue on drawings with regards to loan accounts
Is there any personal risk
If you have nothing lurking, possibly just stand still and wait for someone else to make the move and expend their money on this, before anyone comments, even Liquidators you are paying will tell it as it is and are bound to act properly so paying them won’t necessarily guarantee they don’t ask awkward questions.
The debt to HMRC what is it, tax, NI, vat
Only you know the facts and you don’t need a liquidator to tell you the current situation.
If it was me and I was certain nothing was hidden and I’d not drawn money out or other such things, I’d leave it and not touch any company credit cards or use any bank accounts and see who or what pops up.
A final thought, a liquidator is not your friend so if there’s an issue lurking, paying them won’t brush it under the carpet but they may manage better but I’d be very cautious about talking to anyone until you understand the situation because there will be records if there is something more complicated here
A couple of points to think about, i
Is there a bigger issue looming in the background such as historical claims from HMRC
If you close it down and settle the debts before by personal funds, will that be the end of it.
Is there any issue on drawings with regards to loan accounts
Is there any personal risk
If you have nothing lurking, possibly just stand still and wait for someone else to make the move and expend their money on this, before anyone comments, even Liquidators you are paying will tell it as it is and are bound to act properly so paying them won’t necessarily guarantee they don’t ask awkward questions.
The debt to HMRC what is it, tax, NI, vat
Only you know the facts and you don’t need a liquidator to tell you the current situation.
If it was me and I was certain nothing was hidden and I’d not drawn money out or other such things, I’d leave it and not touch any company credit cards or use any bank accounts and see who or what pops up.
A final thought, a liquidator is not your friend so if there’s an issue lurking, paying them won’t brush it under the carpet but they may manage better but I’d be very cautious about talking to anyone until you understand the situation because there will be records if there is something more complicated here
Eric Mc said:
James P said:
An insolvent PSC will make me think whether either or both illegal dividends (ie more than available reserves) have been paid or funds drawn to create an overdrawn loan account. The liquidator can/ will recover both. Therefore the OP needs advice specific to him not on a forum. If either/ both apply it’s likely to be cheaper to pay off the creditors directly rather than paying a liquidator as well.
That was exactly what I was thinking. I was wondering how the company had got itself into this position in the first place. Not paying HMRC is not very clever, in my view.For the amounts involved I'd be looking to a deal with the creditors, see if they will reduce and/or agree a long term payment plan.
DaveA8 said:
Like a lot of things, the lack of information makes offering useful advice difficult even for the most willing poster.
A couple of points to think about, i
Is there a bigger issue looming in the background such as historical claims from HMRC
If you close it down and settle the debts before by personal funds, will that be the end of it.
Is there any issue on drawings with regards to loan accounts
Is there any personal risk
If you have nothing lurking, possibly just stand still and wait for someone else to make the move and expend their money on this, before anyone comments, even Liquidators you are paying will tell it as it is and are bound to act properly so paying them won’t necessarily guarantee they don’t ask awkward questions.
The debt to HMRC what is it, tax, NI, vat
Only you know the facts and you don’t need a liquidator to tell you the current situation.
If it was me and I was certain nothing was hidden and I’d not drawn money out or other such things, I’d leave it and not touch any company credit cards or use any bank accounts and see who or what pops up.
A final thought, a liquidator is not your friend so if there’s an issue lurking, paying them won’t brush it under the carpet but they may manage better but I’d be very cautious about talking to anyone until you understand the situation because there will be records if there is something more complicated here
Out of interest, what happens with creditors whose exposure is growing to a business that is not going to continue? For example the energy company, the broadband provider, the milkman?A couple of points to think about, i
Is there a bigger issue looming in the background such as historical claims from HMRC
If you close it down and settle the debts before by personal funds, will that be the end of it.
Is there any issue on drawings with regards to loan accounts
Is there any personal risk
If you have nothing lurking, possibly just stand still and wait for someone else to make the move and expend their money on this, before anyone comments, even Liquidators you are paying will tell it as it is and are bound to act properly so paying them won’t necessarily guarantee they don’t ask awkward questions.
The debt to HMRC what is it, tax, NI, vat
Only you know the facts and you don’t need a liquidator to tell you the current situation.
If it was me and I was certain nothing was hidden and I’d not drawn money out or other such things, I’d leave it and not touch any company credit cards or use any bank accounts and see who or what pops up.
A final thought, a liquidator is not your friend so if there’s an issue lurking, paying them won’t brush it under the carpet but they may manage better but I’d be very cautious about talking to anyone until you understand the situation because there will be records if there is something more complicated here
Does the director have an obligation to notify them that the company is insolvent / not going to survive?
Louis Balfour said:
Out of interest, what happens with creditors whose exposure is growing to a business that is not going to continue? For example the energy company, the broadband provider, the milkman?
Does the director have an obligation to notify them that the company is insolvent / not going to survive?
Yes - in theory as soon as a director knows the business is going to be insolvent they have a duty to creditors and shareholders.Does the director have an obligation to notify them that the company is insolvent / not going to survive?
Louis Balfour said:
Out of interest, what happens with creditors whose exposure is growing to a business that is not going to continue? For example the energy company, the broadband provider, the milkman?
Does the director have an obligation to notify them that the company is insolvent / not going to survive?
The original post “it will likely never trade again “Does the director have an obligation to notify them that the company is insolvent / not going to survive?
If it is not trading, it isn’t or hasn’t taken on any additional debt, if the company has no money then that’s the situation.
Consuming goods and services taken in everyday language would surely mean trading but just existing with historical debts is what it is. That’s why I said if it were me, I would not go near or use any bank or cards as that would be unfair on creditors
As for creditors, it’s the risk in commerce and they will know that but I suspect the business had little infrastructure since it was Psc
TownIdiot said:
Yes - in theory as soon as a director knows the business is going to be insolvent they have a duty to creditors and shareholders.
There are lots of businesses that are probably insolvent but because they can meet their obligations are they fall due, it seems not to be an issue. If the director has funded it then and then stops funding it but takes on no more debt or trades, the window to tell creditors is very flexible, we got caught for a considerable amount when the director went radio silent and the Official Receiver literally shrugged their shoulders
DaveA8 said:
There are lots of businesses that are probably insolvent but because they can meet their obligations are they fall due, it seems not to be an issue.
If the director has funded it then and then stops funding it but takes on no more debt or trades, the window to tell creditors is very flexible, we got caught for a considerable amount when the director went radio silent and the Official Receiver literally shrugged their shoulders
Yes that's why I said "in theory"If the director has funded it then and then stops funding it but takes on no more debt or trades, the window to tell creditors is very flexible, we got caught for a considerable amount when the director went radio silent and the Official Receiver literally shrugged their shoulders
I suppose there is a big difference in thinking you can trade through it and failing and knowing you can't and carrying on.
Very difficult to prove if it's the latter.
on the first point - are you insolvent if you can meet your obligations as they fall due?
Many businesses trade on the belief in future cashflow, and the vast majority are correct to do so.
Louis Balfour said:
Out of interest, what happens with creditors whose exposure is growing to a business that is not going to continue? For example the energy company, the broadband provider, the milkman?
Does the director have an obligation to notify them that the company is insolvent / not going to survive?
The Directors have a fiduciary duty to the creditors not to allow their exposure to increase once they know, or should have know, the onset of an insolvency was inevitable.Does the director have an obligation to notify them that the company is insolvent / not going to survive?
They do not immediately have an obligation to 'notify' or take other action if they can keep the exposure static - it typically just means paying old invoices at a rate that roughly matches the rate at which new liabilities are incurred. This can go on for some time (if there's a chance of delivering a wider solution) as you're only having to keep new liabilities static - at this point there's no commercial justification for paying the poor fella who supplied you some sheet metal 6 months ago and still hasn't been paid but isn't needed any more - in fact paying him could be a preference, particularly if he's your brother.
The Directors can continue to operate the business so long as it is in the best interest of the creditors (ie no longer operating with a focus on shareholder value) - for example, if an accelerated sale is in the offing which sees the business sold for £1 but makes sure creditors have the opportunity of being paid from ongoing trading then there's a wide range of ways the Directors can manage the business to try to deliver that outcome (as there should be).
As always there will be people who game the system and use the above as an excuse to further stiff suppliers - but that's not the intent of the application of the legislation. When pursuing the above approach the Directors should be taking specific legal advice to make sure they are operating on the right side of the line.
DaveA8 said:
If you have nothing lurking, possibly just stand still and wait for someone else to make the move and expend their money on this
Do you mean let a creditor start the winding up process?I accept I may be entirely wrong but if a company is unable to pay its debts it is insolvent so the directors are legally required to liquidate the company. If the bank or HMRC issue a winding up petition and it was found that the Directors had been sitting on an insolvent company, would those Directors not be liable for some sort of penalty for failing to exercise their legal responsibility?
[quote=TownIdiot]
Yes that's why I said "in theory"
Sorry it wasn't my intention to dismiss or disagree with what you said, I was sort of musing as I wrote on the real world. I've dealt with Liquidators etc a few times and it's their stock in trade to make everything a black art or calamitous because fear sells.
As for HMRC they are more likely to pursue £5k than £500k in liquidation as those local compliance people are just horrible in every way and I think get posted as they have no off button.
I had a 1/3 share of a business and was a director but never drew a salary, in the good years got dividends. The business declined and we appointed a liquidator, my losses with 20 times HMRC and the 2/3 owner must have been a 100 times. The local compliance officer went to the liquidators office in North London and she was from Swindon on multiple occasions, she couldn't believe we were the biggest creditor's and convinced herself we'd pocketed money here there and everywhere. The so called "mustard" liquidator who was recommended to me just kept phoning my former partner and me, after 4 or 5 calls I told him to grow up, he even tried to get us to a meeting with her. He was a wimp in wolfs clothing and I think a lot of them talk tough but to be fair the HMRC lady was borderline mental
Yes that's why I said "in theory"
Sorry it wasn't my intention to dismiss or disagree with what you said, I was sort of musing as I wrote on the real world. I've dealt with Liquidators etc a few times and it's their stock in trade to make everything a black art or calamitous because fear sells.
As for HMRC they are more likely to pursue £5k than £500k in liquidation as those local compliance people are just horrible in every way and I think get posted as they have no off button.
I had a 1/3 share of a business and was a director but never drew a salary, in the good years got dividends. The business declined and we appointed a liquidator, my losses with 20 times HMRC and the 2/3 owner must have been a 100 times. The local compliance officer went to the liquidators office in North London and she was from Swindon on multiple occasions, she couldn't believe we were the biggest creditor's and convinced herself we'd pocketed money here there and everywhere. The so called "mustard" liquidator who was recommended to me just kept phoning my former partner and me, after 4 or 5 calls I told him to grow up, he even tried to get us to a meeting with her. He was a wimp in wolfs clothing and I think a lot of them talk tough but to be fair the HMRC lady was borderline mental
StevieBee said:
Do you mean let a creditor start the winding up process?
I accept I may be entirely wrong but if a company is unable to pay its debts it is insolvent so the directors are legally required to liquidate the company. If the bank or HMRC issue a winding up petition and it was found that the Directors had been sitting on an insolvent company, would those Directors not be liable for some sort of penalty for failing to exercise their legal responsibility?
I take your point but I’d think all things being equal who’s to say the director isn’t just figuring out a rescue plan I accept I may be entirely wrong but if a company is unable to pay its debts it is insolvent so the directors are legally required to liquidate the company. If the bank or HMRC issue a winding up petition and it was found that the Directors had been sitting on an insolvent company, would those Directors not be liable for some sort of penalty for failing to exercise their legal responsibility?
The key from my limited experience is when in a hole stop digging and when insolvent stop all activity especially taking money out or don’t take anymore debt on. Who can be criticized for assessing a situation.
DaveA8 said:
I take your point but I’d think all things being equal who’s to say the director isn’t just figuring out a rescue plan
This has always been the insolvency paradox. It's illegal to trade whilst insolvent, yet the Directors have a fiduciary duty to achieve the best outcome for their shareholders (and creditors).Every single business that's failed due to insolvency has traded whilst insolvent. But let's not lose sight of the fact that the OP's company is not trading.
Miserablegit said:
Getting some professional advice for peace of mind is always worth it.
No point throwing good money after bad. On the information available this case says pay up and move on. As Eric has indicated it's not a very good idea to spend the tax and then tell HMRC, "Sorry, we spent it". They have a habit of pursuing these things "pour encourager les autres".
From an insurance perspective I’d avoid doing it if you can.
If you ever need business insurance (and some personal) there will be LEGAL need to disclose that you have been a director of a company that has gone bust.
There is no time limit to the need to disclose. A lot of insurers will refuse to insure you.
https://constructionrisks.uk/insolvency-history-an...
If you ever need business insurance (and some personal) there will be LEGAL need to disclose that you have been a director of a company that has gone bust.
There is no time limit to the need to disclose. A lot of insurers will refuse to insure you.
https://constructionrisks.uk/insolvency-history-an...
Louis Balfour said:
Does the director have an obligation to notify them that the company is insolvent / not going to survive?
It's exactly the same as going into a restaurant. You're not supposed to eat a nice meal and then at the end say, "Oops, I haven't got any money so can't pay".Panamax said:
Louis Balfour said:
Does the director have an obligation to notify them that the company is insolvent / not going to survive?
It's exactly the same as going into a restaurant. You're not supposed to eat a nice meal and then at the end say, "Oops, I haven't got any money so can't pay".But to extend your analogy. You could eat the meal, expecting your wife to show up with your wallet, for her then not to do so. So you were eating insolvently but in the belief that you would be able to meet your obligations.
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