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Company liquidation

Help and discussions for strategies to get out of debt
adriangs
Posts: 15
Joined: December 31st, 2019, 10:57 am

Company liquidation

#280349

Postby adriangs » January 27th, 2020, 5:24 pm

A close friend of mine has a recently-started business (a few months old) that, after a few months of trading, doesn't look as if it's viable. Cashflow OK for the moment, but there's a quarterly rent payment coming in a couple of months time that is in danger of taking his bank balance into the red. While he can probably find the cash from somewhere in the short term, business is significantly below expectations and it's probably not going to work much longer.
Prudently, the business was started as a limited company. His only major outgoings are the rent and the business rates. He's signed a 5-year lease with a 3-year break on his premises, and has spent about £10K improving those premises.
Needless to say though, he's a bit beside himself with worry. What should he be doing now - in terms of preparing for the likely failure? What should he be saying to his landlord, and what happens about the business rates? What will his exposure be personally, even though it's a limited company?

dspp
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Re: Company liquidation

#280358

Postby dspp » January 27th, 2020, 5:48 pm

adriangs wrote:A close friend of mine has a recently-started business (a few months old) that, after a few months of trading, doesn't look as if it's viable. Cashflow OK for the moment, but there's a quarterly rent payment coming in a couple of months time that is in danger of taking his bank balance into the red. While he can probably find the cash from somewhere in the short term, business is significantly below expectations and it's probably not going to work much longer.
Prudently, the business was started as a limited company. His only major outgoings are the rent and the business rates. He's signed a 5-year lease with a 3-year break on his premises, and has spent about £10K improving those premises.
Needless to say though, he's a bit beside himself with worry. What should he be doing now - in terms of preparing for the likely failure? What should he be saying to his landlord, and what happens about the business rates? What will his exposure be personally, even though it's a limited company?


Given what you have said he would be wisest to fold immediately, perhaps whilst the ltd co is still solvent. The only reason to not do so if he thinks there is a significant cash influx that might prevent a bad situation getting worse. Even if he thinks that might happen temporarily then one should be very wary about how one times things, as being too canny can expose a director to risk.

It takes courage not to keep on digging a bigger hole. The easy thing is to keep going .....

Best wishes.

regards, dspp

scrumpyjack
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Re: Company liquidation

#280359

Postby scrumpyjack » January 27th, 2020, 5:52 pm

Insolvency is not my field but your friend needs to be very careful that he is not 'trading whilst insolvent' as that can lead to personal liability for debts.

If the situation really is as bad as you say, I think he should be consulting an insolvency practitioner or his accountant, if he has one.

adriangs
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Joined: December 31st, 2019, 10:57 am

Re: Company liquidation

#280379

Postby adriangs » January 27th, 2020, 6:31 pm

>> 'trading whilst insolvent' as that can lead to personal liability for debts.

He's lucky in that he's got a backstop (me!) who can provide quite a bit in the way of emergency funds if he needs them, but obviously I'm not going to want to throw good money after bad indefinitely. So a question is: in that scenario (i.e. background emergency supply of funds if needed) does the term 'insolvent' still apply - i.e. is trading insolvently about the viability of the business generally in his view as a director, or is it only about the actual ability to stump up cash?
Second question: he will of course have to get an insolvency practioner involved (and I'm guessing the costs for that alone are not insignificant) but how is a commercial landlord in this situation likely to react, given that he's just signed a 5-year lease?

dspp
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Re: Company liquidation

#280393

Postby dspp » January 27th, 2020, 7:03 pm

adriangs wrote:>> 'trading whilst insolvent' as that can lead to personal liability for debts.

He's lucky in that he's got a backstop (me!) who can provide quite a bit in the way of emergency funds if he needs them, but obviously I'm not going to want to throw good money after bad indefinitely. So a question is: in that scenario (i.e. background emergency supply of funds if needed) does the term 'insolvent' still apply - i.e. is trading insolvently about the viability of the business generally in his view as a director, or is it only about the actual ability to stump up cash?
Second question: he will of course have to get an insolvency practioner involved (and I'm guessing the costs for that alone are not insignificant) but how is a commercial landlord in this situation likely to react, given that he's just signed a 5-year lease?


See https://www.gov.uk/government/publicati ... -insolvent

If he is the sole company director (with say a co sec) and he thinks that you will give him money to pay the debts as they fall due then he is (imho) OK. If however you + he were joint co dirs and you know you will pull the plug, then from the moment that you make that decision (but don't tell him) then you are personally liable (but the chances of that ever being provable are unlikely). If on the other hand you wrote it into a board minute, but then you both carried on trading, then you'd both be liable ... The individual circumstances and details do matter.

This area is a minefield and if it is a ltd co of the scale you are suggesting then getting professional advice of a high quality is not cost-effective. And in any case it is not advice that will save the situation, it is just advice that allows you to put a more exact time of death on the death certificate. The real issue is whether the business can be turned around, and if so, how.

If there is a realistic chance of stretching things through to a trading upturn (or until a cost reduction can be organised, or something else) then there can be in some circumstances grounds to try and do that (and given many shops' reliance on seasonal trade that is exactly what goes on, ditto holiday tour companies etc). If on the other hand it is unrealistic to expect an uptick (etc) then better to fold early.

If at all possible it is better to cease trading whilst still solvent, then to end up in an insolvent liquidation. Put it down to learning and move on, wiser. The aim of the game in a new venture is to carry out the minimum viable experiment, then fold quick if you get the wrong outcome.

I am an engineer, not an insolvency practitioner, so please don't consider anything I say as more than just random opinion. But I have had a lot of experience at the nitty gritty end of this running UK factories.

regards, dspp

PaulBullet
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Re: Company liquidation

#280523

Postby PaulBullet » January 28th, 2020, 9:52 am

He needs to check if he has given any personal guarantees on the lease.If he has he may be stuck with paying that for 3 years anyway or until the shop is re-let

Paul

PinkDalek
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Re: Company liquidation

#280625

Postby PinkDalek » January 28th, 2020, 3:59 pm

adriangs wrote:... and what happens about the business rates?


It might depend on the Council and the business involved but see:

https://www.gov.uk/apply-for-business-rate-relief/hardship-relief

In England, councils can reduce your business rates bill with hardship relief.

To be eligible, you must satisfy your council that both:

you would be in financial difficulties without it

giving hardship relief to you is in the interests of local people


More generally is the company aware of the various reliefs, what is the rateable value and is the business by any chance a shop, restaurant, café, bar or pub?

adriangs
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Joined: December 31st, 2019, 10:57 am

Re: Company liquidation

#280634

Postby adriangs » January 28th, 2020, 4:36 pm

>> More generally is the company aware of the various reliefs, what is the rateable value and is the business by any chance a shop, restaurant, café, bar or pub?

It's a fitness studio. Unlikely to be eligible I would have thought, but I might be wrong.

adriangs
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Joined: December 31st, 2019, 10:57 am

Re: Company liquidation

#280635

Postby adriangs » January 28th, 2020, 4:39 pm

>> The real issue is whether the business can be turned around, and if so, how.

Well the thing is, it *might* be possible. It is seasonal, although in many ways January is the best time for fitness studios (new year resolutions etc.) and it's the expectations of that that haven't been met. But the business is growing by a tiny amount (1%) each month.. it's just whether that's enough.

scrumpyjack
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Re: Company liquidation

#280639

Postby scrumpyjack » January 28th, 2020, 4:46 pm

Also bear in mind that if you get too involved and are perceived as acting like a director of the company, you can be classed as a 'shadow director' and end up with the same liabilities as if you were a director. That maybe a bit dramatic if this is all as small and low key as you suggest, but as others have said, if there is no realistic prospect of the business becoming successful it is better to pull the plug now.

adriangs
Posts: 15
Joined: December 31st, 2019, 10:57 am

Re: Company liquidation

#280642

Postby adriangs » January 28th, 2020, 4:53 pm

>> Also bear in mind that if you get too involved and are perceived as acting like a director of the company, you can be classed as a 'shadow director' and end up with the same liabilities as if you were a director. That maybe a bit dramatic if this is all as small and low key as you suggest, but as others have said, if there is no realistic prospect of the business becoming successful it is better to pull the plug now.
Top <<

Useful to know, thank you.

Charlottesquare
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Re: Company liquidation

#281018

Postby Charlottesquare » January 29th, 2020, 10:51 pm

Has he checked if small business rates relief might apply and has he claimed it? It may be RV is too high but given a start up not sure how many landlords would have leased him a larger unit at outset without guarantees and/or decent deposit, so worth checking as often missed.

https://www.gov.uk/apply-for-business-r ... ate-relief

If he cannot make it work with existing business can he, subject to landlord consent, find someone in similar line to "share" premises?

adriangs
Posts: 15
Joined: December 31st, 2019, 10:57 am

Re: Company liquidation

#281478

Postby adriangs » January 31st, 2020, 6:05 pm

>> If he cannot make it work with existing business can he, subject to landlord consent, find someone in similar line to "share" premises?

Also worth thinking about - thank you


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