INSOLVENCY SERVICES
Liquidation is the process by which directors agree to formally close their business and remove it from the company register. Depending on the current financial situation, this can take the form of a Members’ Voluntary Liquidation (MVL) for solvent companies or, more commonly, a Creditors’ Voluntary Liquidation (CVL) for insolvent companies.
For a company with unmanageable debts and no prospect of recovery, this can be a good option to ‘wipe the slate clean’. At least, this is how many Insolvency Practitioners (IPs) will sell their services to directors. However, this is not always the case. Depending on a variety of factors, initiating insolvency proceedings can cause a ripple effect that leaves directors facing unexpected criminal and financial charges.
SHOULD I LIQUIDATE MY BUSINESS?
There is no definitive answer here and it very much depends on your business’ circumstances as well as your personal liability.
If your business has no liabilities outstanding and little or no assets, then an MVL is a viable option for you. As mentioned further down this page, you need to be 100% sure that your ‘affairs are in order’ before initiating proceedings as liquidation can have unexpected consequences. This is why you should always consult independent insolvency experts before making any final decisions.
If your business has liabilities, you will need to go through the CVL process. This will see a licensed insolvency practitioner appointed to liquidate the business. They will take control of the company and sell its assets to maximise returns for creditors.
YOUR PRE-LIQUIDATION CHECKLIST
Before deciding to liquidate, ask yourself the following questions.
Have you or any other directors signed any personal guarantees for business loans?
Have you borrowed money from the company i.e. a director’s loan account?
Have you taken dividends when the company was insolvent/struggling financially i.e. illegal dividends?
Have you spent a CBILS/BBLS loan on anything other than business expenses?
DO YOU OWE LARGE SUMS TO HMRC?
Did you ever not follow the rules governing directors’ conduct?
If the answer to any of these questions is “yes” then you need to stop and consult a business debt specialist as you could face serious personal consequences.
What if Your Answer is Yes?
If any of the above are reflective of your experience, formal liquidation proceedings could cause serious financial and legal issues for you and your fellow directors. Some of the issues to consider include:
PERSONAL GUARANTEES
Any formal insolvency will make you personally liable for these debts. This means that you will be pursued by the lender, often aggressively for the full amount outstanding. In the worst-case scenario, you will lose your assets, your home or even be made bankrupt.
DIRECTORS’ LOANS IN LIQUIDATION
Taking money from your business is not illegal. However, in the event of insolvency, it will be viewed as a company asset. This means that the liquidator will make you repay it. Although you may have ‘only taken a small amount’, liquidators will often add additional costs and other expenses into the final bill. This means you could be asked to pay a vast sum or face bankruptcy.
OVERDRAWN DIRECTOR’S LOAN ACCOUNT
At one point, director’s loans were relatively unregulated; however, in recent years HMRC have been policing them more closely. As a result, there are strict rules and guidelines regarding how directors should manage their DLA.
You have 9 months from the end of your business’ accounting year to repay your DLA. After this period, a DLA becomes ‘overdrawn’. This does not mean you have to pay it back, but you will start to incur tax penalties.
If the loan is more than £10,000 you will be required to pay income tax and national insurance. Your business will also have to pay corporation tax. This is part of the reason that the totals owed for directors’ loan accounts can be surprising. Over many years a DLA can accumulate a large tax bill on top of the original amount.
WHAT HAPPENS TO A DIRECTOR’S LOAN ACCOUNT DURING INSOLVENCY?
In the event of formal insolvency such as liquidation ministration, your DLA will be viewed as an asset of the company. In this case, the insolvency practitioner overseeing the process will work to recover this debt.
This means that you will be personally pursued for the full amount, with the potential for additional cost, fees and interest to be added. This means you could end up being forced to pay far more than you originally anticipated. It is relatively common for the final bill to be more than double the amount ‘actually owed’.
WHAT WE CAN DO FOR YOU?
Compass and Partners Ltd provides UK businesses and individuals with partners specialists insolvency services, including winding up petitions and how to challenge a statutory demand, along with helping clients with proposals for IVA’s, bankruptcy, liquidation, administration and CVA’s and attend creditor meetings on your behalf and take actions against directors of insolvent companies.
KNOWLEDGE OF PERSONAL AND COMPANY INSOLVENCY
Creditors and debtors in need of advice, guidance and support can access our knowledge, which extends across all areas of insolvency (personal and company). Oftentimes, creditors and debtors are disenfranchised from the insolvency process due to the inaccessibility of specialist support and guidance. We can provide answers for all the possible questions a creditor or debtor may have because of our considerable experience and wide range of services. Additionally, we work closely with licensed insolvency practitioners and experienced barristers, specialising in insolvency, debt litigation, commercial, and other related areas of law to supplement our knowledge base.
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