Insolvency advice

cooliegirl

Hi

I need advice please. I'm considering winding my small online Limited company up. I'm hoping that someone can help or at least point me in the right direction. I've heard that approaching an insolvency company isn't always the best and most cost effective route.

I have the following as it stands:
VAT: £3000
Overdraft: £5000
Business credit card: £1500
Business Loan: £1110

Sales have been precarious for about a year now and profits are now non existent, I cannot recover from where I am now. We have been trading for 5 years. It's a shame to say goodbye but it's not worth the stress any more. I can't cut back on anything more, competition is tough and people just are not spending the way that they used on my product (ladies clothing). The only asset that I have is my stock, but to be honest there is probably only about 5k, if that.

I have contacted my bank, and both the overdraft (£5000)and the loan (£1110) are covered by a directors guarantee, so I am personally liable.


What would be the best course of action from here and how can I avoid affecting my personal financial affairs?

Also, what is the consequence for defaulting on the bank? Does this mean that if I were to set up another company in the future that I would not be able to borrow again?

Mouse1812

The bank will almost certainly add the credit card to the bank overdraft, so winding up the company will only “save” you £2,000 VAT.

If you are below the VAT deregistration limit (Sales less than £75,000 per year) I would deregister for VAT immediately to stop that bill getting any worse.

Then (AFTER deregistration) sell as much stock as you can quickly, eBay perhaps. Your only option is to pay the sales proceeds into the company bank account. While technically that could be seen as a preferential payment I’ve seen far bigger overdrafts cleared without repercussions. When you have shifted as much stock as possible, cease trading.

HMRC might not be too aggressive for only £2,000, so you might have some time.

If you do raise £5,000 for the stock you will then personally have to pay the bank £2,600. You might be able to negotiate a time to pay this without too much damage to your credit file.

Once the company has ceased trading for three months you can apply to Companies House to have the company struck off. You will have to notify HMRC that you have done so and should explain the company is insolvent and there are no assets to fund a liquidation. HMRC could block the striking off application and apply for a winding up order to place the company’s affairs into the hands of the Official Receiver. Whilst that would be a pain, and you would have to be interviewed, it will still save you the £2,000 VAT and the cost of a formal liquidation (£’000s).

cooliegirl

Mouse1812 wrote: »

The bank will almost certainly add the credit card to the bank overdraft, so winding up the company will only “save” you £2,000 VAT.

If you are below the VAT deregistration limit (Sales less than £75,000 per year) I would deregister for VAT immediately to stop that bill getting any worse.

Then (AFTER deregistration) sell as much stock as you can quickly, eBay perhaps. Your only option is to pay the sales proceeds into the company bank account. While technically that could be seen as a preferential payment I’ve seen far bigger overdrafts cleared without repercussions. When you have shifted as much stock as possible, cease trading.

HMRC might not be too aggressive for only £2,000, so you might have some time.

If you do raise £5,000 for the stock you will then personally have to pay the bank £2,600. You might be able to negotiate a time to pay this without too much damage to your credit file.

Once the company has ceased trading for three months you can apply to Companies House to have the company struck off. You will have to notify HMRC that you have done so and should explain the company is insolvent and there are no assets to fund a liquidation. HMRC could block the striking off application and apply for a winding up order to place the company’s affairs into the hands of the Official Receiver. Whilst that would be a pain, and you would have to be interviewed, it will still save you the £2,000 VAT and the cost of a formal liquidation (£’000s).

Thanks

Can I just clarify (my mistake), the HMRC debt is actually £3000 and goes back to a previous debt from VAT that should have been paid when I went over the threshold a few years ago. It took some trying but I managed to get a payment arrangement agreed of £250 per month. This £3000 is what is still left to pay.

I didn't want to do this but I guess I could put the debt onto a personal credit card to avoid any potential damage to my credit, assuming that I can afford to repay it that way.

Mouse1812

I presume the debt you are referring to in the second paragraph is the bank debt, not the VAT.

cooliegirl

Mouse1812 wrote: »

I presume the debt you are referring to in the second paragraph is the bank debt, not the VAT.

yes the bank debt

Mouse1812

Possibly your most expensive option, any chance of getting a job?

cooliegirl

Mouse1812 wrote: »

Possibly your most expensive option, any chance of getting a job?

Yes, I'm already on to that, I may be in luck. It's not going to pay a great deal but if it goes to plan, it will be something. I'll find out in the next few days.