I have a client who is in jail pending trial and will be going to jail for a long time. His business has ceased trading as a result and is also insolvent with an bank overdraft of £9,000. Accounts due are for the year ending 31st March 2012 along with self assessment and these are likely to result in significant corporation tax and personal tax liabilities.
The Company will not trade again and I have been asked to cease it permanently. There are no funds thus I will not be completing any works as I will not get paid however I have agreed to assist in terms of finding out what to do next in these circumstances just to help out the familly.
eg do the last accounts/self assessment have to be completed to crystallise the tax liability, does this all get handed over to the official receiver to deal with and if so how do I go about this etc etc etc.
At the moment I have simply alerted HMRC to the position and the client's familly have alerted the bank. Can anybody offer any advice in these circumstances?
Thank you
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This is a situation where paragmatism takes over and doing the least is the best way forward - based on the information above
Get him to resign as a director also anyone else who is an officer and then do nothing.Eventually Companies House will strike the company off unless HMRC object. If they do object they can eventually apply for a Winding Up Petition and the Official Receiver will take over.
If you're feeling really kind you could transfer the Registerd Office to your address and field any correspondence for the family
As for the client himself if HMRC/the bank were to make him bankrupt he will be out of it by the time he is released
However
If the client has given a charge over any property eg matrimonial home the above advice may need to be reconsidered
no action is better
This is a situation where paragmatism takes over and doing the least is the best way forward - based on the information above
"Get him to resign as a director also anyone else who is an officer and then do nothing.Eventually Companies House will strike the company off unless HMRC object. If they do object they can eventually apply for a Winding Up Petition and the Official Receiver will take over.
If you're feeling really kind you could transfer the Registerd Office to your address and field any correspondence for the family
As for the client himself if HMRC/the bank were to make him bankrupt he will be out of it by the time he is released"
However. exactly.........................
If the client has given a charge over any property eg matrimonial home the above advice may need to be reconsidered....................... he might have signed a directors guarantee as well for the company bank account, so the overdraft will be immediately repayable if hasty action is taken.
Do nothing and tell no-one until someone has paid your fee for the cessation and you have met his other half/business partner.
Crime
It appears that the client has not yet been tried for the offence. He is, of course, innocent until proven guilty. However you may have been informed that he intends to plead guilty and, in any event, you need to be prepared for him to be found guilty.
You don't say what the alleged offence is. If it is something straightforward like murdering his wife then you probably have no concerns.
However if the offence involves activities carried on through the company, such as dealing in counterfeit goods then (obviously!) this is much more serious from your point of view because there may be a criminal investigation focussing on the business records and accounts.
Even if the offence does not involve the business but it is one from which he may have gained a financial benefit (such as dealing in drugs) then there may be implications for you because there may, after conviction, be an investigation into the client's financial affairs for confiscation proceedings.
So you may yet have some involvement with this client and his (past) financial affairs (for example by being asked / required to supply to the authorities copies of your working papers and / or any of the client's accounting records you have*).
Have a look at the procedure for voluntary striking off of a company under Companies Act 2006 s1003 which may be relevant in a straightforward case.
Don't do any work on the preparation of further accounts unless and until someone instructs you to do that and is prepared to pay for it. Ordinarily such accounts would not be prepared (by anybody) nor would anyone require them. The company can be 'killed off' without any need for those accounts.
David
* If the police ASK you to supply them with documents or information then (politely) decline to do so unless you have the client's written authority to release the material. If the police REQUIRE you to supply them with documents then they must serve you with a Court Order (typically under s345 PoCA 2002) - you must then comply with the Court Order but do NOT supply any information or explanations going beyond that (i.e. do NOT answer police questions and do NOT make a witness statement if invited to do so by the police). You still have a duty of confidentiality towards your client.
If you are in doubt as to what you must do then seek independent legal advice from your own solicitor.
2 options
1 - wait for 3 months when the company has not traded and apply for voluntary strike off, or allow the Registrar to strike off. The non-filing of accounts etc. will leave the directors open to potential fines etc. and they will be committing offences. The creditors can apply to have the company restored to the register and to have it compulsorily wound up at a later date. Interest and charges will continue to accrue on the overdraft.
2 - apply to the Court for Compulsory Winding Up on the grounds that the company is unable to pay its debts as they fall due. Fees are involved. The OR will be appointed liquidator and will investigate the conduct of the directors. From your original post - there is a CT liability but the company is insolvent - I assume that there may have been dissipation of assets and the directors would therefore be keen to avoid an investigation.
If there are assets which may be realised to generate funds, a potential third option is a Creditors Voluntary liquidation.
As the company is clearly insolvent, the directors primary responsibility is now to the creditors. They should take advice from an Insolvency Practitioner in relation to their responsibilities and the various dos and don't dos,
From your perspective, don't do the accounts without getting paid - these are the directors responsibility, not yours. If a liquidator is appointed, whether the OR or and IP, you will have a duty to co-operate with them.
If you are not likely to be paid for any work you do then I would suggest that you don't do any more than is absolutely necessary!
I may be wrong, but I do not think you are professionally obliged to work for nothing!
Be careful
If the client is a sole director, he will not easily be able to resign, as there will be nobody left to file the notice of removal at Companies House. Do not become too closely involved or you may risk taking on the role of director. If and when a liquidator is appointed, you will have to co-operate with their enquiries but probably not to the extent that this would be particularly onerous. If no creditor considers it is worthwhile to place the company into liquidation, then the in all probability Companies House will deal with the strike off for failure to file returns or accounts.
Not correct
Companies House will accept a form signed by the resigning director. In any event, Companies House has neither the power or the interest to prevent any company officer resigning. No one can prevent resignation.If the client is a sole director, he will not easily be able to resign, as there will be nobody left to file the notice of removal at Companies House.
It would help if you state what his alleged offence is.No point in assuming the course of action without knowing what your client has done.
and the offence is.......
I'm afraid the offence is murder of his wife and unrelated to the financial affairs of the company. I understand that this charge will be admitted so jail is certain.
Traumatic
This is traumatic for the husband and his family. Presumably he is being detained in custody pending trial. He may be a suicide risk.
However from an accountancy point of view the circumstances are relatively straightforward. Presumably, as far as financial problems are concerned, the family are simply wanting you to help make everything 'go away'.
Following the advice of the respondents on here should help.
I would suggest you have a word with your client's solicitor in the criminal proceedings. Will the defence be wanting to demonstrate to the court that your client was in financial difficulties prior to the murder (which might have contributed to him suffering from stress and acting irrationally and out of character)?
Will they want to call you as a defence witness either as to his financial problems or as a general character witness?
If the client is able to declare himself bankrupt then he is likely to be well clear of any period of bankruptcy by the time he comes out of prison. So that may be an appropriate way forward for him (particularly if he has no realisable assets). The solicitor is likely to be visiting him in prison and so could get any necessary forms signed (both for striking off the company and for personal bankruptcy) and return them to you.
I would suggest that you do not undertake prison visits yourself unless you are used to the procedures (and I don't think you need to meet the client face to face now). If you do visit him in prison remember to take with you ID (a passport is ideal) and NOT to take into the prison a mobile phone, cash, laptop computer, briefcase, dictaphone or anything sharp (such as a lever arch file with metal reinforced corners). Expect to get searched on entry (think airport security plus). Obviously don't expect to walk into prison with your personal supply of cannabis (or even any prescription or medicinal drugs of any kind) in your pocket (or down your sock) - you might be invited to stay longer than you had planned!
Don't expect to shake hands with your client in prison (you might be passing drugs to him). Don't expect to leave anything with him (other than perhaps documents). Even an innocuous item like a biro should not be left with him (primarily due to the risk of it being used for self harm).
Prison security varies between different categories of prison, but I would expect him to be under fairly tight security at present in the circumstances.
I doubt you will be well remunerated for this work - but I think you will find it interesting, perhaps even educational.
David