Insolvent Company

Insolvent Company

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We currently have a client who has been trading as a limited company since 2010. His first year accounts (prepared by a previous acocuntant) showed a loss of circa £20k. The client has only recently brought his books to us for completion of his annual acocunts and VAT returns which have fallen behind considerably. We have prepared the accounts and VAT returns and the outcome is that he has actually been running the company at a loss but has continued to take money from the company. As there was money in the bank account he thought the company was making money and he was ok to do this. He is a subcontractor and has also failed to submit correct returns. In his mind he believed that he would receive CIS tax back which he would he would use to pay his VAT. We beleive that this is a lack of understanding on his part as the amount of CIS tax he has to pay over for the sub contractors he has is only marginally different to that which has been withheld from him. He is clearly not making any money. However the VAT he has charged and received from customers has effectively been funding the company as it has not been declared on returns or paid over to HMRC. He therefore is now running a company at a loss with a debt to HMRC of circa £150k. He has over the years taken £88k out as drawings (i.e amounts above the wage he has paid himself).

He is clearly insolvent and has been taken money out that he shouldn't. He has no way of paying the £150k at this point in time.

Would setting up a new company be an option?? He has clearly not acted in the best interests of the company and although his lack of understanding is no exscuse, he has just been very niaieve.

Any comments appreciated.

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By bernard michael
09th Aug 2013 11:26

The ultimate liquidator will cane him and demand back the drawings and may seek to make him personally liable for the HMRC debt. He should consult an insolvency practitioner ASAP & before he sets up another company.It may be an option but he need the existing company situation and his position clarified

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By Euan MacLennan
09th Aug 2013 14:39

"he has just been very niaieve"

Well!  That's one way of putting it!  Others might think differently.

There is only one course of action to be taken at this stage - as Bernard has said, consult an IP immediately.

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By Manraj Mand
13th Aug 2013 10:09

Next steps...

He should contact an Insolvency Practitioner to get advice asap. If he does not have sufficient funds to place the company into liquidation, I would wait for HMRC to petition to wind up the company. Should the company be placed into liquidation the IP will pursue him for the debt, so the director needs to be prepared to come to some sort of arrangement, even if he is unable to repay the full amount back. The director should also be aware that the IP will submit a negative director report and the concern will be what impact will that have on his 'director status' should he wish to form a new company. He also needs to be careful when he does form a new company that it does not conflict with the previous company, such as similar name etc.

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By brianheg
19th Aug 2013 14:48

Setting up a new company...

...Is an option BUT he needs to get proper insolvency advice from an insolvency practitioner.

The real question is - if he sets up a new company would it be more successful than the last one?

Note that there are potentially severe consequences for setting up Phoenix businesses under s216-217 of the Insolvency Act. 

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By ksagroup
19th Aug 2013 16:00

New company

If he does set up a new company HMRC will almost certainly insist on a substantial VAT security deposit so it is unlikely to be viable.  Yes, he should consult an IP.  If the company is wound up by the court then the official receiver will look into their conduct.  Please DM me and I can send you an insolvency toolkit for accountants

 

 

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