UKC

I'm one of two directors (50/50 share) of a Ltd company which we are discussing folding due to a combination of bad timing, rotten luck and inexperience on our parts.

My question is this - The company is in debt to HMRC. If we were to fold, what would happen to that debt? The company doesn't really have any assets to speak of. I assume HMRC will chase myself and the other director for the money, but I wanted to hear from others who have been in a similar position.

I'll be getting legal advice on this, but I just want to get a head start!

Very sorry to hear this ... but for the grace of God, there go I...

I've always assumed that Ltd liability gives you no protection from HMRC, I think you may as well assume they will come after you personally (as a director) for any tax, NI and VAT that your company owes.

Yes, these are my thoughts too. Thanks 👍🏻

I'm going to speak to HMRC next week to see if we can come to some sort of repayment plan. 

Being grown-up certainly has its downsides

HMRC can only chase directors for outstanding debts under certain limited circumstances (i.e. paying themselves rarther than HMRC). See this..

https://www.aabrs.com/can-hmrc-hold-a-director-responsible-for-unpaid-limit...

As Rob says, sorry to hear. From personal experience (2008 crash, trying to keep people on for too long and turnover diving by 70%), talk to the HMRC with hard figures from your accountant, they may be able to offer a long term repayment scheme that allows you to continue (not in their interest to have you fold if your basic financials are realistic). Keep in mind that they have seen every chancer and "jam tomorrow, never jam today" merchant under the sun, so if they have faith in your numbers, you can take that as a positive.

Have a summary of exactly what you owe them (and anyone else), as it is entirely possible that their record will be different. Back in 2009, there was a local debt management team that you dealt with (and were excellent), but I suspect these are long gone and you'll be dealing with a website. Legal advice from someone clued up on company law and receivership (not the local solicitor!) may be money well spent.

Best of luck - if it helps with the stress, talk to other business people, you'll be amazed at the number with similar stories and advice and at least help you realise that you aren't alone, even if it doesn't help with the "Oh shit....!" feelings at 4am.

I would recommend speaking with an insolvency adviser who also has tax advisory capabilities (rather than a general tax adviser or a lawyer). It’s a pretty specialist area within the tax field as there are some special rules which may apply and in some ways the insolvency rules sort of override normal tax principles. It also depends what type of elimination is available in your circumstances, as the tax rules can be different depending on what route you follow. You should also be aware of the wrongful trading rules. 

It is the company as an entity that owes the tax not you personally. Provided there hasn’t been any impropriety in your actions as Directors then in a voluntary liquidation you won’t be personally liable for those and other debts. However, it might not be a road that you want to go down. As Misha says take advice so you understand all the consequences. 

As long as you've not acted illegally then you'll be fine , don't worry about it and just learn from the experience for the next time you start a business.  

Ps make sure any insolvency company that you appoint to wind up the business is appointed by you  and not one of your creditors and is going to work for your interests as well. In which case close the company before your creditors pounce .

You have a few problems here, but the main one is, where to get good advice from and how much is that advice going to cost, and is it worth it?

1. Your accountant. Very likely know very little about this.
2. HMRC. Very likely you will not even be able to speak with someone who even knows anything, and they will have a bias.
3. A Solicitor. Very likely know very little about this.
4. An Insolvencey practitioner. These are they people who may know, but my jaundiced view of them is they are bottom feeders, and are only interested in themselves. 

Possibly try and get a free initial appointment with 2 or 3 of No 4 and compare what they say.

Another problem you may have is that even though you have 50/50 shares, the HMRC will I assume go after whoever has  assets, if your co director has nothing, they may pursue you for 100%.

Have you been trading (or even still trading) whilst insolvent, thats a bad thing.

I see piss quick directors walk away from firms with 100s of thousands or even millions, because there is enough money in the pot to pay good advisers, leaving HMRC, Creditors and Consumers out of pocket, but small or micro firms struggle because there is not enough money in the pot for even the bottom feeders to be interested.

Have you investigated the potential to claim a redundancy payment from the government?

Good luck 

Point 4 , spot on .

For my sins I have been through this  a good few years ago.

Clearly you have to be talking about a reasonable sum of money and not just a few grand.

Forget legal advice and  HMRC.

The fact that the business  is legally insolvent is the clear starting point. Go to an insolvency practitioner and explain the issue. As long as the business or yourselves can afford to pay their fees, then you will have zero issues with HMRC etc.Go to a small practice, even shop round for a deal.A good insolvency practioner will be on the ball and understand exactly what you need to do.

Have no qualms about this, the legal structure of companys and Uk law allows you to do this and the business environment in the Uk would be far worse if you could not do it.

i am following this with interest

primarily because friday gone, i was informed that my employer had become insolvent, and none of us would be getting paid for the months due wages.

 

When they have the creditors meeting with the Insolvency practitioner, they will get a case number, which should be sent to all out of pocket employees (by the Insolvency Practitioner...). Subject to certain limits (i.e. £538 pw max), you can claim from the Redundancy payments Office for lost wages / holiday pay / notice period. It can be a tiresome process, but once a claim has been submitted, they usually settle fairly quickly (3 - 6 weeks).

Thanks all for the advice. It sounds like an insolvency practitioner may the way to go.

We have done everything correctly and legally as far as I know, so we should be in the (relative) clear on this.

@Mini Mansell - Sorry to hear about your situation. I hope you get as good a solution as possible. Luckily it's only the two directors who are affected in my case as we sub-contract the labour in as and when, and we've had a bit of a dry spell for a while now. If we had staff too, I can only imagine how I'd feel

It's a steep learning curve, i know that.

JSA sorted though.  so at least the heating bills can be paid

An insolvency practitioner is definately the way to go but be careful of the costs. The lowest i found was £2,950 plus VAT, the highest £7900 plus VAT, and this was for a start up that failed before it got started through lack of investment funds.

DM me if you want details of the ones we used, who have been pretty good.

Without one, you'll really struggle, and will almost certainly end up with one imposed by the courts as a result of a creditor forcing the issue.

You and me both at some time in the past. A learning curve in how to run a business.  

If the company has no assets or cash, would a creditor force the issue?

And if they did, what would be the disadvantage to the OP?

Not arguing, just interested.

As it happens , I am out of pocket for a few grand from some previous work , self employed .

The limited company has employed a liquidator who gave all creditors a list of who was owed what and options to vote for a CVA, company voluntary arrangement, or conventional insolvency.

The CVA forecast creditors getting  80+ p/£, insolvency 60+ p/£ and a vote on preferred option. The CVA would enable the company to continue trading but presumably under direction of the liquidator.

Just to point that other options may be available.

I think you’ll find maybe only the banks are a preferred creditor depending on the terms of any overdraft guarantees. HMRC will have to suck it up.

Then that company must have assets, in this instance, from what I can see, the OP is being advised to invest, £3500 + of their own money 💰, into an insolvent ltd. I cannot understand the reasoning. There must be a reason!

That's not correct. If a a business has been collecting income tax, NI and VAT then they have first dibs.

Not unreasonably.

The insolvency robber will have first dibs 

Whilst I don’t want to say you’re wrong, Google under company liquidation, Secured Creditors with a fixed charge, ‘first dibs’ i.e. banks and the second tier of creditors, Preferential Creditors, which includes employees wages, holiday pay and also HMRC.

I assume the 3500+ you refer to is the 2950 to 7900  plus vat for a liquidator mentioned earlier.

I would presume this comes from the Ltd assets not personal money .

i suspect so. The company i was dealing with managed to get this from a VAT reclaim, which should also just about cover the PAYE owing......; but yes, if a director wants to put the company into voluntary liquidation, they have to stump up the insolvency practitioner fees themselves.

Depends. if there are no assets, and no cash, then its unlikely, as it costs to put a company into liquidation. Better to just write off the debt, and put the onus onto the skint company and its directors. There's also the possibility of getting something back in the future, however remote. So no, there's nothing usually in it if a creditor forces the issue; better to just try to move on and hope it doesnt happen again.

So if a Creditor does not file for Insolvency, and the company has no money to do so, what then? Will companies house just dissolve it? 
I assume that if at the first interview the Insolvency practitioners can see no recoverable value that will pay their fees, they will have no interest. I would think advising the directors to inject money would go against their professional conduct.

It would probably be wound up by HMRC eventually, but the onus really is on the directors, who must stop trading if there is no prospect of paying creditors. Getting goods/services and increasing creditors liabilities when insolvent is very much a no-no, and could lead the directors to have to pay those debts themselves. Its a messy situation!

Not really; you are correct that if there is nothing to pay their fees, the insolvency practitioner will have no interest. I suspect that in this case, the advice to inject funds was just to pay the insolvency practitioners. It is also possible, and in some cases necessary, for the directors to pay these fees direct to the IP. Note that as soon as they are engaged, the IP is the number 1 preferential creditor, and its best not to upset them, as they have to submit a report to companies house on the conduct of the directors and the effect it had on the company and its creditors.

It depends on the type of insolvency (there are several different ones as mentioned on this thread, plus some other types) and what claims and charges are in place. Neither your comment nor Philib1950’s is correct. It’s complicated. 

Are you saying that the only debts are to HMRC?

In which case the situation must be simpler than many have been implying.

I would be surprised if an insolvency practitioner was required if HMRC are the only creditors. As long as you haven't extracted money to avoid HMRC getting its slice (*), then I would have thought you would have no personal liability.

(*) - HMRC's idea of avoiding might be different from yours.

It may not be simple.  It’s a 50/50 compsny  and the two shareholders may not be able to agree what to do. 
 

Also you need to factor in future credit applications. The way you handle a liquidation can affect this - compulsory via HMRC or voluntary. You really do. Not want a compulsory one against your name. May affect mortgages etc in the future. 
 

one of the routes is to bite the bullet and pay the tax bill off. Then just close the company down.

Either way not easy as both shareholders have to agree. 

You keep speaking of Onus, there is no Onus, just statutory duty as a Director.
I think WMF could,

Stop trading, maybe should have.
Submit a final set of accounts to companies house.

Contact all creditors and inform of the situation, and not pay any preferentially.

Then if there is a debt over £750, possibly a creditor could seek insolvency?

I do not think that WMF has a duty to seek insolvency.

If WMF has done something illegal like collecting VAT, when insolvent and not handing it over they may or may not be pursued.
If WMF has been negligent, they may be banned from being a Director for a period.

Here is the bit I am really unclear on, could WMF not just resign as a director once all duties are performed, could both directors resign?

I believe, once all statutory duties are performed, Companies House will eventually seek to strike the Company off, when they do a creditor could seek to stop the process, but why would they, there is no money.

It would be interesting if someone who actually knew about this complex niche of business law would come along and give a definitive answer.

Your last line is what is concerning me. I have taken money out, but only the bare minimum to cover my own bills. This might not be a good enough excuse for them though.

Regarding the VAT question that has been raised on here - that is all up to date. It is only employers PAYE that we owe.

Ball park range of money owed to HMRC? Is it less than a few thousand or what ?

If it is only employers PAYE you owe, and the directors are the only Employees, could you not say the payment to you was redundancy, and therefore no tax to pay, if less than 35k(?).

Ask your accountant.

Obviously, if there are other employees, it is different.

Thats what i meant - being pedantic, the onus is on the directors to perform their statutory duty.

No, a company must have at least one director at all times.

A company cant be struck off if there are creditors. If the shareholders want to wind a company up, they mudt pay off all creditors or come to an arrangement with them. The debt would then be written off by agreement (if a trade debt then via a credit note).

Agree there. However, better for WMF to talk to an IP and get their view.

For sure.