We are a firm of very worried solicitors. Our legal practice is a company or LLP. We are under growing pressure from all sides. We don't think the company can survive but the business may or may not be viable. How can you help us solve these problems?
There are three options to deal with severe cashflow problems, this page looks at:
Plan C: Pre-pack Administration to sell the business or Voluntary Liquidation
If the debts are very large, your business is no longer viable no matter what steps you take to revive it, then the sensible answer to stop the terrible pressure you face, is either sell the practices business assets through a pre-pack administration, trading administration or wind it up.
Pre pack of the business:
If there is a viable business but there are threats from creditors to wind up the company up, then it may be possible to package the business up for sale. SRA advice would have to be taken and the plans well developed before so doing.
Perhaps you already have an interested party who may acquire the business but not the company or its liabilities. If not it may be worth setting out the plans for the pre-pack approach, which KSA group can assist with. Then we would market the business for sale before the administration process. Again prior to the application for the administration, discussions must be held with the SRA.
Suffice to say that administration is a public domain event and one that may lead to a risk of personal bankruptcy for the partners, if personal guarantees have been provided to the bank for example.
Under Insolvency Practitioners guidelines (known as SIPS) the IP must market the business. Often this requires sending sales memos to a database of potential buyers, or the IP may place an advert on his website and/or a local or national newspaper. If he gets no interest or no indication of interest he can then sell to the newco or third party.
He or she will also have to get formal valuations of the assets, intellectual property and or goodwill of the insolvent company by RICS qualified surveyors. Generally any offer needs to be commensurate with such valuations. This is required under SIP 16 which is designed to appease creditors that there is no aim to stitch up creditors and simply pass the business over to the same directors or designated members directors in newco
At this stage if you and your colleagues are planning to buy the business you must be careful with regards to your personal position. As directors of the dying company, you have a fiduciary duty of care to the creditors. Of course the end of that business could lead to personal liability.
Starting "newco" can put you at risk of conflict of interest. It's likely that you will need separate legal advice on both businesses. Best to talk to lawyers with insolvency and pre-pack experience. Contact Keith Steven for a list of good lawyers.
The IP will take advice from his lawyers as to compliance and risk. He may require this advice to be paid for along with his disbursements.
SRA must be involved. The plan needs to be set out and broadly agreed before petitioning the court for the administration order.
Will your client's contracts or BANK allow you to pre-pack? (The current stand point of several clearing banks is no they won't support pre packing to the incumbent partners/ directors/ shareholders).
Will your landlord(s) allow a new partnership or company to occupy their property? Are your suppliers prepared to supply a newco? Will your creditors be angry about this approach? careful consideration must be given to all of these issues and a plan developed. Again SAK can advise you on this.
Talk to Keith Steven now on how pre-pack may be an option. 08455194930 or 07974 086779. We can often find a way to take out the bank debt and replace with a friendly financier who will allow the pre-pack to proceed.
It is theoretically possible for the business to enter into administration and for the administrator to trade on whilst looking for a buyer. The SRA would always require a solicitor insolvency practitioner to act in this case. The administrator would at the least need an assurance from SRA that it would not intervene post his appointment.
Trading in administration is often risky for the office holder and more often than not he would wish to sell as soon as possible, thus pre-pack is the more likely option.
Where the directors have decided that the company has no viable future or purpose then a decision may be made to cease trading and wind up the company. Clearly such a decision should not be taken lightly and we would recommend that all other options are carefully considered and compared to the objectives of the directors. Before the process starts it is vital to speak to the SRA and get it involved.
There are two basic ways that the company or LLP can be wound up: the creditors petition and a debtors petition
A creditor can petition to wind up the company if debts of more than 750 are outstanding. This leads to compulsory liquidation by the court. SRA will probably intervene if a winding ip petition is advertised and there is no plan to protect the clients.
The debtor can petition to liquidate the company if there is no reasonable prospect of continuing to trade.
The liquidation process for in depth reading see our experts guide to creditors voluntary liquidation here
Once appointed the tasks of the liquidator are to
- Realise the assets in the company including any overdrawn directors loan accounts. All debtors, property and other assets will be collected by the liquidator.
- Investigate the conduct of the directors and officers of the company.
- The liquidator must also ascertain whether any transactions have taken place that put the creditors (individually or collectively) into a better position than they should be then such transactions (known as preferences or transactions at undervalue). If such transactions have been completed before the winding up, they can be un-done. (Antecedent transactions).
- The liquidator agrees the claims of creditors and eventually completes his /her work by making payments (called distributions) to the creditors in order of priority (if any distributions can be made).
Common sense dictates that allowing creditors to initiate such liquidation proceedings indicates to creditors and the liquidator that the directors have failed to act in the best interests of the body of creditors as a whole.
Many people in companies are told by accountants or advisors to just cease trading and "let someone wind the thing up". In our opinion this is very poor advice especially for a law firm with client responsibilities. We always recommend taking decisions to ACT.
As a law firm the SRA will almost certainly intervene in the process and remove the clients files and seize the trust accounts. It is vital to discuss the plans to liquidate the company with the SRA at the earliest opportunity.
Before deciding to liquidate please review all the contents of this site and take advice from either an insolvency/turnaround practitioner in your area or call us on 08009700539. Or email us with your basic details and we will call you back at an agreed time and in confidence.
What now? If your business has cashflow problems you must act or the creditors will, sooner or later act aggressively against you.
Call KSAGroup's DEDICATED LAWYERS LINE? now on 0845 5194930
Want to know more about liquidation? KSA Expert Guide to Voluntary Liquidation