Helping directors online for over 23 years.

Talk to us today in confidence:

Sole Trader Lawyers Plan C

14th April, 2020
Keith Steven

Written ByKeith Steven

Managing Director

07879 555349

Keith is the author of the content on this comprehensive rescue, turnaround and insolvency website. He is the managing director of KSA Group Ltd - a specialist firm of turnaround and licensed insolvency practitioners. Keith was nominated for Turnaround Practitioner of the Year 2014 at the National Insolvency and Rescue Awards in 2014.

Keith Steven
  • There are three options to deal with severe cashflow problems, this page looks at Plan C: Personal Bankruptcy
  • No Fault Bankruptcy
  • Bankruptcy: the Process
  • A Debtor’s Petition
  • A Creditors Petition
  • A Supervisor’s Petition
  • The Hearing
  • The Estate
  • Excluded creditors
  • The Matrimonial Home
  • Professional Qualifications
  • Income Payment Orders
  • The Rules
  • Discharge
  • Summary

I am a worried solicitor practising as a sole trader; What options do I have for restructuring?

Plan C for lawyers – sole traders

There are three options to deal with severe cashflow problems, this page looks at Plan C: Personal Bankruptcy

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 to enter bankruptcy.

Bankruptcy is a powerful insolvency tool that will stop the creditor pressure, ringfence your creditors (that’s all your business and personal debts but not a secured mortgage) and take away the pressure.

The following guide to bankruptcy cannot be comprehensive given that it is a general discussion of the process, application for bankruptcy and exit from it. This mechanism can be very complex depending on your individual circumstances.

Other alternatives are available and it is vital that you consider all of those options by reading about them on this online guide and if necessary talking to us by e-mail or through our telephone support line.

If bankruptcy is your preferred option please check that you have gone through our suggested decision-making process before reading on:

  1. You have established that you are insolvent.
  2. You have considered your personal and business objectives are.
  3. You have studied all available options.
  4. You have decided to enter bankruptcy because the business is not viable and your assets are outweighed by your liabilities and you’re insolvent on the cashflow test.

No Fault Bankruptcy

Under the Enterprise Act 2002 the UK Government significantly relaxed the rules regarding bankruptcy. From April 2004, the sole trader who has a failed business (where there are no issues of fraud, misfeasance, recklessness etc) will be able to file for bankruptcy (see process below) and be discharged from that bankruptcy within say 12 months. Previously a bankrupt was not discharged until 3 years had elapsed.

Provided the bankrupt conforms to the rules and is compliant with the Trustee (see below) the bankruptcy can be a quick and powerful process.
It is possible nowadays to obtain mortgages and credit for discharged bankrupts, so this process may be better for your personal future than trying to plough on with an unviable business through Plan A or Plan B options.

Bankruptcy: the Process

There are three different ways that bankruptcy can be initiated a under the current legislation.

  1. A Debtors petition to the court.
  2. A Creditors petition to the court.
  3. The supervisor of an individual voluntary arrangement petitions the court.

If you have considered all the above please ensure that you gather together all available information with regard to your personal and business financial circumstances. Put together a file of information all in one place to include: all legal actions against you, copies of any accounting information, copies of any financial plans and business plans, copies of business and personal creditors statements and a list of all of your assets.

Also a good bit of advice, always make notes (or minutes) of meetings, telephone conversations and discussions with creditors. Date them and make sure that you save or file them safely. This will act as a good record if things become difficult in the next few weeks and months.

It is also important to draw up a very basic statement of affairs which compares your assets against your liabilities.

We thoroughly recommend obtaining professional advice before deciding finally upon bankruptcy. Only cease trading when it becomes impossible to continue through cashflow pressure or when you have taken professional advice. It may be that the situation that has brought this to a head can be dealt with through an IVA or an informal deal with creditors and it is important to keep all avenues open until professional advice has been taken.

A Debtor’s Petition

Find the address of your local County Court in the local telephone directory and visit the Court office to pick up a debtors petition pack. The Court will levy a fee for this but you will find that the court officials are very helpful and can often help you with the completion of the form. The form is necessarily complex and copious and if you require help please contact the court official that gave you the document.

Once you’ve completed the form and supplied all information that it requires, take the completed file back to the court along with filing fee. This is known as a debtors petition basically you’re asking the court to hold a hearing at which you will be made bankrupt. This is not as frightening or as daunting as it may sound and you’ll find the Court is sympathetic to your situation.

If bankruptcy is the only option, it is, in our opinion, better for the debtor to initiate this process. This has the effect of crystallising the position and removing the pressure. This also mitigates the cost for creditors of doing it themselves.

A Creditors Petition

It is possible for a creditor to issue a petition for bankruptcy if the debt that they are seeking to recover has been proven. Often this requires a County Court Judgment or a Statutory Demand to have been served upon the debtor.

The creditor may have also tried to recover the funds due to him or her via a warrant, a bailiff or a Sheriff.

Typically this type of action can be initiated by the HMRC where there are outstanding debts – if this is the case, please do not hesitate to contact us because there are other ways to deal with the situation other than through bankruptcy; unless of course the business is not viable.

Alternatively if the debtors petition is too expensive or you simply cannot afford to go through that process yourself, it is possible to wait for a creditors petition. We wouldn’t recommend this because it demonstrates to the court and to the creditors that you have been burying your head in the sand. This may not, of course, be true but this is the perception. By allowing a creditor to go through the petition process the court will grant the hearing and you may be made bankrupt by the court in your absence.

A Supervisor’s Petition

If you’re in an IVA (individual voluntary arrangement) which is failing or under severe pressure please do not hesitate contact us. We may be able to assist by restructuring the IVA or indeed replacing the IVA, you will have of course have to demonstrate viability and a reason why the IVA has not been adhered to.
The supervisor will normally issue a petition to bankrupt you when the IVA has failed. This may be because you have failed to keep up with the regular payments prescribed by the IVA or you have failed to supply information or comply with the general terms of the IVA.

Prior to commencing this action the supervisor will generally have to issue an abort certificate demonstrating to you and the creditors that the IVA has failed. Of course prior to this he or she is likely to have communicated with you, in writing, several times asking for the voluntary arrangement to be adhered to.

If you have ignored all these issues and still believe that the business is viable or that you are still a lot better off in an IVA; once again please do not hesitate contact us. Be prepared to explain to us why you have ignored all of this communication!

The Hearing

Once the petition (from whichever source) is received by the court a hearing date will be set by, the Court officials. This can be anywhere from one day to two weeks dependent upon available Court time.

At the hearing the court will consider the statement of affairs and the documents produced by you or the creditors and grant a bankruptcy order.
Typically the Official Receiver is appointed as trustee in bankruptcy. But if there are significant assets an insolvency practitioner (IP) may be appointed trustee in bankruptcy at the by the Official Receiver or by the court directly.

The Official Receiver, once trustee, will interview the debtor to check through his/her documents and to establish his or her income and financial position. In the event that there are significant assets, as described above, an official receiver may appoint a local insolvency practitioner as a trustee in bankruptcy. The IP will seek to recover those assets over a period of time on behalf of the creditors.

If the practice still has clients and trust accounts it is very likely that the SRA will intervene and remove the files and accounts as soon as it is aware of the likely bankruptcy. This is obviously to protect clients interests. Thus the recovery from your practice (for creditors) is likely to be minimal.

The Estate

All assets belonging to the debtor and like him are included in the estate. Some of those assets however may, of course, be charged to or have partial ownership by another individual or individuals.

Where exclusive ownership cannot be established, you will have guessed or estimated the amount of the asset that you believe to belong to you, in your statement of affairs.

Typically items such as motor vehicles (under hire-purchase agreements), mortgage property such as matrimonial homes and assets under a partnership agreement may only be partially available to the trustee on behalf of the creditors.

Excluded creditors

Bankruptcy does not however dismiss all debts. Items such as CSA (Child Support Agency) payments, maintenance to your spouse, government fines, mortgages or items under hire-purchase arrangements are excluded.

The Government has also moved to close a loophole that allowed Student Loans to be written off in bankruptcy.

The Matrimonial Home

Typically in bankruptcy 50 per cent of the unencumbered equity in any matrimonial home is available to the trustee in bankruptcy for the creditors. But the equity in many houses is modest and the cost of pursuing this equity often outweighs the benefit of collection.

It may be possible to maintain, with the permission of the trustee, the matrimonial home. This, of course, is largely dependent on whether the mortgage company is prepared to continue to receive mortgage payments and whether you are able to meet those payments.

For example your spouse may have sufficient income to meet the mortgage payments and if there is not a significant chunk of equity available to your estate, as described above, it may be advantageous to maintain the property through the bankruptcy period.

Professional Qualifications

It is not possible for an undischarged bankrupt to be a Justice of the Peace or a Member of Parliament. Other professional qualifications can also be at risk if you enter bankruptcy such as being a solicitor, a chartered accountant, certified accountant or registered Auditor. Nor may you be member of a local authority.

Income Payment Orders

Should you obtain a new job with a higher salary than previously, or a higher disposable income than indicated to the court and the trustee, it is possible for the trustee to seek to recover some of this excess remuneration through an IPO (income payments order).

For example if you stated that your net disposable income was 200 per month and subsequently obtained a position that gave you 1,200 per month disposable income, then it is likely that the trustee will seek to recover a large percentage of this difference.

If you fail to agree he can apply to the court for this order to be ratified by a judge. To fail to maintain such a payment may be an offence. A trustee may seek to recover these amounts directly. If you fail to comply he/she may seek to sell property or other assets that he holds on the creditors behalf. Of course there has also a risk of incurring the wrath of the court and a prison sentence is possible.

The Rules

Once made bankrupt you may not be, without the permission of the court, a director of a limited company in the United Kingdom. To do so is a criminal offence. You may not act as a manager of a limited company in the United Kingdom or in act in the formation of a company in the United Kingdom during the course of your bankruptcy.

During bankruptcy you may not obtain credit of greater than 250 it without disclosing that you are an undischarged bankrupt. To do so as a criminal offence.
You he may not be a partner in a partnership.

Whilst you may continue to trade as a sole trader or a severe restrictions placed upon the bankrupt. For example you must not trade under a new name or different name to that which you traded under prior to being made bankrupt. If you trade in a different name this is a criminal offence.


Once the bankruptcy term is complete and you have conformed to the wishes of the trustee in bankruptcy; you are discharged from bankruptcy.

Although this means that most debts are written off some are not such as government fines, child-support etc as discussed previously. However debts to the Inland Revenue, VAT and other trade creditors in the period up to your bankruptcy are written off.

It may be possible to start rebuilding your credit rating and to obtain a position of director or partner in a partnership for example. After say 12 months your personal emotional state, health and enthusiasm may have returned to normal. So it may be a new start.


Once again we would reiterate that the above can only be a general guide to bankruptcy. There are many rules and regulations under the Insolvency Act appertaining bankruptcy and with a huge variety of causes of bankruptcy and different structures of bankrupt estates, it is impossible to answer all questions in a computer-aided guide.

If you have any doubts as to the current situation you face please revisit the how to use this site page and followed the instructions there.

What now? If your business has cashflow problems you must act or the creditors will, sooner or later act aggressively against you.

What if neither Plan A or Plan B is suitable?

Plan A is to propose an informal time to pay deal

Plan B – Individual Voluntary Arrangements with creditors

Of course, acquisition by another firm is a possibility too. Will this acquiror pick up all of the liabilities of your firm?

Worried Director What Will Happen To Me After Liquidation?

in Company Liquidation What is …?

"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director.  If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020.  Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly.  I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim.  This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork".  It isn't worth the risk.  If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP)  or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at 

Worried Director What Will Happen To Me After Liquidation?

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators
Man with umbrella

What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

What Is A Winding Up Petition By HMRC or Other Creditor

Related Guides

Related News

We can help you get out of the mess!

Call now for free and confidential advice