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What is the Spongebob Plan to close a business?

Written by Robert Moore Marketing Manager 21 November 2018

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What is the Spongebob Plan to close a business?

The Spongebob Plan

If you have an insolvent company, and cannot afford an insolvency practitioner, but need to close, the SpongeBob plan is an option for you. So, what is it?

Firstly, why the name?

Spongebob is the handle for a poster on one of the busiest forums for small business called  He came up with the plan when he found himself in the predicament of insolvency and needing to close and move on. 

A simple process:

  1. Stop trading immediately. This includes no longer taking on contracts, stopping sales, vacating from leased premises (informing landlords) and putting stock and assets into storage (though if you have stock and assets you should be able to afford a liquidator).
  2. Write a letter to creditors to inform them of your company’s insolvency. Explain that the debts cannot be paid and that the company is to be wound up by a creditor, if not struck off by Companies House. Be honest and open about the situation.
  3. Fill in a striking off application and send to Companies house with a £10 cheque. This can only be done after having ceased trading for three months. Creditors should be sent a copy of the application form too – they need the chance to object (though this is unlikely).
  4. Keep checking the status of your company on the Companies house website. When ‘dissolved’ appears, it means the request has been accepted and the company now ceases existence.

Now, this solution should be carefully considered. It is only to be used in extreme, desperate situations (not when you have big debts!!!). It is deemed unfair, as each creditor simply has to accept getting no payment or deal. An alternative, of course, is a CVA or formal, legal insolvency process – though if you have no funds for this, its understandable that you have no choice and are limited by options.

Before following this plan, search around, as not all insolvency practitioners are expensive…for simple, small liquidations, fees can be affordable.

The plan implies that directors can run insolvent businesses until there is nothing left. This is not the case – directors have obligations and duties. If you are found to have acted wrongfully, in such circumstances, you risk becoming personally liable or even struck off as a director.

So, all in all, this plan can be dubious – running the company into closure, without having the funds to pay creditors. Though when you are left with no other choice…what more can one do?

Take this into consideration. Contact us today for some free advice to see if we can save you before having to resort to the SpongeBob method…assess all options.

Categories: Complete Guide to Creditors Voluntary Liquidation CVL, Implications for Directors


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