It is never quite as simple as all that! Just ceasing trading does not make the problem of debts go away, however, it can stop a bad situation getting worse. As such, it will may help avoid you trading whilst insolvent, or more importantly may help avoid a claim for wrongful trading. If the company only has a few hundred pounds of debts then it may be that a dissolution will be an option. However you will need to write to all the creditors, customers, HMRC etc. You will need to follow the correct steps. We do have a dissolution programme that you can use. Email robertm@ksagroup.co.uk for details.
If you have employees, or customers who have given you deposits, and of course large debts to suppliers then the backlash may be severe. An employee will not be able to claim back any compensation for loss of earnings or redundancy from the government’s national insurance fund until there is a formal insolvency event. This might be a CVA, creditors voluntary liquidation, compulsory liquidation, or administration. In the meantime, as the company entity still exists then the employees will be able to go to an employment tribunal and make a claim. This will not be good publicity as the local press may well run the story about you and your company. Of course any customers who have not received paid for goods will be angry and will seek redress. It should be noted that employees are likely to know your home address and may well hassle you there. This problem will be particularly acute if the company’s registered address is your home. In that event bailiffs may come to your home as it is the registered address of the company. If you do appoint a liquidator then the liquidator they will handle all the creditors and take the pressure away. A creditors meeting will be held either in a physical meeting, online or over the phone, depending on the majority of creditors preference. A report will be sent.
So in general it is a good idea to face up to the problems and take some advice. If the company is no longer viable then a voluntary liquidation is the best route to follow as this will help reduce your risk of facing personal liability. Don’t forget that just because it is a limited company it does not mean that directors are completely protected. The veil of incorporation can be lifted and the directors pursued personally for the debts of the company if they did not act properly make sure all books and records are ready to hand over to the liquidator.
If you start trading again under the same or a very similar name elsewhere then you may come unstuck once your previous company is liquidated as it is not permitted to reuse the name of a liquidated company, without leave of the court. As such you should seek advice from the liquidator before embarking on this action.
Finally, if the business did not work, don’t be too hard on yourself. The fact is you tried and millions of other people are not that brave. Well done!
Close Or Rescue Our Private School – What Are The Options?
Running a private school is very similar to running any business in that it suffers commercial pressures. however, its charitable status does mean it has obligations and benefits not experienced by other businesses.If a school encounters financial difficulties and becomes insolvent, then the directors/trustees have a duty to act in the best interests of creditors, just like any other company director. Of course, any parent who has already paid school fees, before a school closes and the pupil has not finished the term, are in fact creditors. So why might a private school become insolvent? Falling Pupil Numbers Fewer pupils mean less revenue, which can significantly impact the school's budget. Numbers of pupils can fall for all sorts of reasons ranging from changes in population demographics, family budgets being strained and even the prevailing political mood. High Operating Costs: Salaries, facility maintenance, and utilities can become unsustainable if not managed well. Many private schools have quite old buildings, and their maintenance costs can be disproportionately high. Recent expansion of the facilities can also mean greater costs. Increased Competition: Competing with other private and public schools can reduce the number of new pupils joining the school. Taking on too much debt: Capital and interest payments on loans and other debts become more of a cost burden after the last two years of increases in interest rates. Insufficient Fundraising: Lack of successful fundraising efforts can limit additional revenue sources. Poor financial Management: This is the most common reason for business failure as management do not realise the extent of the problems until it is too late. What options are available to private schools? Creditors Voluntary Liquidation If your school is facing legal threats and you don’t believe it is viable, even if you could extend payment terms, then creditors voluntary liquidation could be the correct course of action. A liquidation will require a licensed insolvency practitioner to oversee the process. Once you appoint a liquidator then they will put together a statement of affairs on the school that sets out the financial position. They will ask the creditors to agree to their appointment and then will set about selling assets to try and repay creditors. As part of the process an investigation is carried out into the directors conduct and on the reasons for the failure.A creditors voluntary liquidation is preferable to being wound up via the Court through compulsory liquidation. The Court process can be led by a disgruntled creditor like HMRC as the bank may freeze the accounts the moment a winding up petition is presented which would cause unprecedented difficulties for the school and its pupils.If the school could be rescued as there is a viable business, but historic debt is dragging it down then either an administration or a company voluntary arrangement could help save it. A company voluntary arrangement (CVA) A CVA may be appropriate if the school has significant unsecured debts i.e. to HMRC/suppliers. This is a powerful way to restructure HMRC debt, write off significant unsecured debt whilst servicing secured bank debt. See our guide here to CVAs Administration An administration is a powerful process in that it places a moratorium around the company that prevents both secured, and unsecured creditors, from taking legal action to wind the school up via a court led compulsory liquidation. This breathing space can allow the school to raise additional finance or maybe be sold to a third party. Issues to be aware of! It is obvious that if a private school is faced with closure there are going to be a lot of worried parents and children. So, communication is key. In any rescue scenario if rumours surface of closure, then it is likely that any turnaround will be difficult if parents start pulling children out of the school. We can help directors and/or trustees draft appropriate wording in communications and offer support throughout the process.
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Can I Close My Business With a Bounce Back Loan?
There is nothing to stop you closing your business if it has an unpaid Bounce Back Loan (BBL). To write off the debt then it should be liquidated using a creditors voluntary liquidation. However, if there is a very small debt left, say £3000, then it may be possible to seek a dissolution. The bank or lender may object to the striking off but at that level of debt it is probably not worth their while. Remember thought if the company has other debts, then the correct process is a liquidation done by an insolvency practitioner as the company is insolvent. So how does a dissolution work? This process is also known as a voluntary dissolution. It is a provision in the Companies Act to allow the removal of the company from the Companies Register, typically when the company is dormant.If the company serves no useful purpose, its dissolution removes the need for the filing of annual returns and accounts. However, bear in mind that dissolving the company (removed from the Companies House Register) can only happen if the following conditions apply:The company has not traded for three months. The company has no assets, property or cash at the bank. The creditors are informed, requesting their permission for the company dissolution. Creditors are given three months to consider the request to dissolve the company and can reject such a request. The company has not changed its name in this period. The company has not disposed of any property or assets (this may include land and buildings, plant and equipment, debtors and other assets).As stated earlier, if the Bounce Back Loan is more than say £3000 then the bank may well object and seek to wind up the company via compulsory liquidation. You should then consider a creditors’ voluntary liquidation How to close the company with a bounce back loan using liquidation.Board Meeting: The directors convene a board meeting to assess the company's financial position and determine if it is insolvent. If they agree that CVL is the appropriate course of action, they will pass a resolution to initiate the process. Appointing an Insolvency Practitioner: The directors must appoint a licensed insolvency practitioner (IP) to act as the liquidator. The IP's primary responsibility is to oversee the liquidation, realize the company's assets, and distribute the proceeds to the creditors. Shareholders Meeting: Usually just before the creditors’ meeting where the shareholders agree to place the company into liquidation. Using the deemed consent process there is no need for an actual creditors meeting. Notices go out about the proposed liquidators and if no objections are raised within 14 days, then the liquidation process starts. This is more suitable for smaller uncontentious liquidations which is more likely in the case of companies with small bounce back loan and associated debts. Creditors' Meeting: The IP will convene a creditors' meeting, typically within 14 days of the board meeting, to inform the creditors about the company's financial position, the proposed CVL process, and to seek their approval. Liquidation Commences: If the creditors approve the CVL, the liquidator will commence the process of realizing the company's assets, settling any legal disputes, and distributing the proceeds to the creditors. Finalization: Once all assets have been realized and the proceeds distributed, the liquidator will prepare a final report and hold a final creditors' meeting. After this, the company will be dissolved, and its name removed from the register at Companies House.What happens to the Bounce Back Loan in liquidation? On entering liquidation, any bounce back loan becomes an unsecured debt i.e. the loan is not secured against any company assets. As per our flowchart on who gets paid first when a company goes into liquidation or administration, unsecured creditors are just before last out of the seven overall categories. So, what this means is that the insolvency practitioner, secured & preferential creditors and floating chargeholders must all be satisfied before the settling unsecured creditors and shareholders with their amounts. Now that HMRC are preferential and, in most cases, are a large creditor by value they will take a large chunk of any distributed money. Consequently, unsecured debts are rarely paid in full in liquidation. For this reason, the bounce back loan is secured 100% by the government allowing the lender to go to the government to get repayment for the loan in full. The British Business Bank, that has overseen these loans, has made it very clear that they expect the banks to pursue these debts in the normal way. Only if the business becomes insolvent will the bank be be able to claim from the government. Can I Be Made Personally Liable for The Bounce Back Loan Initially, the answer is no. But, there are some caveats to this.If you use the BBL funds for anything not financially beneficial for the company then you may be held personally liable. So, the funds can be used to pay wages, by supplies, settle bills BUT if you, as the director, are found to take advantage and use the funds to pay personal loans off or invest in property etc, then personal liability is expected. When the company becomes insolvent the licensed insolvency practitioner has the role of investigating the directors’ actions – which includes seeing how the BBL was used. If it is deemed that the money has been “stolen” from the company, then they will pursue the director for this.BBL funds can be used to refinance existing company debt, but you must use it wisely. If you choose to favour some creditors over others, then this brings risk of making preferential payments which can be reversed by a liquidator for up to 20 years after the payment was made.
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