What to consider after liquidation occurs
In almost every liquidation, I find that the director has either knowingly or unwittingly personally guaranteed one or more of the company’s debts. Unless the insolvency practitioner is able to confirm that there will be a significant distribution to creditors, it is generally the position that you should plan to deal with these guarantees personally.
In every case, your first action should be to request an executed copy of the guarantee. Unless this can be produced the creditor will not be able to pursue you further.
If the guarantee stands, we would always advise engaging the creditor at an early stage with a view to doing a deal, or if the problem is bigger, consider your own formal insolvency options.
For more information, have a look at this detailed guide on dealing with personal guarantees.
If, as liquidators, we identify a transaction which doesn’t appear to be in the best interests of the company, it is entirely possible we may have to call upon directors (or other beneficiaries) to repay monies to the company.
These sorts of cases may include:
- Preference payments – where a friend or relative has been repaid money by the company before liquidation instead of paying trade debts or HM Revenue and Customs.
- Transactions at Undervalue – where company assets or funds have been gifted or sold for less than they are worth.
- Misfeasance – where company monies have been used for personal benefit without being authorised as expenses or remuneration.
- Overdrawn Loan Accounts – where funds have been drawn from the company, but not accounted for under the PAYE scheme or as dividends.
- Illegal Dividends Payments – where dividends have been paid to the company shareholders without sufficient reserves to justify these payments.
If you are approached with regards any of these transactions, our best advice is just to lay out your explanations quickly and clearly. As liquidators, we understand the books and records can be misinterpreted, so it is best just to help us understand what has occurred and why. The issue will need to be resolved, with the least expense and antagonism for all parties possible.
If after negotiation, it appears that you do owe the company money, try to reach a deal with the liquidator at an early stage. If the liquidator has to spend less time negotiating, they are more likely to be amenable to offering a deal.
Setting up a new business after liquidation
Contrary to popular belief, the act of liquidating a company alone does not prohibit you from setting up a new limited company after liquidation. (Disqualification as a director will only affect you if you are disqualified by the Insolvency Service for negligent actions or willful dereliction of your duties as a director. See more here.)
There are however several things which you may need to take into account in the actions in setting up a new business:
Re-use of company names
The insolvency legislation prohibits anyone who has acted as a director of a company which has been placed into liquidation from using a company name which is the same as or similar to the company in liquidation for a period of 5 years from the date of liquidation. This includes websites and trading names.
It should be noted that to do so is considered a criminal offence, not just a civil offence, so it is imperative that this is dealt with properly. There is a basic guide to doing this here.
NB due to the severity of the penalties and effect this can have on your business we do recommend taking legal advice in all cases.
If your new business needs to obtain goods from common suppliers with the liquidated company, there will often be a need to rebuild your relationship. We advise that you resist paying these suppliers from the old company before liquidating as you may become liable to repay these amounts to the liquidation personally.
Suppliers may request that you trade with them on cash terms for a period of time until they are satisfied you can be granted a credit account again. Unfortunately, some suppliers may seek ransom payments of the debt owed by the old company, which again you should resist where possible and seek alternative suppliers if they are available.
HM Revenue & Customs
If particular issues have arisen with the level of tax debt, HMRC may request a deposit or bond to be paid before it will allow you to submit returns. Find more about bonds here. As you will be aware, if you can’t submit returns, you can’t trade legally. If HMRC requests a bond, it’ll use it if you don’t pay your future liabilities on time.
Moving forward after liquidation
At all times, if your business is in financial difficulties, the most important thing is not to delay in dealing with the problem. The longer you leave it when liquidation seems imminent, the more problems can arise for you post liquidation.
Hopefully the above should help you know what to consider moving forward after you have liquidated your company, but if you have a more specific concerns. please don’t hesitate to contact us.