Selling your business to have it liquidated is asking for trouble
Have you ever clicked on an internet or social media advert because it sounded too good to be believed?
They must work because the videos, images and text are so persuasive and compelling that they overwhelm your critical faculties momentarily and your first response is “yes”.
Only after you’ve clicked or done some independent research or read the reviews do you realise that you’ve saved yourself a little (or a lot) of money and disappointment.
We’ve all got stories about being taken in by a pig in a poke but we’ve decided to highlight a new kind of enticing offer that we’re seeing more of to lure directors with the promise of an easy solution but one that will in all likelihood bring them more trouble than it was worth.
One ad claims that it’s legally possible to sell your company including its liabilities without going through insolvency or the need for an insolvency practitioner to a third party. You would then resign as a director and the third party would then close the business down – on your behalf.
It says something like: “We buy your company and all liabilities! After paying a small fee, you keep your stock, any assets and any money that’s left in any bank accounts.”
The theory is that when this benefactor comes along they are buying the shares of the company but not the company itself. This includes all debts and liabilities of the business but not the assets or goodwill.
They further say that no insolvency practitioners are involved – which strikes us as odd because they are legally required to oversee a liquidation – and that it can be completed in 48 hours.
“You’ll be from all company debts & liabilities” – they omitted the word “free” here and it’s not the only thing they’ve omitted either.
Chances are that once a fee is paid, the director will wait for the confirmation that the business has been dissolved. And wait. And wait.
We’ve heard about a few directors that have tried this method and after the fee is handed over and some boilerplate paperwork is sent over to be signed – that’s it.
They never hear from them again and while the director is still in receipt of their shares and every other business asset – they are still facing the same problems they had when they contacted them.
There’s another reason to be wary about following a “too good to be true” offer.
The Insolvency Service are actively investigating and pursuing such companies as they, like us, don’t believe that this is a viable way of closing down a company and can leave directors facing significant consequences even if they inadvertently sign up for one of these marvellous, miracle solutions.
In Scotland, a company called Fortress Restructuring Ltd which was offering similar services to businesses was forced into compulsory liquidation after an investigation by the Insolvency Service.
This was a high-profile case as the company was owned by Craig Whyte who amongst previous companies was also at one time the owner of Glasgow Rangers FC.
As a result of the investigation, the Insolvency Service also discovered that Fortress had taken out a £50,000 bounce back loan in May 2020 using inaccurate financial information that would otherwise have disqualified them from applying.
The sole director of Fortress at this time, Mr Thomas Whyte – Craig Whyte’s father – was disqualified from being a director for 10 years and had to repay £37,500 of the loan as a result of the enforcement action.
Rob Clarke, Chief Investigator at the Insolvency Service, said: “Bounce back loans were for trading companies adversely affected by the pandemic and to be spent on legitimate business expenses.
“The fact that Fortress had filed dormant accounts, and only £949 had passed through its bank account should have made it abundantly clear to Thomas Whyte that his company was not entitled to a £50,000 loan, yet he took it anyway and used the majority of that money for his own benefit.
“We thank the liquidator for their efforts which have seen £37,500 recovered, and repeat that we will not hesitate to take action against directors who have abused Covid-19 financial support in this manner.”
Chris Horner, Insolvency Director with BusinessRescueExpert, said: “UK directors are under more pressure than ever, especially if their business is having financial difficulties.
“So you can see why it would be tempting if they saw an ad for a company advising them that they could solve their problems without going through the liquidation process themselves but still getting the same benefits.
“Unfortunately, in the case of liquidation, it has to be overseen by a licensed insolvency practitioner for good reasons.
“They can be complicated and can take longer than first thought if there are lots of creditors and other issues to sort through.
“But it would take this long for a reason – to make sure there are no loose ends and to make sure that the directors decisions and actions are fully explainable and supported at all stages so there would be no question of any action being brought against them by the Insolvency Service after the process is completed.
“There are many other reasons why directors should not pursue these easy looking options but most simply the firms that tend to offer them don’t last for long, like Fortress they tend to get wound up by the government through compulsory liquidation, leaving their customers in legal limbo.
“Even worse, the ones who have completed the process can expect the insolvency service to look very closely at the particulars of their dealings and stand a higher chance of being investigated than if they had pursued a conventional liquidation in the first place.”
Not getting what you paid for is always annoying but there’s something sadder and nastier about shady firms that prey on people that are specifically looking for help.
We take our role of offering advice as seriously as any other service we provide and have a low opinion of anyone who tries to tell directors that there are shortcuts and miracles in the insolvency process.
Believe us, we’d be delighted if there were but there aren’t.
Laws and rules have to be followed, regulations have to be adhered to and everything has to be done by the book.
We deal with people’s livelihoods and they would expect and deserve nothing less.
We offer a free initial consultation for any director or business owner who wants to talk in more detail about their business and the challenges it faces.
Once we get a better understanding of their situation then we can outline all the genuine options they have to choose from, how much it will cost if they choose us to work with us and then actually help them achieve their goals.
They will always have a dedicated case manager working with them so that they can always get in touch when they need to and even an office where they can come and see us if they want to.
But whether we meet in person or handle all our business online or virtually – be assured that we will do what we say, when we say we’ll do it and for the fee we agree before we do anything to help.