Beware the promises: to knowingly dump debts is potentially illegal
Did you know it is possible to liquidate a limited company, dump all the debts and carry on in business through a new company with no debts?
It sounds a tempting prospect but in reality ‘doing a phoenix’ is not as simple as that and is often illegal if due process is ignored. If is shown a business has deliberately acted to dump their bounce back loans and Coronavirus Business Interruption Loan Scheme (CBILS) then not only are the directors potentially liable for those loans, but it could constitute fraud ending in prison for the culprits.
A quick online search reveals various firms offering to help companies to enter administration to stave off creditors and to potentially find a buyer through a pre-pack deal or to eventually close the business legally. Loans of any type may have a guarantee from the lender and although technically banks don’t have to ask a business for a personal guarantee (usually a home or property) for the Government’s emergency Covid loan schemes, there are many instances where they have enforced a clause as part of the loan.
If a firm cannot repay one of these loans, there is the scheme known as Pay as You Grow which restructures the repayments but to simply shut up shop and say you can’t repay the loan isn’t that simple.
Ian Carrotte of ICSM said there are ‘sharks’ out there pretending they can help a company to dump their debts and restart under a new name without any liabilities.
“We have seen sales emails and offers online suggesting it’s possible to liquidate a company without any comeback whatever the liabilities,” he said, “these are effectively fishing exercises by these ‘sharks’ to temp the desperate company director into replying. Once hooked they are not offered the phantom ‘Get out of jail free’ cards but are pushed towards taking another loan at a higher interest rate which they can never repay.”
Ian Carrotte said there are essentially three ways for a business to close legally with a potential long term prospect of seeing the directors establishing a similar business in the future.
He said: “A Creditors Voluntary Liquidation or CVL comes from the directors of the struggling firm who will appoint an IP or licenced Insolvency Practitioner who liquidates the company. Creditors get a report from the IP before the liquidation takes place. The staff need to be dealt with and paid if possible while all the assets are listed and sold. Any money left over is then allocated first to secured creditors and after that, unsecured creditors are paid – although this is rare. Failure to do this properly or for the directors to secretly squirrel away money or assets is illegal.
“Another way is an Administrative Dissolution where the directors wind up the firm without any need for an IP – a typical example is on retirement of the owners or a firm that no longer trades and has little or no debts.”
He said that a Compulsory Liquidation is the third way to end a company and that’s more serious as usually a creditor such as the taxman or a customer has had enough of the excuses for non-payment and goes to court to get a winding up order.
ICSM has seen a dramatic rise in the number of companies simply shutting up shop without due process. Customers are not told, suppliers are left in the dark, phones and emails go unanswered, and the directors simply disappear.
“If one of your customers does this disappearing act then contact ICSM,” said Ian Carrrotte, “as there are ways to contact the directors and force them to confront their liabilities. Some of these firms hope that by simply stopping and disappearing the trail will go cold and at some stage Companies House will strike them off as companies.”
ICSM’s debt recovery department is well versed in chasing down the ‘disappeared’ and realising payment for their suppliers left high and dry.
About ICSM Credit
ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel – while at the moment there’s a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach – ask for details from Paul.
For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.
To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com
For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk