Before I go on, I’ll apologise now, this is going to be a rant! … about some of my fellow insolvency practitioners…
What is it that has upset me so much?
It’s licensed insolvency practitioners telling people they need work doing by them when they don’t.
Here’s an example, it’s one I see often…
You’ve a small limited company – you’re both director and its sole shareholder – it’s got little or no assets, it’s ceased to trade, but it’s got some debts it can’t hope to pay. The people it owes money to include a handful of trade suppliers, the government for vat, and a bank. The debts total £25,000. You’ve guaranteed the bank, who are owed £5,000, you’re going to have to pay that off. You’ve already put £10,000 of your money into the company, you can’t afford to put any more money into it, it’s clear the business has nowhere to go, the project simply hasn’t worked. You’ve lost all you can afford to lose and still you have to pay off the bank.
So you go to see an insolvency practitioner. He advises you that the company should go into liquidation, a process called a ‘Creditors’ Voluntary Liquidation’ because it’s the cheapest and simplest way to shut the company down. He tells you it’s your duty as a director, or shareholder, to close the company down in this way. And because it has no assets you’ll have to pay for the process, it’ll cost £5,000 thank you. You pay some money up front, he’ll accept the rest over time, you’ve signed a personal guarantee.
The problem is what he has told you is rubbish… pure and unadulterated rubbish…in fact it’s worse than that, it’s downright negligent advice.
You see, there’s nothing in the law to say that you, either as a director or shareholder, have to put the company into liquidation, nor that you have to fund that liquidation. The reality is that as a director, your obligation is to ensure the creditors’ position does not get any worse. And you can achieve that most times simply by stopping trading. As a shareholder, you have no obligation whatsoever, the duties that exist lie with the directors not you as a shareholder – look at it this way, you’ve got shares in Barclays, what obligation does that give you for either the way its run or for putting it into liquidation should it ever become insolvent? – that’s right, none – and the same principles apply to small limited companies as listed ones.
So why did you just throw good money after bad paying for an insolvency process you have no obligation of paying for? Especially when (1) you’ve probably also lost your only source of income; (2) You have a string of other personal and personally guaranteed company debts you are struggling paying; and (3) You’re trying to set up a new business to earn some dosh?
Do you know what I do under these circumstances?… that still enables you to comply with your duties as a director? … that costs just £10 plus the cost of a stamp to write to each of your creditors?
Well, I give you – free of charge – a copy of what I call my ‘no assets letter’ – a letter that you send to the company’s creditors, telling them the company has ceased trading, explaining the company’s financial position, inviting them to put the company into an alternative process called a compulsory liquidation and advising that unless they do so within the next three months, you’ll apply to have the company struck off.
The point is a compulsory liquidation is a process that is started at the creditors’ cost and continued at the government’s cost. It costs you nothing.
And in 3 months time if creditors haven’t started off that process, you simply fill in the appropriate Companies House form (DS01 – here’s a link to it) and send it, together with a cheque for just £10 to the Registrar of Companies, who should then strike the company off. You’ve saved yourself £5,000…and you have still complied with your duties as a director.
And that’s why I say that sometimes the most important things are those which you’re not told…
The question you need to ask is why this is happening? Sometimes it’s ignorance – the IP or his staff are simply incompetent – yes there are a lot of incompetent insolvency practitioners and their staff out there! But as I am seeing this happen more and more as sales volumes in the insolvency profession come under pressure, I think it’s down to far more than mere ignorance. It’s fee hungry insolvency practitioners compromisiong the quality of the advice they give purposely to earn themselves a fee. And that is a country mile away from providing their clients with best advice. What makes it worse is that their clients are paying for such poor advice, even though in many instances they can’t really afford to do so.
In my next blog I’ll talk to you about what those salesmen of Individual Voluntary Arrangements don’t tell you, and give you an opportunity to obtain ‘my little book of bankruptcy’, a book that explodes some of the myths about bankruptcy.