Should I be worried about getting banned as a director?

This is a question I’m often asked.  In the vast majority of cases, it really isn’t a worry, but for you while it isn’t the biggest concern you might have over your company’s failure, it’s pretty high on your list.  There are several reasons for this…

First off, let’s explore why you are worrying…

You have probably not recognised that we live in a country that encourages entrepreneurialism, that encourages people like you to have a set up in business.  Without that encouragement our economy would be in tatters, we’d all be working for someone else, not taking any risks.  And being in any business is quite risky, in fact more businesses have always failed than succeed, nowadays with technology moving as fast as it is even more so .  A level of failure is expected by the authorities.  It’s just how you fail…

You probably feel at least some level of personal responsibility for creditor losses.  You have looked back at every decision you did and didn’t make, and assume that if, with hindsight, if you now consider some of those decisions to have been the wrong ones, you are liable to be banned.

For you, the company’s failure is personal, it’s a massive event in your life, one which probably hasn’t happened to you before and thus of which you have no prior experience.  as you are going into uncharted territory, you feel vulnerable.

The figures involved, at least for you, might appear be big, but in the grand scheme of things are often relatively small.  If you don’t have £40,000 to pay your debts, it’s a huge figure for you.  In your mind it might as well be £400,000.  To the outside world there is a huge difference between £40,000 and £400,000.   The level of the problem in your mind could be out of proportion to the actual figures, to the problem in others’ eyes.

Now, let’s look at who the authorities are looking to ban …

Those who are prone to be banned include directors who:

  1. Abuse the principle of limited liability.  Let me explain.  If your company goes into say insolvent liquidation, a good many of its debts are written off, unless you have given a personal guarantee, you’re not liable to pay them.  This is a privilege, and with privileges, there has to be some accountability.  Abuse that privilege, abuse the fact creditors have put their confidence in you by effectively lending money to your company in one way or another and you pay the penalty.
  2. Break the law.  Break any law, for example if you breach health and safety laws, fail to supply merchandisable goods, or commit a fraud on creditors generally or a specific creditor, and you could be banned.  Ignorance of the law is no excuse, you’re expected to know and abide by all the laws that apply to your business.  The reasons for being banned do not have to be financial, operational ones matter too.
  3. ‘Take’ money off HMRC or the general public.  The nature of your creditors matters.  For example HMRC have no choice but to extend credit to your company, so there’s an obligation on you to treat them fairly, especially as regards VAT where you are effectively deemed to have held on to their money.  Get involved in any fraud on HMRC, eg MTIC/carousel fraud, and you will be banned.  If you accept deposits from the Public in advance of supplying them with goods / services but do not protect their money, you’re at risk.
  4. Are involved in certain sectors which are considered rife for fraud or wrongdoing. The sectors continually change as new scams are invented by miscreants.
  5. The size of the failure and regularity of failures with which you are involved.  Directors of bigger businesses and companies going into liquidation with £1m+ debts attract more attention by the authorities and a higher level of skill is expected than say if you are a director of a small corner shop that fails with £50,000 of debts.  If you have a string of insolvent liquidations behind you, whatever the size, the government might form the view that creditors need to be protected from you.
  6. Fail to take, or take but choose to ignore, professional advice, who fail to take advise from a licensed insolvency practitioner in the lead up to insolvency.  The authorities expect you, someone who probably has no prior experience of such difficulties to go and get help, not somehow muddle through, trust to luck or take advice and do what they want to anyway (especially if doing so profits them).

Here’s a link to some government guidance you might like to read – Gov.UK

And here’s a link to a page that’s continually updated where the government publish details of the directors who have been banned in the previous 3 months… Link.  Clicking on the individual bans will give you an idea of where the government’s focus lies.

Here are a few questions for you…

  1. Have you or have you caused the company to break any laws?
  2. Do you owe a lot of money to HMRC?  Have you caused the company to retain and use that money for other purposes?
  3. Should you have ceased trading earlier?  If so, in doing so, have you caused creditors to suffer a larger levels of losses?
  4. Have you somehow taken money or assets out of the company for your own personal gain or that of people you are close with?
  5. Have you treated everyone fairly?
  6. Have you been involved with multiple failures?

If your answer is no to all of these, you’re probably not at risk of being banned, especially if you’ve personally sunk and lost a lot of your own money in the company.  If your answer is possibly, it might be worth you taking some advice, or if I’m to be appointed as your insolvency practitioner, we need to talk early.  If your answer is yes, you might be at risk of being banned, take advice, there are legal firms who specialise in helping directors like you – a Google search on director disqualification solicitors will produce a long list.

We hope that you find this article of help, if all it does is enable you to sleep a bit better at night…

 

 

 

 

 

 

Been asked to personally pay the costs of liquidating your company?

A day doesn’t go by without me seeing at least one instance of a director being asked by an insolvency practitioner to personally pay the costs of putting their company into creditors’ voluntary, ie insolvent, liquidation.

If this is you, here’s a few questions for you…

What’s the insolvency practitioner said about your responsibility for paying those costs?

Were all of your options explained to you?

The answer to these questions is typically ‘not a lot’ and ‘I don’t know’, all that was said is ‘a CVL is quicker and more convenient way for you to close down the company’.

It might be, it might not be, but let me ask you another question, and this is the knub…

Can you do something better with your money – typically £2,500, £3,000 or £5,000 – like finance your new business, pay down personal debt, or even take a well earned break – than pay an insolvency practitioner’s fees?

Of course you can, because whatever way you look at it, spending your hard earned money – and I’m even seeing directors who go into personal debt on credit card to pay such fees, even after losing their sole source of income – on dealing with a historic issue isn’t great value for money.  Yes, there are low cost alternatives to a formal insolvency process.

So why is this happening?  Why am I being told that CVL is the best option?

Well, there are 2 reasons.

Firstly, insolvency is a incredibly complicated and grey legal area, it’s ever so easy for an insolvency practitioner to say ‘a CVL is the right route for you’ without that statement really being put to the test.

Secondly, many insolvency firms depend on selling directors what I would argue are bad solutions to survive themselves – unless they pile small CVLs high and sell them cheap, the insolvency firm would itself be bust!

It is time for some uncomfortable truth...

There is nothing in the law that says any director has to use his/her own money to personally pay for the liquidation of their company.

Let’s repeat that so it hits home…

There is nothing in the law that says any director has to use his/her own money to personally pay for the liquidation of their company.

You see the law only says you have to stop making the creditors’ position any worse.  Sometimes you can do that by simply ceasing to trade.

But there’s a problem…

You still you need closure.  You need to close down the business and the company.

The secret that many IPs would like to keep from you is that can be achieved without you throwing your own money down the drain.  Ask us how you can do that.

Entrepreneur’s Relief and a Solvent Liquidation can see you keeping 90% of the money in your business

What’s Entrepreneur’s Relief?

Entrepreneur’s Relief is a UK government created scheme open to directors who own 5% or more of a company, which which allows them to enjoy a 10% tax rate when they sell their shares, on gains up to a lifetime limit of £10m, saving them two thirds of the tax they would otherwise have to pay without the relief.

The government are effectively saying ‘we know you’ve paid corporation tax on the profits in the company thus far, thanks for that, we are going to give you a break now that you are retiring / leaving this business, we are going to allow you to keep more of your money’.  It’s not one of those dodgy tax schemes we all read about!  And unlike a lot of tax law, this one is pretty simple.

Want to know more about Entrepreneur’s Relief?

Here are a few links you might like to go to to find out more:

Gov.uk’s site giving guidance on eligibility

Institute of Chartered Accountants In England & Wales webinar 

(A full hour’s webinar, more appropriate for accountants or tax advisers.  Skip the first 3 and a half minutes’ introduction)

Gov.uk’s site giving guidance on how your accountant claims relief for you.

 

So how do you make use of this?

  1. First off, talk to your accountant / tax adviser.  Their help will be needed, this is not something you will be able to do yourself.  They will assess whether your circumstances fit the legislation and later on they will submit your self assessment form claiming the relief.  Speak to your adviser before you sell the company/its business.  And if you don’t have an an accountant/tax adviser who can help you, call us, we’ll recommend one.
  2. You and your tax adviser liaise with us – we will plan how and when to put your company into a solvent, members’ voluntary liquidation.  The purpose of that liquidation is to distribute to you as shareholder what’s in the company whether it be cash or other assets (talk to us about the latter point, we have our own route for getting the cash / assets into your hands as shareholder very early indeed – not all liquidators do this).
  3. Your accountant claims for you the relief on your next self assessment tax return. You pay the 10% tax.

How much does it cost?

There’s no straight forward answer to this… it depends.  It depends on your and the company’s circumstances.  Ask for a fixed fee quotation – we are willing to work on a fixed fee basis, but will need to know what the role involves before we commit.  Suffice to say we work with companies whose owners save tens, even hundreds of thousands of pounds, making the exercise worthwhile.

 

 

Entrepreneurs' Relief and a Solvent Liquidation can see you keeping 90% of the money in your business

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Haven Credit Union Final Administrator’s Report

To download a copy of my final progress report as administrator in the administration of Haven Credit Union, issued soon after the credit union went into liquidation, please click on the following link…

Final Progress Report of the Administrator of Haven Credit Union

If you have any problems downloading the report – give it some time to download as it is a large document! – email me at paul@midlandsbusinessrecovery.co.uk or call me on 01902 672323.

Regards

Paul Brindley

Liquidator of Haven Credit Union Limited