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…

 

 

 

 

 

 

The ten reasons businesses fail

  1.  The business was started and run for the wrong reasons.Some companies are set up and then run more like a hobby than a business.  Lifestyle businesses tend to merely exist, not doing spectacularly, until something bad happens to cause the wheels to come off;
  2. I can do it all myself!In his book, the E-myth, Michael Gerber spoke of the 3 skill-sets needed by business owners today – entrepreneurial, managerial and technical.  No one I know has all three, in the right degrees, not in today’s fast pacing business environment.  Seeking support from outside the business to plug skills gaps is a show of real strength, not weakness.
  3. Inadequate working capital.It always costs more than you’d expect to set up a business and survive the inevitable troughs later on.  It’s incredibly dangerous to rely on credit lines over which you don’t have full control.  Either way, the business owner didn’t properly assess how much money would be needed, where it’s best to get it from or what might happen;
  4. Weak financial skillsEvery business owner needs to understand how the business clicks financially.  If you don’t, you haven’t a business, you’ve got a hobby.  If you’ve got weak financial skills, there’s a good chance you probably also lack the profit motive, you love what you do and will return to stereotype ‘manager’ or technician’ roles when things get bad, digging an even bigger hole for yourself.  ask us to explain this;
  5. The location is wrongQuite simply, the business opportunity was not fully explored;
  6. Lack of planningThere’s a lot of truth in the saying ‘to fail to plan is to plan to fail’.   The unexpected does happen, particularly in our increasingly complicated world!;
  7. Over-trading (and what I call under trading)Over-trading / over-confidence can cause terminal cash problems in fast moving businesses.

    There is also something I call ‘under-trading’, where the business owner adopts a strategy of merely cutting costs to deal with their financial, operational and strategic problems – they do this because doing so can be the easiest decision and produces short term cash benefits.  However, we find that if this is all you do, you store up much more severe problems in the medium term.  It’s simply not possible to cut yourself to greatness!;

  8. Poor marketingThe Company waits for business to come to it, as ‘it always has done’.  The business could be ‘invisible’, there’s no route to the changing market, no sales force;
  9. Failing to follow a clear strategic directionOver time the business develops haphazardly.  It is slowly strangled by ‘unfair’ relationships with major customers, suppliers or employee groups;
  10. Inflexible business modelAn inflexible business model and high fixed cost base while they may work in boom times cause significant problems in the inevitable times of bust.

If your business demonstrates and of these, we can help… just call us on 01902 672323 now.

Want to pay just 10% tax on exiting your business?

Yes?

I don’t blame you – well after all you’ve paid tax on all your profits over the years, haven’t you? Wouldn’t it be great if you could reduce that ‘tax on tax’ payment when you exit your business?

Well you can… and it’s completely legal… and it’s just a process!

Follow this link…

https://sway.com/VLz7XgI5AqBSokfb

Many owners of small businesses are using Entrepreneurs’ Relief to reduce the tax they pay on exiting their business to just 10%.

Call me for more information… 01902 672323

Top tips for ensuring a phoenix company doesn’t go the same way

Many phoenix operations fail.   It’s not that easy to make a phoenix succeed.

Trusting to luck or assuming things will somehow improve once the company’s debts are written off does not work.

Here are our top tips for making sure your phoenix business won’t go the same way…

  • You might find it difficult to get all the support you would ideally want from your bank, customers, suppliers or even key employees.  They could reduce the support they’re willing to give or even shun you entirely.  Insolvency is divisive, people tend to look after their own interests first and foremost: for example your customers could use the failure of the business to re-appraise what they do, how they do it and with whom.  You will lose some business, it’s inevitable.  Plan for the worst, hope for something better.  Ask yourself what support you need, and from where, for the business you want to create.  Then go get it, even if it means giving something away.
  • Although freeing a business of its debts deals with the symptoms of its problems, it doesn’t deal with the causes.  Identifying the causes for the problems of the business often means real soul searching.  You may need to bring in more help or resources.  You might need to improve your own skills.   You might need to stop doing something or start doing something differently.  Do you have all the entrepreneurial, managerial and technical skills, in the right mix, to succeed? – your business is only as strong as the weakest of your skills in these key areas.  Are you prepared to make all the changes you really need to?
  • There are major issues re-using a liquidated company’s ‘name’: not dealing with these in the best or proper way can lead to personal liability for the debts of the new business and a criminal record.  Do not ignore these rules, implement a properly considered plan for dealing with them;
  • Obtaining the right level of funding can be a real problem.  Some banks won’t touch phoenix operations on any terms.
    How much money do you need?  Add 50% more than you think, then ask yourself how you are going to get it?  Think about looking at alternative sources of finance, sources you haven’t considered before.  But be careful, sources such as Funding Circle get personal guarantees, and you could end up in even worse problems.

Only by fully investigating these issues with a firm interested in securing a long term solution rather than short term fee will you give yourself the best chance of things working out second time around.

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.