Business Concerns in IVA

[Confused.com]

I am considering starting and IVA and have drawn together all the information that should be required. The problem I have is that I am Self Employed (Ltd Company) and as a result of the problems we have got ourselves into (hense the IVA) the business now has debts with the bank, Inland Revenue and VAT. The business itself shows a good profit and as a business if very stable. Also it has 2 debtors which owe in excess the the cumulative value that is owed to creditors. Problem being that one is a no hoper (10k) and the other is with my solictor and is against a company who use barristers for fun. My concerns are that after a discussion with my accountant I advised that I may wind the business up and start a further ltd company. There would be no other changes as my clients etc would remain the same and as such the business would then thrive as it would no longer need to offset the extra monies we needed to take to pay our personal creditors.My accountants concern is that in the eyes of the HMRC we have taken Dividends before we have paid them and as such they may come back on me personally. Is this an amount that could go into the IVA ? Also reading a previous thread it mentions that I would have to show accounts etc to my IP before the IVA could be set up. This would be no problem as the accounts all show good profits, the only problem is the cash flow. Would I be better maintaning the business until after the IVA has been agreed then starting a further company or should I simply start a new company and continue the previous business until such a point that it become obvious that I am not going to get the monies from bad debtors.As mentioned the new business plan/model is fine going forward.

[MelanieGiles]

Hi there and welcome to the forum

Are you really self-employed, or are you a director of the company on PAYE and drawing dividends? If the latter then it sounds as if you are an employee.

Your accountant is right to be concerned about winding the company up if you have drawn dividends when the company was not making profits - or not paying its debts, and there is a risk that you will be held personally liable for the business debts. If they were to eventually claim against you personally, then this claim could be included in an IVA.

You really need to consult an IP about the limited company and your personal affairs and a lot of good IP firms will specialise in both - albeit they may not be able to act in both cases if there is a perceived conflict of interest. No harm in seeking some advice at an early stage just to see where you stand.

The commencement of an IVA should not be dictated by the timing of your company winding-up and restart. If you have personal debts now which you are not able to service, then I would be seeking help with that now. It may take a little while to formulate your proposals, and in the meantime the corporate issues can be dealt with in the background.

Do remember that if you are going to transfer assets from an insolvent company to a new one, full market value must be taken into account for fixed assets and intangible ones - such as customer base, goodwill and IP.

Good luck with all of it.

[Confused.com]

Thanks Melanie. Yes you are right I am a Director.We are a consultancy business and as such the assets are minimal 2 computers and a printer etc. In respect of the Client base that should also not be a problem as the main company I do works for would simply cancel the original order and re-issue to the new company. What argument would I have on the basis that the monies that I have been taking as Dividends on the basis that I was quite sure that the main debtor would pay there bill. This may well be the case although not in full. Also when speaking to a clients solictor previously he mentioned that wherever possible a business should declare voluntry insolvency as this to some extent protects the company as the IP is to sme extent being employed by the company and not the creditor.I appreciate that the IP's bill would then be to pay. The IP makes an attempt to minimise the affects on the Company. Also Melanie does your company look after both Business and Personal matters

[kallis3]

Welcome from me as well.

I believe that Melanie does look after corporate insolvencies as well, and she has an excellent reputation.

If you click on her name, you will find contact details for her.

[Confused.com]

Thank You Kallis3..I will keep an eye out later today when she is back on.

[David Mond]

You can only take dividends against profits that your company makes, not in anticipation of profits. What you have been doing is drawing dividends (to avoid PAYE and NIC) instead of being on a salary.

Any liquidator appointed would claim against you personally.

Also not just simply cancelling contract by your major customer and re-issuing it to you - there maybe goodwill element and issues such as transactions at an undervalue.

You need specilist advice from a firm of Insolvency Practitioners asap.

[Confused.com]

Thanks David. The profits as such were there on the P&L however it had all been taken in the combination of Paye and Dividend. As noted if these two debtors were to pay what is due then the business would be cash flow positive and have no creditors at all. Problem is more so that I have taken monies in advance of paring the HMRC in anticipation that the debtors would cough up.
In regards to the transfer of the contract. I am unsure how this would work, as realistically my client is employing my ability and not the ability of the company. I appreciate that technically I am the company. Either way I think I would have to address the possible amount they would claim off me as going into an IVA

[David Mond]

Possibly - see a good IP asap and start the process. Good luck

[MelanieGiles]

Yes my firm does deal with both corporate and personal insolvency matters.

You need to undertand that an eventual Liquidator of your company acts completely independent of the directors who are left powerless once the company enters into liquidation. The liquidator does not act with the interests of directors in mind, indeed his/her sole duty of care is to the creditors of the company and ultimately the shareholders to ensure that the assets of the company are realised at full market value and that the activities of all officers of the company are properly investigated.

In order to challenge unlawful dividends, the Liquidator would have to prove that the company was not profitable at the time the dividends were drawn. You say that it was, but is now struggling due to bad debts from your customers which have to be provided for. Were these debts to eventually be paid, I assume the company could trade on profitably. So the timing of when you took the dividend, compared to the time that you ought to have been aware that the customer would not/could not pay is paramount.

I think that you should expect your new company to pay something to the liquidator for goodwill, given that it is inheriting you and your ability to win and produce work. This has an intangible value of some sorts, and any good IP will need to discuss this with you.

[Confused.com]

Melanie. I take your point regarding making a move now, but surely I would need to know about the amount of a possible penalty from the HMRC prior to the IVA being accepted, or would this amount be tagged on to the back end after it had been accepted (HOPEFULLY ACCEPTED)..

[kallis3]

You would be better talking to someone now about it, at least you would know how things stand and exactly what options are open to you.

You won't have to do anything immediately if you don't want to but at least you'll have some idea of what to do.

[MelanieGiles]

It could always be included as a contingent claim. A good IP will be experienced in both corporate and personal insolvency, and with a review of the company's accounts ought to be able to identify whether there are grounds for a claim.

HMRC's position will merely be to ascertain whether any tax is due as a result of the payments you have received from the company. Whilst dividends cannot be drawn if the company has not made profits, there is nothing stopping you paying yourself on a PAYE basis - but clearly the company should not have been allowed to continue to trade if it could not afford to pay its debts as they fell due.

The Liquidator's positon will be different - in that if he/she can prove that you drew dividends when the company was not in profit them they may well take an action against you personally for the recovery of these monies. This claim could then ultimately also be included in an IVA.

[David Mond]

You need specialist advice from a corporate IP - there won't be any fine by the way!

[Confused.com]

Thank you all for your comments, I shall raise some of the points with my accountant. He is not aware that I am considering an IVA so is more concerned that I may have to personally except a transfer of liability from the company. In regards to the amounts owed by debtors. The smaller 10k amount has gone as the debtor bounced 2 cheques on me and is in the process of being wound up. The larger 2nd debtor is being dealt with by my solicitor and as such I have a further meeting with him on monday. He is just waiting to place the case in court. My concern is that I dont want to throw good money after bad and as such compound the position where I am taking more than can be afforded by the business. Also if I start the new company I can mitigate any possibility of my current bank pulling the OD facility which would leave me in a positon where I would be unable to take wages etc. I am just thinking it may be prudent to at least start the new company and commence trading. If the bad debts come in then nothing is lot. If not at least I will be sitting with some profits that will provide a small element of monies to pay over to the liquidator as goodwill.

[MelanieGiles]

Very sensible approach - and do take your accountant's advice as they will see the wider picture.