Wind up my Company as I don’t care any more
Sadly this is a viewpoint taken by many company directors when they have been forced to battle on a daily basis with their creditors, as offering explanation for non-payment to creditors becomes so tiring that often common sense takes a back seat. However, this can be the undoing of many, as the Official Receiver (“the O.R.”), the person responsible for handling many compulsory liquidations for at least some point of the process, is notoriously strict on director wrongdoings. Not to mention that business recovery is often not out of the question.
More directors of compulsory winding ups are disqualified from acting as directors of limited companies than in any other insolvency process. This can of course lead to many advisers loosing revenue due to their client no longer being able to trade, or simply because they are unhappy with the advisor due to their lack of support or correct advice in their time of need.
If an independent insolvency practitioner (“IP”) is brought in on the recommendation of the advisor, when petitions are threatened, or when they are received, the IP can not only negotiate a dismissal of the petition but can also take the reins of the liquidation. In this instance, the IP replaces the O.R. as the Company’s liquidator and can ensure that the client is advised better beforehand, leading to some wrongdoing being able to be rectified prior to Liquidation. The IP can also ensure that many mitigating factors (promoting why the director should not be disqualified) can also be highlighted when reporting on conduct issues which in turn leads to less disqualification proceedings.
Advisers and directors alike should utilize the knowledge and experience that an IP has, as this knowledge and experience has seen just about every reason why director’s get disqualified, what matters are given particular importance in investigations and which director wrongdoings most commonly lead to disqualification. It is this knowledge that helps advisers provide better advice to their clients on how to avoid wrongdoing altogether and if the worst should happen, to do what is right for the creditors whilst also considering the wishes of its directors.
So, what are the “low hanging fruits” when it comes to reasons for disqualification?
- Failing to keep proper books and records.
- Trading to the detriment of HMRC.
- Preference payments generally (paying some creditors and not others).
- Illegal Dividends (taking dividends when the Company is loss making).
- The re-use of a same or similar name.
- Disposals of Company assets at an undervalue.
- Excessive salary or cash withdrawals.
- Money Laundering.
- The taking of customer deposits when the order cannot realistically be fulfilled.
- Trading whilst insolvent (either fraudulently or wrongfully).
Advisers should take care to look for these factors because if present in one of your client’s businesses and they are wound up, little can be done to protect their interests.
What else do I need to know about winding up petitions?
- A creditor need only be owed £750 or more to present a petition and has only to prove that the Company is insolvent to do it. Therefore if they have already received a demand letter, a CCJ or a Statutory Demand and have still not paid their debt. Or if their accounts show their assets worth less than their liabilities then they can be considered insolvent by law.
- The Commissioners for Her Majesty’s Revenue & Customs (“HMRC”) are by far the most prolific issuers of winding up petitions and therefore care should be being taken to agree repayment plans with them wherever possible and to ensure that the client continues to pay what they can afford (even if this is a fraction of the total debt).
If you wish to know more about winding up petitions or you have a client that is either at risk of receiving one, or who has received on, then please feel free to give us a call on free phone 0800 612 6197.
For more information on how to adjourn a Winding up Petition click here WINDING UP PETITION ADJOURNMENTS.