Liquidation Case Studies

Liquidation Case Studies

 

Here are a few example case studies that we have dealt with over the last 12 years of helping people rescue or close or their company.

New! Small Hampshire IT Consultancy Company – IR35

We were approached by a number of such companies in 2005 and now see a rash of them again in Spring 2010. The issues here are commonplace amongst small “service companies”. Typically a consultant working for a large company is classed as having direct employment by HMRC (this is called IR35). A commonly used solution is to set up a small service company which then offers their services to the client.

Unless this is done carefully and with tax planning the IR35 issue does not simply “go away”. HMRC may still see the service company as a device and the director as an employee of the client company. The usual answer is to be employed directly by the client or to prove that it, the client, is not the only customer of the service company.

There is another issue here, often the consultant takes drawings from the company each month and then has no cash left at the end of the financial year to cover corporation tax. She or he is also then hit with personal tax bills as the earnings from the company have not been taxed through the PAYE scheme. Alternatively, the director takes too much cash out and although the earnings are taxed through PAYE, the company cannot find the cash to pay the monthly PAYE and NIC deductions.

We advised a director of a company based in Hampshire that had built up liabilities for Corporation Tax, VAT and PAYE. The solution used was a creditors voluntary liquidation for the company – killing off the tax debts and then he as an individual was employed by the client company directly. Luckily the client valued his services so much that they elected to take him on to their payroll. However, there is still the risk in this solution that the “veil of incorporation” may be lifted and he could be personally pursued for an element of the tax owed by the company. This would occur if the Crown creditors could prove wrongful trading (see guide to the left).

In this case that was not too much of a threat, as he also had serious personal credit card debts.

Our answer here was to propose an individual voluntary arrangement. Our team at www.debtless.co.uk set up an IVA which was accepted by his creditors. Clearly, he could demonstrate good future earnings now he was employed by the client company and his creditors supported a deal that binds all of his tax and credit card debts.

So although a small company there were big and difficult problems to deal with.

If you have similar problems please call our solutions team on 01289 333124.

Liquidation of Multiple Group Companies Case

We were approached by a group of recruitment companies with 8 companies in a loosely related group. One had been liquidated by a creditor (see “What is Liquidation” for a guide to compulsory liquidation), they thought that 6 were insolvent and one was solvent.

The owners wanted help in sorting it all out and were frantic with worry. They visited our website and then plucked up courage to call KSA. We quickly identified that 5 of the companies needed to be closed and liquidated. One was in Scotland the rest in England. We arranged the liquidations of the 5 insolvent companies. The other two were rescued by company voluntary arrangements.

Overall the cost of the 4 English liquidations was around £10,000, the Scottish case, which was a lot more complex, was £5,000 overall. Our liquidators took their fees from the cash, debtor book and asset sales. The remaining companies have had difficulties but are still trading. The directors who had had a tough few months are now focused on running their viable companies.

They have had their conduct reviewed by the liquidators and no further action was taken against them. This is normal result of liquidation investigation as wrongful trading actions against directors are very rare. For more on wrongful trading see the guide at the left.

Franchise Company – Signs (Liquidation)

Director called us after reading the website. Having invested much of his savings to buy an expensive franchise in the sign-making sector he was worried that it was not performing well and he was ploughing more and more capital in.

We took him through the options and then decided that it was never going to work in that location and he would risk losing his house by borrowing more against his home to plug the cashflow hole (never a good idea)!

We advised him that the HP company would take back the equipment that it had financed (and sell it off probably) and then the debtors due to be collected would easily cover the cost of voluntary liquidation which was around £3-4,000.

The property (a shop) lease was immediately disclaimed by the liquidator and the director, who had a personal guarantee on the lease, helped find a new tenant within around 3 months. He has avoided personal bankruptcy, kept his home and his marriage/family. David now works in the same sector but as a manufacturing director for a sign making company in Kent.

Training Company, London – put into liquidation

A training company had grown fast mainly on the back of one key contract. A fast growth but not yet profitable business with good prospects, turned into sharply loss-making business when the contract came to a messy end.

The directors struggled on and tried to reduce employee numbers but were faced with tribunals and redundancy costs that the company could not meet. Even a CVA could not help the company and it was time to liquidate it.

Within 24 hours the company ceased trading and the liquidator took control of all of the big issues. The directors soon bought out the name of the old business and the remaining contracts and set up again as a small (phoenix) company. They learned the very OLD business lesson, turnover (from a big contract) is vanity, profit is sanity”.

Software Company, Home Counties (not a liquidation)

Enquiry came into KSA for a company that was threatened with winding up petition by HM Revenue & Customs. This had brought a tough situation to a head and the board of directors (husband and wife) thought they better act (better late than never).

They called asking us to liquidate the company but after a detailed discussion, with one of our directors, a recovery plan was identified.

They did not know that despite huge arrears of VAT and PAYE there were restructure options available. We advised them how to put together a company voluntary arrangement with the company’s creditors.

The deal included the HMRC debt and with our help, the company was rescued around 8 weeks later. This avoided liquidation, avoided the investigation into their conduct as directors, avoided the loss of customers, avoided the loss of staff and the meltdown of the principle asset – good quality software used in the health sector.

Have you thought about the rescue options as well as liquidation? If not and you want to know more please give us a call for advice on both closure and rescue options.

Furniture retailer (CVA)

With sales of £8m multi channel sales including the internet, shops and direct selling via catalogue. A massive quality problem affected our client when they diversified into new products. Unexpectedly hundreds of people began to reject deliveries of faulty items or return previously delivered faulty goods. Despite good quality designand having sourced the manufacturer very carefully in Asia, the supplier let the company down with poor quality products in early 2006. Having now proposed a CVA to protect the company our client has refocused on sellingthe products it knows at good margins.

Key case achievements by KSA

Prevented winding up by Crown creditors and a trade supplier.
Built the CVA deal
Helped exit unwanted warehouse property
Reduced headcount by 20 people
Carefully modeled business over 5 year period including what if scenario planning whilst replacing the FD

Electronic Components Distributor (CVL)

Parent wound up in the High Court after a long running dispute. KSA helped put the company into Creditors voluntary liquidation and is helping negotiate the purchase of the group shares from the Official Receiver.

Key case achievements by KSA

Helped protect the company, built the phoenix deal
Helped exit unwanted offices and warehouse property
Carefully modeled business over 5 year period including what if scenario planning

North East Recruitment Company (CVA and CVL’s)

A group of three companies lost major contract with a multi national firm. Sales fell from £4.5m to £2.5m overnight. Board hung on thinking would win work back, it didn’t. Now reduced to much smaller company using CVA to control the deal. Two companies liquidated one rescued

Key case achievements by KSA

Prevented winding up by HMRC for unpaid PAYE of around £230,000
Reduced headcount by 10 full time staff and over 40 temps.
Carefully modeled business over 5 year period
Helped negotiate exit from two unwanted office properties.
Replaced factoring deal

North East Recruitment Company (CVA and CVL’s)

A group of three companies lost major contract with a multi national firm. Sales fell from £4.5m to £2.5m overnight. Board hung on thinking would win work back, it didn’t. Now reduced to much smaller company using CVA to control the deal. Two companies liquidated one rescued

Key case achievements by KSA

Prevented winding up by HMRC for unpaid PAYE of around £230,000
Reduced headcount by 10 full time staff and over 40 temps.
Carefully modeled business over 5 year period
Helped negotiate exit from two unwanted office properties.
Replaced factoring deal

Pallet Distribution Company Scotland (CVA)

Was operating well and profitable but its cashflow could not keep up with very rapid growth. Good
quality people but not great financial reporting as usual.

Key case achievements by KSA

Prevented winding up by Crown creditors (common theme at the moment)!
Built workable CVA deal paying only £1,000 per month in year one. Creditors accepted 35p in £1.
Carefully modeled business over 5 year period including what if scenario planning for future working capital needs.
Helped raise new investment post CVA of £100k

Watch this space for more case studies coming soon