Frequently Asked Questions

There are several tests regarding this question, and even case law discussing it.  In very brief terms, there are 2 main tests;

1. where a person or company are unable to pay their debts as and when they fall due (known as the Cashflow Test), or;
2. where total assets are less than total liabilities (known as the balance sheet test). 

The sooner directors seek advice the more chance there is to save the company, or more range of options that can be available. Invariably people bury their heads in the sand and only seek help as the last resort, which can severely limit rescue options that may have been used to assist.

At Beacon we stress that asking for help before things become the last resort is key to allow a fuller range of options to be available.

If in doubt, just ask. It doesn’t cost anything for an initial meeting, they are free.

Employee’s are entitled to payments from the Government following the insolvency of their employer, to statutory limits, via the ‘Redundancy Payments Service’.

The Government provides assistance to employee’s where their employer has become insolvent. The Redundancy Payments Service have provided a guide entitled ‘Your Rights If Your Employer Is Insolvent’

Whilst the powers of Directors usually cease upon the appointment of an Insolvency Practitioner, prior to any such appointment, Directors are subject to many obligations and duties. The main director Fiduciary Duties are contained within Section 171 – 177 of the Companies Act 1986;

• Section 171 – to act within their powers
• Section 172 – failing to promote the success of the company
• Section 173 – to exercise independent judgement
• Section 174 – to exercise reasonable care, skill and due diligence
• Section 175 – to declare interests in any proposed transactions (to avoid conflicts of interests)
• Section 176 – to not accept benefits from third parties
• Section 177 – to declare any personal interests in transactions

In addition, the main culprit that Insolvency Practitioners often see is from a breach of Section 386 Companies Act 2006 – failure to keep adequate books and records. 

There are many offences that can crop up in Insolvency proceedings, they are not common, as most Insolvency situations happen with no guilt associated to the Directors.

The most common offences tend to be; wrongful trading, fraudulent trading, defrauding creditors, putting assets beyond the reach of creditors, fraud in anticipation of winding up, falsification of Company books and records, material omissions from statement relating to the Company’s affairs, fraudulent representations to creditors and creating charges in anticipation of insolvency.

The consequences for Directors ranges from reparation to fines and custodial sentences.

If you are a Director and want to ensure that you do not commit any offences in before an insolvent event, please contact info@beaconllp.comfor a free initial meeting.

Practical point of view – If your business has reached the point where you cannot pay your suppliers or HMRC, you are receiving threats of legal action for unpaid debt, the business overdraft is fully used and there are no more funds to inject, then seek immediate advice from a licensed Insolvency Practitioner.

Technical point of view – a company should cease to trade, incur no further debt and not worsen the position of the company, when the director knew or ought to have known that the company could not avoid insolvent liquidation. For more information please contact info@beaconllp.com for a free initial meeting.

If a director has not acted in the best interests of the company and as such has been judged to have abused his position as a director, he may be given a personal liability order. 

These are not commonplace, and the sooner directors obtain professional advice and act in accordance with that advice, the less chance there is for this to happen.

If you are a Director and are concerned in respect of your personal position, contact info@beaconllp.com for a free initial consultation.

• An IP is a qualified person duly licensed and regulated by a Recognised Professional Body.

• An IP can act in certain defined roles that no person, unless they are a licensed IP, can act.  The most common of these roles are; Nominee of a Voluntary Arrangement  Supervisor of an Voluntary Arrangement, Trustee in Bankruptcy, Liquidator, Administrator and Administrative Receiver. 

• Click here to see the Team and IP’s at Beacon.

• In accordance with The Insolvency Act 1986, the Secretary of State recognises and authorises particular professional bodies to become RPB’s. 
• RPB’s have the role of authorising IP’s and also acting as their Regulatory Bodies to ensure that they remain fit and proper to act as an IP.
• The IP’s at Beacon are regulated by the Institute of Chartered Accountants in England & Wales and the Insolvency Practitioners Association.

• In this situation an IP is a mediator between you and your creditors and will be acting in the best interests of both you and your creditors with a view to seeking the best way forward. 
• An IP is required to consider and provide the best advice to you in your personal circumstances.

• An IVA is a formal insolvency procedure, and forms a legally binding agreement between you and your creditors, as such an IVA is not something to be entered into lightly. 
• An IVA allows you to repay creditors over a period of time.
• An IVA is a flexible procedure that is tailored to suit the personal needs and requirements of you and your creditors. 
• An IVA is usually an agreement that lasts for either 5 or 6 years whereby payments are made on a monthly basis (but could be a lump sum or a combination of monthly payments and lump sum).
• Please click here to email the IP to request a free initial consultation.

• This is wholly dependant upon individual personal circumstances. 
• Any payments are calculated on ‘what is reasonable’ between you and your creditors and also what is reasonable for you to afford based on your income. 

• Despite the adverts stating that “there is a little known piece of government legislation that allows you to write off 75% of your debts” this is not in fact accurate in all cases. 
• An IVA is not a vehicle to simply write off debts which you can afford to repay. 
• If you can afford to repay your creditors in full then you will be required to repay your creditors in full. 
• If you cannot afford to repay your creditors in full and over the period of time proposed by an IVA you can only afford to repay, say, 25% of your creditors debt, then that is what can be proposed. 
• The IP will calculate what they consider creditors will accept in your circumstances.

• This depends on the circumstances of each case, and the IP will provide you with the estimate once the circumstances of the situation are known, as the IP will need to consider what is involved in the work to be undertaken.
• As a rule, creditors dictate what an IP can receive and IP’s will propose fees that are likely to be agreed by creditors and such costs are deducted from the total funds to be paid throughout the IVA and not in addition to.

• Please click here to email the IP to request a free initial consultation.

• Bankruptcy is a formal insolvency procedure.
• You can apply for your own Bankruptcy, or if you owe someone more than £5,000 they can also apply for your Bankruptcy for non-payment. 
• Bankruptcy is considered the most severe of all personal insolvency options, as there are serious consequences to Bankruptcy that do not exist in other options. 
• You can now apply online to petition for your own bankruptcy, click here to be directed to the relevant government site where you can do this. 
• To make a Bankruptcy application it costs £680.
• Once Bankrupt the Official Receiver at The Insolvency Service will consider and look at your circumstances and will either retain your Bankruptcy case and deal with it or they will seek to appoint an independent IP to do so. 
• In most cases you will be ‘discharged’ from Bankruptcy after 12 months. 
• Your income will be reviewed to ascertain whether you can make a monthly payment towards your Bankruptcy for a period of 36 months (3 years)

• No one needs to do anything, you can simply do nothing, allow things to continue as they are and see where it ends up. 
• This does mean you will not have any control over the situation and it is more likely you will end up with debtor collectors at your door and/or Bankrupt.

• A DRO is in effect ‘Bankruptcy’ for people with lower debts and income. 
• A DRO is costs a non-refundable £90 which is paid to the Official Receiver at the Insolvency Service, and not paid to the DRO approved intermediary.  An approved intermediary cannot charge you for their time in assisting you with a DRO application. 
• A DRO is generally applicable for persons who; 

✓ Cannot pay your debts

✓ Owe no more than £30,000

✓ Do not own property, including your own home

✓ Do not own or have any assets of value

✓ Have little to no surplus income.

• Only an approved intermediary can make an application for a DRO for you.  At Beacon we have a duly appointed approved intermediary who can do this.  Please click here to make initial contact for this
•  

• A DMP allows you to make an affordable monthly payment, very much akin to an IVA, but with no end date.  
• A DMP is not a legally binding agreement, and creditors are not obligated to cease interest and charges being levied on the debts due.
• Creditors are also at liberty to change their minds at any time and request more money than that originally agreed in the DMP.  
• But for all that DMP’s are an option, and as they are not governed by the strict rules and regulations that formal insolvency procedures are, it is worth considering for that very reason.  
• You do not need to employ anyone to administer a DMP for you, as anyone is at liberty to administer their own DMP. 
• At Beacon we do not offer the facility to undertake DMP’s expect in certain strict circumstances whereby the end goal is an IVA. 
• There are several debt charities that will undertake assistance with DMP’s with no payment from you for doing so.

It is a very common question that we are asked and many believe that they are liable however this is not usually the case. The debts of your limited company belong to it not you as a Director. This will usually include unpaid invoices, loans, assets finance, unpaid rent and bounce back loans.  That said, there can be certain circumstances where you are at risk.

For example most directors will have given personal guarantees at some point in time, possibly to their landlords, banks and key suppliers in order to acquire loans, funding and continued supplies. But if the company cannot meet these payments the director can become personally liable for covering the shortfall. You should take advice from a licensed insolvency practitioner as soon as possible as you may face a serious financial situation which could lead to you entering into bankruptcy. Please click here to email an IP for free advice.

Another circumstance could be an overdrawn Director’s current account. If your company is doing well, you may often be advised to pay yourself a small salary and withdraw dividends from profits. The problems begin however when your company starts to struggle financially but you continue to take dividends. These payments can be regarded as unlawful as well as leading to large overdrawn director’s loan account. If the company subsequently becomes insolvent, you as a director can become personally liable and may have to pay back the debt. Though if the company does get placed into liquidation, the insolvency practitioner can reach an agreement with you depending on the circumstances.

There is one other area where you as a director may be at risk of being made personally liable. That area revolves around your conduct during your time as a director of the company and the actions you have taken. 

Commonly termed as antecedent transactions. These are circumstances where you as a director may not have acted in the best interest of the company or its creditors. The two most common are Preferences and Transactions at an Undervalue.

Preferential payments: this is when one creditor is paid in favour of others, it creates a ‘preference’ - the recipient may be required to repay the money. Typically you may, for example, prefer to pay a key supplier for a recent delivery compared to another who has an older and overdue debt. This would be termed a preference. 

Transactions at an undervalue: quite simply, if an asset has been sold for less than its true value, it diminishes returns for creditors and may be reversed by the liquidator. For example, you may sell a vehicle owned by the company to generate cash but not have sought to have it valued first. If the sale amount is significantly below its true market value the transaction could be deemed at under value and overturned.

The main tests for insolvency are the ability of a company to pay its debts as and when they fall due. Therefore, if your company cannot pay its bills or suppliers it would be deemed insolvent. The other test, is the balance sheet test. If the assets of the company are lower in value than the amount due to creditors, it can be termed as insolvent on a balance sheet basis. 

The risks therefore are that your company may well be forced into formal insolvency for non payment of debt. Typically, creditors or suppliers will commence legal action, possibly via County Court Judgements leading to visits from Bailiffs. This could then lead on to a Petition for the Winding Up of your company in the High Courts.

If your company has financial problems, even if you think they might be temporary, you should seek professional advice. If you take action early enough and speak to a licensed Insolvency Practitioner you might be able to save your business and continue trading. Please click here to email an IP for free advice.

When a company goes into liquidation its assets are sold to repay creditors, employees are made redundant, the bank account is frozen and the business cease to trade. The powers of Directors cease and a Liquidator will review their conduct.

The company name remains on Companies House but its status switches to 'Liquidation'. The removal of the name only comes about on dissolution which is approximately three months after the closure of the liquidation, which can sometimes take over a year to complete.

The aim of the liquidation process is to realise assets to allow a dividend to be paid to each class of creditor. Following the change of HMRC status to a preferential creditor, it is often the case that unsecured creditors receive little, if any, return. 

Please click here to email an IP for free advice.

There are two types of Liquidation that are commonly Director lead. You have a Members Voluntary Liquidation, this is for a solvent company where you wish to extract cash or assets in the most tax efficient manner. 

Alternatively, if your company is insolvent, you may as a Director and shareholder seek to place the company into Creditors Voluntary Liquidation. This is where the company has debts exceeding its assets and can no longer trade. 

In both circumstances you will require the advice of a licensed Insolvency Practitioner. Only such a practitioner can be appointed as liquidator. They will discuss the financial circumstances of the company with you. Then a good licensed Insolvency Practitioner will usually be able to advise on all of the options available and the likely best solution to help you. Please click here to email an IP for free advice.

The Liquidation of a company is a formal process whereby a firm of licensed Insolvency Practitioners are engaged in writing to assist the board of directors in winding up the affairs of the company. As Directors you will be made aware that you will need to make sure the fees charged for placing the company into Liquidation are paid. In most cases this will be possible by selling or recovering the assets of the company.

In certain circumstances there might not actually be any assets remaining. It is possible therefore that as Directors you may be entitled to a claim for Redundancy and Pay in Lieu of Notice. If you have worked for more than two years and taking a regular salary through PAYE, you could have an entitlement.

It is common in these cases for Directors to use their entitlements to help cover the cost of liquidation. Make sure you speak to an Insolvency Practitioner to better understand your options. Please click here to email an IP for free advice.

At Beacon we charge a fixed fee, so you know what the cost will be. Typically, depending on the size of the company, the fee for placing a company into Insolvent Liquidation is £4,250 plus VAT and disbursements.

At the point your company goes into Liquidation your powers as a Director will cease. Eventually the company itself will get struck off and dissolved once the liquidation is complete. In the meantime the failure of your company should not affect your personal credit rating. 

You may find that if you start trading a new company, suppliers and credit companies may carry out a search on you as a Director and be cautious granting you credit if they can see you have previously been involved with a company that has entered into liquidation. 

Please click here to email an IP for free advice.

There are many reasons why you might find your business unable to pay debts on time. Cash flow problems can be caused by many factors, loss of a key contract or employee, a bad debt or difficulty in getting raw materials and stock. If the position does not improve, you may find that the company will fall behind in payments to not only suppliers but HMRC as well. This can lead creditors taking legal action and obtaining or seeking to enforce County Court Judgements. 

You should seek the advice of a Licensed Insolvency Practitioner, most will not charge for an initial meeting and will be happy to listen and offer help. You will need to decide if your business is viable moving forward.

Are you able to raise capital, either yourself or via a third party? There are various sources of funding available. You might want to consider some form of commercial finance via an asset based lender. It could be possible to finance either debts due to your company or items of plant & equipment. 

Company Voluntary Arrangement 

This is an option you may consider, particularly if you have a good cash flow forecast and can demonstrate core profitability. You will need to speak to a Licensed Insolvency Practitioner to confirm if a CVA is a viable option.

In brief terms, as Director, you will be issuing a proposal to the company creditors demonstrating the business can survive especially if given the opportunity to restructure its finances and debt. The company is usually required to make a monthly payment for a period of three to five years, pending on the circumstances.

The proposal will state that this arrangement will facilitate survival of the company resulting in a dividend to creditors potentially repaying all or a substantial amount of the debt. It will also demonstrate that this would be a far better outcome for creditors than the alternative of Liquidation which may result in no return at all for creditors.

Liquidation and ceasing to trade

You may decided that it is not possible to continue trading and the business should cease so as not to worsen the position.

A Creditors Voluntary Liquidation may therefore be the more appropriate option.  In brief, the role of a Liquidator is to realise all assets of the company for the benefit of its creditors. A sale of such assets can be to even yourself if you wish to start another company but this must be overseen by a professional valuation agent. 

Administration 

This may be another option, particularly if you are seeking to continue the trade of the old business via a new company. There may be many reasons why the old company cannot continue to trade but if a new business is set up correctly, with capital, then a sale could be achieved via what it termed a ‘pre pack’.

A sale of the business is often agreed prior to the appointment of an Administrator and will involve a professional valuation of the assets as well as a sale purchase agreement prepared by a solicitor. A sale is usually completed upon the appointment of the Administrator so that the business, its assets and employees can all be transferred simultaneously without a break in trading.

Please click here to email an IP for free advice.

If your company has reached the point where it can no longer pay its debts as they fall due then you need to seek urgent advice from a Licensed Insolvency Practitioner. If you do not cease to trade at this point you maybe at risk of Wrongful Trading, particularly if you trade on knowing the company cannot pay its debts and worsen the position.

Wrongful Trading can also leads to you being disqualified as a Director for up to 15 years plus a fine. You may also be at risk of being made personally liable for company debts.

Please click here to email an IP for free advice.

If your company cannot keep up to date with its payments to HMRC then eventually a penalty notice will be issued and an additional amount will be due. The amount due to HMRC will continue to increase as interest will be added to the outstanding amount. If you are not able to pay by the HMRC deadline you may find legal action will commence. This may result in a statutory demand being issued, potentially leading to a petition to wind up in the High Court. 

As a Director you should enter into dialogue with HMRC as soon as possible and advised if your company is going to be late in making payments. By making contact you may be able to discuss options with HMRC and possibly agree a Time To Pay arrangement. These can run typically over 6 to 12 months. If you do not address the situation promptly HMRC are less likely to agree a payment plan. 

Please click here to email an IP for free advice.

Whilst the simple answer is ‘yes’, there are certain matters to be aware of.  In particular if you should start a new company you must make sure it is a different name. If you do not then you could fall foul of Section 216 of the Insolvency Act 1986. This potentially can lead to you being made personally liable for the old company debts. It is important therefore that you seek professional advice from an Insolvency Practitioner. 

You are able however to purchase the name of the old company and continue to use it but this will be via a Court application and you will need to purchase the name from the liquidator of the old company.

Please click here to email an IP for free advice.

This scheme started in mid 2020 and for most businesses taking advantage of the loan this means that the first payments are falling due, now that the 12 month free period is up.

What happens if the overall financial standing of the company has still not improved and the company cannot afford to make payments? You should seek professional advice from an Insolvency Practitioner as to the viability of the company to continue to trade.

If the company does cease, the bounce back loan is a company debt, you as a director will not be personally liable. The bank should then reclaim the loan loss through the Government guarantee.

If however it is found that the loan application was in anyway fraudulent or the funds were not used for the purposes specified, you may be at risk if you have committed an offence under the Insolvency Act.

Please click here to email an IP for free advice.

As a Director it is common for funds to be taken out of the company via dividends. But what happens when the company becomes loss making and is struggling financially. 

If as a Director you continue to take funds via dividends, you are actually borrowing money and creating an overdrawn loan account. If the company returns to profitability and you trade on successfully then all is well. But if the company cease to trade and goes into liquidation, the Liquidator will request repayment of the overdrawn amount from you. 

Usually you will be given some time to reach settlement as the role of the Liquidator is to act in the best interest of the company creditors.

Please click here to email an IP for free advice.