Business Debt Case Studies
If you are a business experiencing financial difficulty, don’t delay, get help now and take back control. Contact us today for a FREE professional initial consultation to understand your debt situation and to discuss the options available to you
Umbrella are Licensed Insolvency Practitioners, based in Wilmslow, Cheshire. We deliver friendly, clear and confidential services to individuals and businesses struggling with debt.
Whatever scenario your business is facing, we have a range of options to help you tackle the financial problems. The sooner you act, the sooner we can help you put your company on the right path.
A lot of business clients are surprised by the range of viable options that are open to them.
Here are some client case studies to help explain the options that could be available to you.
Administration Case Study
Company Directors of a Printing Business approached Umbrella to look at the company position following creditor pressure, with debts in excess of £800,000.
After analysing the trading position, it was clear that a CVA wasn’t viable as the company had immediate funding issues and was unable to maintain payments to general trade creditors and key suppliers in addition to the impending threat of enforcement action from the Landlord and HMRC.
Liquidation was not appropriate as this would have resulted in the Company ceasing to trade and thus would have suffered a detrimental impact of its book debt ledger (the Company’s primary asset). This would have likely resulted in considerably reduced realisations for the benefit of creditors.
As the Company had a loyal customer base and there appeared to be an inherent value in the business, Umbrella arranged for independent agents to provide a valuation of the company assets on a going concern basis.
Following advice from Umbrella, the directors agreed that steps ought to be taken to place the Company into Administration as this outcome represented the best outcome for creditors as a whole and would protect the business from enforcement action.
The protection would allow the business to be preserved whilst the possibility of selling the business as a going concern was explored. It was however recognised that a quick sale, without the need for ongoing trading whilst in administration, would be preferable to allow maximum value to be realised from the Company’s debtor ledger and goodwill.
Management expressed an interest in buying the company assets and business as they were confident of making the business a success with smaller premises and a smaller workforce.
The directors were very worried about the recent bad press concerning pre-packaged administrations, however, Umbrella have a wealth of experience in handling such cases and the main route to a successful pre-pack is to get professional advice at an early stage from a Licensed Insolvency Practitioner.
In such cases, Umbrella’s Insolvency Practitioner will meet with the directors personally to ensure it is the best advice and make certain the process is implemented correctly right from the outset.
In this scenario, the company entered Administration and all the assets were sold to management for an agreed price of £40,000. The continuity in trade ensured that the Company’s funder was repaid in full from book debt collections. All other company liabilities including HMRC, the Landlord and trade creditors were dealt with by the Administrator and the former directors succeeded with their new company plans.
Creditors Voluntary Liquidation (CVL) Case Study
Company Directors of a Consultancy Business approached Umbrella to look at the company position following creditor pressure, with debts in excess of £225,000.
John and Paul, directors of a consultancy business approached Umbrella with debts in excess of £225,000 mainly to HM Revenue and Customs. They had built up their company over a period of 9 years but due to issues in retaining their customers, they were unable to maintain payments to suppliers and in particular the Corporation Tax, VAT and PAYE that was due.
The directors were no longer able to support the company from their own funds and there are no funds left to pay the employees who were owed significant sums. Furthermore, bailiffs were beginning to knock on the door demanding payments.
After an initial consultation with Umbrella, it was clear that the company could not continue to trade in its current form as it was losing money every month that passed.
Restructuring of the company was not a viable option as the business was struggling to keep hold of its paying members and the monthly outgoings could not be squeezed any more.
Therefore, advice was given by Umbrella to cease trading immediately. This reduced the risk of the directors being held personally liable for continuing to trade the business when it was to all intents and purposes insolvent. Umbrella assisted the directors in the unenviable position of having to inform all staff of the redundancies and the doors were closed. Agents were employed to sell the company assets and the directors found alternative employment.
Employees were happy to find out that under the provisions of the Employment Rights Act 1996 they would receive their entitlement for wages, holiday pay, pay in lieu of notice and redundancy up to certain limits. The directors were also able to make a claim. The bailiffs were not able to take any further action and the Liquidator was appointed to deal with all creditor claims and assets of the company.
The directors had given no personal guarantees and as such the debts of the company including HMRC were dealt with by the Liquidator.
Members Voluntary Liquidation (MVL) Case Study
Director was no longer trading his company which had net assets of nearly £300,000
- The Company was an management consultancy business and had traded for around 3 years.
- The Director advised that the company was solvent, able to pay all of its debts, and had traded profitably throughout.
- The company had only two creditors, their accountants and HMRC for Corporation Tax and VAT.
- The assets of the business consisted of approximately £350,000 cash remaining in the company bank account.
- The Director wanted to cease trading the business as he had obtained an employed role elsewhere.
- The Director, who was also the company’s sole shareholder wanted to extract the net funds of £300,000 from the business in the most tax efficient way.
- The director obtained tax advice from his accountant who discussed with him the following options for the company.
Strike off – The option of writing to Companies House to apply for the company to be struck off was discussed. The company would have to pay the outstanding creditors in full and distribute the remaining funds by way of shareholder dividend, following which the company could apply for strike off. However, this would not have been the most tax efficient manner to distribute the funds for the shareholder who was a higher rate tax payer as the rate of income tax payable (32.5%) would have been greater than if the funds were distributed in a Members’ Voluntary Liquidation (10%).
Umbrella explained the MVL option to the director, who after taking further tax advice from his accountant, felt that this would be the best option for him and the company. This would allow the company to be formally wound up and also ensure that all creditors were paid in full through the liquidation process. The director was advised by his tax advisors that an MVL would be the most tax efficient way of extracting funds of £300,000 from the company as this would be regarded as a capital distribution from the liquidation rather than being taxed as income. As a result, he as a shareholder would qualify for Entrepreneurs Relief (10%) on the capital distribution of these funds.
Umbrella were duly instructed to administer the MVL process with funds paid out to the shareholder shortly after the liquidation appointment.
Find out more about our business debt solutions
If the company is experiencing financial difficulty and there is no prospect of continuing to trade then you should consider using a CVL procedure to wind down its affairs
If your company is experiencing creditor pressure but the underlying business is viable then you should consider using an Administration procedure to deal with the company’s affairs
If you are planning to close down your solvent limited company then depending upon how much cash there is left, using a Members’ Voluntary Liquidation (MVL) could be the most tax-efficient way and save you thousands of pounds
If you are unsure what situation your business is in, don’t worry! Call our confidential expert advisers on 0800 611 8888
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I extend my appreciation of your professional efficiency in handling my company business and herewith say thank you.
First of all, I would like to say a BIG Thank You for all of your assistance over the past year. I would not be in the positive state of recovery without Umbrella. Your care and assistance at the application stage last summer, along with the advice throughout the year, has been great. I would not hesitate to tell anyone in my negative situation where to turn to.