Ps on your third point (the debt) I thought that was the point, badly manage a company so it goes bust = you're unable to do it again?

TX.

 

I have heard the pre pack administration tends to be the favoured route of a failed business (Bon Marche did it etc)

As DD said it's usually a better outcome as more money is made from the sale / liquidation of the company

It has also had a lot of bad press too. I think it is very unethical and morally wrong but that is something I have to live with, till I can get out

I would prefer a closure full stop for various reasons and for there to be no newco

 

Like I said though this isn't the first time. It is at least the 3rd time that I know of, and allegedly about the 8th time in total

What is the worst that can happen?

Stripped of directorship and personal assets taken / frozen (of which there aren't any) so no loss really

 

I do know the original plan was for CVA but this wasn't a viable option due to having to be tied to the debt for 5 years

 

unfortunatley the law does not always do morals or ethics

 

I said it was a grey area - what I read looks like he could have been trading whilst insolvent, i.e. setting up a new company as the old was was bust.

 

For a lot of Directors the legal position of liability may be sound - however try borrowing money from the bank as a business without giving personal guarantees. Which in practice brings about personal liability. For SMEs the limit is usually Ł3k before guarantees kick in - in my own experience as the owner of two businesses.

 

Criminal or civil law?

The way I read the OP's posts (with reference to yours) the director in question is acting outside the law. And/or exposing himself to liabilities arising out of failed businesses.

J.

 

Just for clarification the newco was setup months ago for (probable) wrongful trading purposes

This newco (one of at least 4) was used once the decision was made to put the company into administration

At that point there was no choice as 7 day notice from HMRC was in for arrears or winding up order and there were no funds to pay HMRC

the new company has been trading with oldco customers whilst oldco goes into administration, using whatever available credit left to fund newco

So Trout is right in that sense

 

Just looks like straightforward theft to me. Perhap's I should stop looking at these things in such a simple manner.

I still remember the days when moral attitudes were actually taken into consideration!

Les

 

David

If you are going to quote legislation (Section 214 of the Insolvency Act 1986) at least quote it correctly.

The key quote is "at some time before the commencement of the winding up of the company, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation"

And that, is a very difficult thing for the insolvency practitioner(s) appointed to prove. So difficult, in fact, that there have been very few successful cases agains directors since the 86 Act came into force.

Adittionally, it's important to note that the potential liability is limited to the increased deficit after that point of knowing liquidation could not be avoided, and not the total deficiency. And your quote is also wrong in that there is no requirement for the directors to put the company into liquidation but just to make sure the financial deficit is not worsened.

As for PGs, that liability is of course limited to the creditor (usually a bank) which requires them. Not the debts as a whole. If you've been asked for a PG for a loan or facility of just Ł3k or over, you're companies have either been seen as a bad credit risk for the bank in question or you need to get better at negotiating

 

As a services based business there are no assets so personal guarantees kick in.

Also as the businesses are cash positive we have never needed to negotiate or discuss anything other than standard products.

We have been offered significant unsecured credit lines from non-bank sources; but never pursued them as they are not required.

 

No assets - you don't have debtors?

 

The whole trading while insolvent test has a carve out that says you are allowed to continuing trading while there is a reasonable prospect of re capitalisation - in practise that means as long as the directors are talking to potential funders - or say they are- they can continue without fear of being made liable.

Once all prospect of any new funding has been exhausted you are then left with a limited liability entity which has various creditors that are owed money and , generally, not enough assets ( cash, debtors, fixed assets) that can be flogged to pay off what is owed.

So you call in an IP whose duty is to raise as much as possible from the disposal of whatever is left ( after all his own fees are paid -DD ). Once you enter admin, then the IP takes over complete control of the business i.e. the directors are no longer in control of anything. As part of that process the directors are interviewed to see if they did anything dodgy and/or if they tried their best to save the business. To be honest that's a fairly lightweight interview and there is a questionnaire/future interview with the Official Receiver, but again that's mainly a box ticking exercise. Part of the way in the IP raises whatever he can is to hold a creditors meeting which has to be gazetted. You and all the creditors and possible bidders for the rump of the oldco sit in the room at that meeting and bid for bits of the business that you want (which can include the name and email urls etc), leaving behind the bits you don't want - debts, the limited entity with all its other associated liabilities, etc. Usually the IP knows who in the room wants to buy the assets and who is A robust enough to provide a good chance of a coughing up at least some money for creditors and B might be the best home for employees transferring over, giving the new. Newco buys those - usually backed with new funders who may or may not be buddies to the original owners of oldco. The directors of oldco may be useful - say the MD was actually good but the FD had been the cause of the downfall of Oldco - then MD gets offered a job - generally not as a director but as a consultant, but effectively doing the same job as he used to. TUPE is probably the most complicated part here.
Company name has to be different for protection of creditors - stopping any confusion going forward.

I've bought quite a few businesses this way and have also to take some into the admin process for various reasons.

With regard to the creditors, some of these pre packs are definitely done on a cynical basis - John Smith's example with continuing directorships sounds wrong to me- but most represent the only way some money might head back to the original creditors, but usually not much. In addition, some creditors will actually go with this as they may realise that newco's new owner's may still be a potential valuable client going forward and so they write off the old debt in return for an understanding about future business - I've done a few of these too where a voluntary arrangement is made with creditors to avoid any other "unpleasantness" .

Withr regard to the Op's question re continuing ownership through pre packs - most cynical pre packs I remember were done by the sole owner of a football club who used to let XYFC 1898 ltd go bust each year only to set up XY FC 1990 ltd the following year -all owned and controlled by him via multiple nominee companies in the caymans/lichtenstein etc. This is the same guy who used to announce the attendance at each match day at around 50% of the stadium capacity despite not a seat or space visible in the ground - it was obvious to all of us so no idea why HMRC didn't cop on.

 

Thanks Fat Boy a pretty good explanation

I have been told that sale has been agreed and the price and valuation (I know the MD used a 3 year old warehouse stock list and no one questioned it or checked it)

What is odd is that the factoring company from Oldco have agreed a payment plan for the Oldco stock, assets and name etc

I overheard the boss the other day telling the finance lad to keep buying more kit / stock etc from whatever suppliers he can find under Company X and then even if they put 2 and 2 together and connect him to Company Y it will still give hive 5 days or so to make a payment if needed for the goods (otherwise he won't be paying them)

TUPE has never been mentioned and our wages this month came from Company Y as an alleged loan as we got told Company X is in administration

I asked on Friday is it actually in Admin or not and I got told its had an umbrella put over it to stop legal action and winding up orders which gives 10 days grace

the first 10 days grace expired and everything was resubmitted to the courts again to give another 10 days. As it was said we are not ready to go into Admin yet as Newco isn't quite ready financially as we cannot get factoring so he needs to get as much kit / stock etc as he can before finally closing

My guess is that he is so clever at what he is doing that he won't get caught even if investigated

he got audited by the factoring company who gave him severak weeks notices to give him chance to get photoshopping all the bank statements and contact customers to lie for him apart from the 4 or 5 ficticious companys used for illegal invoicing, some of which he is actually going to use again

I could write a book on what goes on and I am amazed HMRC haven't cottoned on to what he is upto

 

Good post Fat Boy

It seems to me that getting the insolvency laws right is quite tricky
On the one hand you need to make it relatively easy, to help foster an enterprise culture

(a saying in the US was that “if you have not been bankrupt you have not been trying”)

But on the other hand you need to protect employees (and creditors) rights and stop these cynical backroom stitch-up jobs

Is the “carve out” you describe the same as Chapter 11 in the US, would you change the insolvency laws?

 

Hmm interesting things afoot

longest standing most trusted loyal member of staff resigned today, boss didnt even come in