JohnSmith

I have a question that is bugging the hell out of me

I know the below is pretty unethical and morally wrong but..

Sole Director business approx 15 staff

Company 'X' is having major financial difficulties, so creates Company 'Y' in the background

Company 'X' Files for administration (pre pack I assume) and starts transferring everything over to Company 'Y' before everything is finalised

Lots of legal action "statutory demands, threats of winding up orders including Inland Revenue" against Company 'X' to which most get ignored

Company 'Y' buys Company 'X' the same sole director sells the company to himself and stays sole director

Same office, same staff, same name, phone number, email addressess, same customers (bar a few pissed off ones) same suppliers

How can this be legal for all of the same people to be working for the same company with the same name, same sole director, same everything but with no debt

How does this work with suppliers who are owed lots of money, do they no longer have any legal claim to the money owed ?

Im really struggling to get my head around it

BTW (It isn't me doing this, just the company I work for LOL)

Bean1984

iTrader: (3)

It all legal mate. My firm done it recently.

company a build up ongoing have ended up in £000,000s of debt

company b start up. All assets are bought from company a

company a now have no assetd but huge debts

They file for bankruptcy. Bye bye debts hello new firm with a clean slate

JohnSmith

Yeah I'm told its all legal, solicitors have (or rather are) involved and IP's too

Its just the whole same director same name etc with same suppliers including HMRC

I don't understand how HMRC allow it to happen considering how much is owed

kingofturds

iTrader: (1)

Taking many of the firms they owed money to with them.

JohnSmith

This seems to be a common practise with this company, its at least the 3rd time I know of its been done

I guess the only comeback is if he is reported for wrongful trading, lots of new equipment turned up last week in the office and is now no longer there and its not gone to customers

Terminator X

iTrader: (7)

Company x director can't be company y director if company x has folded? Law was changed to block that ...

TX.

hodgy0_2

pretty standard modus operandi

boxst

This was made law ...

Phoenix-like from the ashes

When a company goes into insolvent liquidation, the directors of the company cannot set up another company in the same or a similar name for five years. If a director is involved in the management of such a company, he becomes personally responsible for the new company's debts. This is to stop the directors of a company in difficulty simply closing down the old company and setting up a new one with the same name, often in the same line of business trading from the same premises.

Devildog

Steve.

The relevance is the similar name. It's been law since 1985.

Devildog

Oh and nothing wrong with the concept of newco as long as fair value is paid for the assets. Often it's a better deal than a winding up with no newco carrying on as break up value usually less

Bean1984

iTrader: (3)

Not when its run by family. So mr smith folds company x

mrs smith opens company y

new director etc mate

Trout

iTrader: (1)

The directors and officers can still be pursued for the debts of the original company.

Liability limitation is not what it used to be.

From what the OP described the director was in a very grey area, trading whilst insolvent.

Terminator X

iTrader: (7)

True, they will run out of family members eventually though! Afaik the situation as per the OP is not possible ...

TX.

JohnSmith

Mr Smith folds company X, creates an asset list and a figure of what he thinks the value is

Mr Smith starts company Y, with a different name

Mr Smith buys Company X for his agreed figure

Mr Smith carries on as though nothing happened

The only thing I can think of is once he buys his company back from himself he will stay trading as newco but just keep the emails etc

Terminator X

iTrader: (7)

Smith can't be a director of company y as his company x has folded.

TX.

David Lock

Perhaps Greece could do the same?

dl

JohnSmith

Trust me, he is

I have no idea how (actually thinking about it now I think I know)

I think there is a reason he has a double barrelled surname

Hmmm

Terminator X

iTrader: (7)

Sounds illegal then, just as well you've not named the firm

TX.

JohnSmith

Yes, thats the reason for my questions, is that how can it be done legally ?

I do know legal professionals are involved and all being done by the book (and courts etc)

last time it was done someone else was the director

Trout

iTrader: (1)

If there are different directors that makes sense.

However the directors can still be pursued personally for the debts.

A deal may have been done on those debts?

JohnSmith

This time it is the same director

It is also quite possible that a deal will or has been done on those debts but it is very unlikely IMHO

Terminator X

iTrader: (7)

Does not compute, see comment above co x vs co y

TX.

JohnSmith

Its the same director not even used different surnames this time

I've done a director check and same name same home address etc

Company X is showing as active as the administration deadline was today, and I know he has asked for it to be extended whilst newco finances are sorted out so we get paid this month

Devildog

David, stitck to what you know.

There are very few circumstances where directors are personally liable. And the onus of proof is on the insolvency practitioner.

What has been described above is not necessarily trading whilst insolvent or fraudulent.

If anything it's possibly a transaction at under value but that does not bring about personal liability

Devildog

It's quite simple. As long as company b acquires the assets of company a for adequate consideration then there is nothing *wrong* with such a transaction.

At the end of the day, realisations from the insolvent company's assets are maximised and employees still have a job courtesy of the TUPE regulations.

So the overall outcome is better than it would otherwise be. And don't forget that any creditor left behind a) would be regardless and b) doesnt have to trade with newco.

I'm a qualified IP. This is what I do for a living.

JohnSmith

DD how does that work with HMRC though who have to trade with newco, or do they just have to forget their money and probably not get paid again from the newco

Terminator X

iTrader: (7)

Dd - how can you aquire everything from company x bar its significant debts?! How does the director avoid the long arm of the law too?

TX.

Devildog

In an admin HMRC pretty much have to run with what the administrators propose. They can require a security deposit from newco (and often will) but they can't do much else unless there is fraud. It's up to the appointed IP to investigate.

Devildog

Tx. Because you're buying the business and it's assets. Not the company.

The debt gets left behind in the insolvent entity. That's how the law is structured.

If you had to take on the debt as well there would be nothing worth rescuing.

There's no crime in being insolvent as long as you act properly as a director.

Terminator X

iTrader: (7)

Laughable then making an *** of the law change.

TX.