So, the Government support does not need to be paid back?

It will not be a shock to many that Insolvency Practitioners all tend to market in pretty much the same way. Their training and experiences are all very similar; it is no surprise therefore that at they all tend to find the same things interesting and have a similar view as to what their prospective clients will find interesting!  

I have read a lot about Bounce back Loans being unsecured debt with the inference that Directors should not pay them any special attention: Fundamentally I think this is the wrong question although I agree that where the money comes from that is not that important, but rather where the money went.

I have listed answers to several questions I am increasingly being asked. All these individuals have taken considerable amounts of Government support for businesses and for all of those affected, we have significant sympathy. Sympathy however I am afraid does not change the law of the land.

•Question:  I have paid off all the creditors off, but the business is over.  Even if the lock down is reversed immediately, we will not have the time to achieve a workout.

Answer: This looks like a Liquidation with the state as the largest creditor. The drive to Liquidation is less with the suspension of wrongful trading and lack of HMRC petitions but moving on is a good thing and should be encouraged. Planning your future will be easier when you are no longer concerning yourself with the problems of the past.

• Question:  I used the money to invest in a car which I expected to use for the business after lockdown.  The car is in my name and I want to start a new trading vehicle as I perceive time after lockdown will be very different to that before.  The old Company will fall off the register won’t it?

Answer: Whereas I have seen some companies falling off the register, this tends to be as a result of mistakes within HMRC. It may happen but HMRC are becoming more alive to the prospects and further strike-offs are, I suspect less likely than more. You should certainly not complete a DS01 form to request the strike off. This form confirms that the Company has no assets and liabilities, a position which is not true. The Government support is a liability and the car (or the loan to you to buy the car) is an asset. It may well be that the Company cannot continue but you should read the answer to the next question. If Liquidation is going to be necessary you will, in all likelihood need to sell the car.

• Question:  I could not get any support personally from the government and needed the money to pay my living expenses.  My Accountant advised me to take a small salary and dividends.  The Company has not traded for a year and I want to strike it off, but someone has objected.   Why?

Answer: I am incredibly sympathetic for the position you are in.   But the “dividend” element of the money you have drawn from the Company cannot be a dividend. It is simply a loan which will need to be repaid in due course, which is why, we suspect HMRC have opposed the strike off application.  Liquidation is possible, but, irrespective of how little or how much you agree to pay the Liquidator, his first action will be to ask you to repay the monies you have borrowed from the company. This may seem harsh, unfair, and unreasonable but it is what the Liquidator is required to do, i.e. collect in the assets of the company (the loan to you) and distribute it to creditors (HMRC).  

• Question:  I have taken government support and paid off the creditors.  I cannot see that we can continue and certainly I no longer have the energy or commitment to keep the business trading after lockdown.  The Company looks solvent but cash is becoming tight, I have to sell a mortgaged property and I have tried to work out how to repay the government support early.  The bank doesn’t have a mechanism to do this at the moment.  I need some certainty.  What do I do?

Answer: Even if you think the Company is solvent, we will not recommend you swear a Declaration of Solvency and Insolvent Liquidation seems a sledgehammer to crack a nut.  We can approach creditors and suggest a CVA to crystallise the position. We can instruct agents to sell the property and keep in contact with the Bank regarding the repayment of the Government loans.  We can liaise with the Mortgage Company and keep them updated on the progress of the sale. If there are delays in resolving the issues, then the CVA will stop matters getting too out of hand.  

I am sure there will be many iterations of the above situations and many other issues that arise over the next few years which are purely related to Covid. The SME Community will find many ways to resolve the difficulties and one suspects Government policy will continue to evolve over the next few years. We remain happy to help and advise where we can: “We are not at the end, nor indeed the beginning of the end. We are I suspect at the end of the beginning.”

Article written by: Jeremy Frost, Director

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