Write off company debt and start again
If you find your company suffering from cash-flow issues and is in debt, it is possible to write off those company debts and start again. Whether doing so involves repaying the company’s debts, restructuring the company, or closing it, what action is available depends on the level of company debt and whether it would be viable without those debts.
Can you write off a company’s debts?
Depending on your company’s circumstances and your vision for its future, you may be able to write off your company’s debts. There could be several options to consider, including a voluntary repayment arrangement, voluntary liquidation, or pre-pack administration.
If you want to close a company and walk away or continue the business in a new limited company, contact us without delay. The sooner you act, the better your chances of preventing the insolvency from escalating and diminishing your chances of being held personally liable for your company’s debts.
Company recovery options
If your company has a valid business model which could profit without its debts, it may be possible to keep the company open while it repays its liabilities, and several procedures allow you to write off your company’s debts without having to close.
More about company recovery options
- Continuing to trade with a voluntary repayment arrangement
Before deciding that closing your company and starting again is the best route, you should consider whether the company would be viable without its debts. If that’s the case, you could consider trading through and repaying the debts in one affordable monthly sum via a Company Voluntary Arrangement (CVA).- CVAs are voluntary repayment arrangements and generally last for about five years. They can conclude beforehand if the debts are fully repaid, giving a return to creditors and allowing the company to stabilise back to a profit.
- Providing the company adheres to the terms of the CVA, at the end of the term, any remaining debt is written off.
- You retain total control of running the business without the interference of outside parties while you write off your company’s debts.
Closing or restarting the company
Sometimes, a company can have so much debt that the benefits of closing it down and starting again can outweigh those of continuing to trade. There are procedures to help you close your company, and again, your circumstances will dictate which one is best suited for you.
Read more about company closure options
- Closing through a voluntary liquidation
Liquidating your company via a Creditors Voluntary Liquidation (CVL) could be the best option for those wanting to walk away. Any assets your company owns are realised and used to repay its creditors. The company then closes, ceasing to exist, along with its debts. Afterwards, the former directors are free to start a business in something completely different or find employment elsewhere.
More information on Creditors Voluntary Liquidation
Trade through a new company or repurchase the assets and start again
Depending on your circumstances, it may be possible to repurchase the insolvent company’s assets at market value and continue the business in a new limited company.
This can be achieved through a ‘pre-pack administration’ process.
- Your company’s assets are sold at market value, usually by an administrator, either back to you and the existing management team or to an unrelated party.
- A ‘newco’ carries on the business while the ‘oldco’ ceases to exist, its old debts dying with it.
In some cases, this can be achieved without the company going through the administration process, through what’s informally referred to as ‘pre-pack liquidation’.
Before exploring this option, it is important to consider the difference between a business and a company.
- A business is an activity undertaken by a company – services and products which bring in revenue.
- A company is a legal entity or vehicle through which the business operates.
After a liquidation, there is no reason why a business cannot go on if its model is viable, but it must trade under a new name and cannot be similar to its predecessor. Only in unique circumstances can a company reuse the same name as the ‘oldco’.
Can company debt affect your personal finances?
Thanks to a limited company’s limited liability protection, the company is a separate legal entity to you personally. This protects you from personally incurring financial burdens as a result of your company’s insolvency.
However, company debt may affect a director’s personal finances in other ways. This could be because you’ve injected money into the company from your personal accounts to keep the company going. Or, more simply, your primary source of income has been your failing business, which has left you short of money and unable to pay your own personal liabilities.
Additionally, you may have signed a personal guarantee to help the company – for example, a guarantee to a bank in support of company borrowing or a landlord relating to a company lease.
How we can help
We can assess your situation and advise you on the best route forward, free of charge. If you want to close a company and walk away, or move assets from a current company into a new limited entity, contact us without delay. The sooner you act, the better your chances to prevent your insolvency from escalating, reducing the chances of you being held personally liable for your company debts.
- Speak with our initial advisers via phone or online chat. If we can help, we will arrange a free consultation with one of our consultants to discuss your situation in more depth.
- During the consultation, we will advise which route out of administration is most appropriate, or if there are alternative options available.
- After your consultation, if there is an appropriate route forward, we will issue the relevant documentation for you to formally engage us.
In summary
You can write off company debt and start again through one of several procedures. Each situation is unique, so it is essential to take advice before you reach a decision. It may be possible to write off your company’s debts and allow trading to continue, but it could be more appropriate to close the company down and start again in a new company unburdened by the debts of the old company.
Case Studies
Karmik Limited
Kelly Burton • Manufacturing • Pre-Pack Administration
A well-known Bradford designer and manufacturer of bespoke kitchens for commercial and residential customers have been bought out of administration saving all 36 jobs.
Karmik Limited, trading as Designer Factory Kitchens, has been acquired by Karmik UK and will be operated by the existing management team.
Joint administrators Kelly Burton and Lisa Hogg of insolvency and business turnaround specialist Wilson Field were appointed to Karmik on 13 March.
The company, which was incorporated in 2013, had suffered two bad debts in 2016 totaling almost £100k causing severe cash flow problems and HMRC arrears.
The total value of the pre-pack deal is undisclosed but it includes the business and the assets of the company based at Fairfax House in Drighlington.
Kelly Burton, director and insolvency practitioner at Wilson Field in Leeds, said;
“DFK celebrated its 25th anniversary recently but as a result of suffering two significant bad debts found itself facing a cash flow crisis.
“After attempting without success to raise further finance, the directors sought advice and as a result of taking prompt action we have been able to save the DFK brand and all 36 employees’ jobs. As the jobs were transferred to Karmik UK, this alone saved over £44,000 in redundancy and wages claims.”
Managing director Mike Baziw commented;
“It is very frustrating when events which are outside of your control threaten the very existence of your business and the jobs of a loyal workforce.
“Working with our advisors and staff, the future of DFK now looks very positive and we are in a position to offer our customers the same high quality of products and service.”
Transcar Trading Limited
Kelly Burton • Automotive • Pre-Pack Administration
Advisors from Yorkshire’s Wilson Field have saved 12 jobs at a Darlington low load haulier after it was bought out of administration.
Transcar Trading Limited specialised in collecting and delivering motor vehicles nationwide with its main clientele including major car dealers Bristol Street Motors, Lookers and Knaresborough Vauxhall.
The company, which traded from rental premises at Lingfield House Darlington and Macklin Avenue, Billingham, called in administrators from Sheffield-headquartered Wilson Field to look into the ongoing viability of the company and advise on a turnaround strategy.
After set up in 2015, it had experienced rapid growth within the last 12 months of trading and, coupled with a number of uncollected and disputed invoices, had created cash flow pressures and a build-up of arrears to HMRC.
Kelly Burton and Lisa Hogg from Wilson Field were appointed as joint administrators on November 27 and concluded a pre-packaged sale of the business and assets to Transcar Logistics Limited – wholly owned and managed by one of the directors and shareholders of Transcar Trading.
Kelly Burton, director and licenced insolvency practitioner at Wilson Field, said:
“As a result of the pre-packaged sale of the company’s business and assets to Transcar Logistics, 12 of the company’s 18 employees were transferred under TUPE, minimising preferential claims in wage arrears and accrued holiday pay.”
Valuations and advice on asset disposal was handled by Robert McArdle of David Currie & Co with legal services and advice from solicitors Ward Hadaway.
Rooster Punk Ltd
Kelly Burton • Media & Entertainment • Pre-Pack Administration
Advisors from Wilson Field have rescued a London headquartered advertising agency after it was bought out of administration by the existing management team.
Rooster Punk Ltd was established in 2012 and specialised in providing creative content for technology and financial services brands to better interact with clients and customers.
The company, which traded from head offices at Queen Victoria Street in London with a second office in Clifton Down Road in Bristol, called in administrators from Sheffield-headquartered Wilson Field for formal insolvency advice.
The company had experienced significant growth since set up and posted profits each year up to and including October 2016.
However loss of funds due to a bad debt combined with the termination of customer contracts and rising business overheads had created cash flow problems.
Kelly Burton (pictured) and Lisa Hogg from Wilson Field were appointed as joint administrators on December 6 and concluded a pre-packaged sale of the business and assets to Rooster Punk Group Limited lead by the same management team of Rooster Punk Ltd.
All remaining nine staff at the time of the sale were saved and transferred to the new company under TUPE.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:
“Wilson Field considered the company’s precarious financial situation, which was borne as a result of a number of factors including the Samsung contract under billing, loss of funds due to a bad debt from a start-up, termination of customer contracts and rising business overheads.
“Despite attempts to cut back overheads, including reducing staff numbers from a peak of 24 down to 10, the directors recognised the company’s precarious position and sought formal insolvency advice from Wilson Field, and advice on alternative options available.
“The pre-packaged sale has mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay-in-lieu of notice totalling £33,680.
“It has preserved the value in the company’s intangible assets, namely its goodwill and work in progress and maximised the value of the company’s trade debtors due to the continuity of service to the company’s customers by the successor business.”
Valuations were handled by Robert McArdle of David Currie & Co with legal services and advice from solicitors Irwin Mitchell LLP.
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