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
Bay Cleaning Solutions
Kelly Burton • Other • Pre-Pack Administration
Administrators from Wilson Field have helped safeguard all 245 part time jobs at a Welsh commercial cleaning company after it was sold in a pre-pack deal to existing management.
Joint administrators Kelly Burton and Lisa Hogg from Yorkshire-based Wilson Field were called in by directors of Swansea-based Bay Cleaning Solutions on 19 October 2017.
The company, based at Walter Road in Swansea, had seen significant growth over the last two years but increased direct costs and administrative expenses had rendered the company loss-making.
Cash flow problems had resulted in the accumulation of substantial tax arrears and other debt and despite attempts to seek increased borrowing and arrange a payment plan with HMRC, the company was placed into administration.
MRB Cleaning Limited bought the company with all 245 part-time staff being transferred to the new company under TUPE.
In saving all the jobs, Wilson Field mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay-in-lieu of notice which equates to almost £137,500, offering a better return to creditors.
Kelly Burton, director and insolvency practitioner at Wilson Field, said:
“We are pleased that the sale of the company to MRB has resulted in all 245 jobs being secured and that the business will continue to trade. This is a substantial number of jobs saved. We determined that a pre-packaged sale would be in the best interests of creditors.”
BCS has over three decades of experience in the field of commercial cleaning with its core business relying on high footfall premises such as pubs, clubs and restaurants.
It also worked in areas including commercial cleaning, specialist cleaning, building maintenance, student accommodation, end of tenancy, hard floor and domestic cleaning.
Robert McArdle of David Currie & Co of Manchester dealt with asset disposal while Shulmans Solicitors of Leeds handled the legals.
Care Homes Claims and MS2U
Kelly Burton • Financial Services • Pre-Pack Administration
Jobs have been preserved at a Leeds-based group of claims companies after they were bought out of administration in a pre-packed sale.
Care Home Claims and MS2U worked with customers who had been mis-sold financial products and services including PPI or had been over-charged on care home fees.
Joint administrators Kelly Burton and Lisa Hogg from Sheffield-based Wilson Field were called in by the directors when the group faced financial difficulties.
The business and assets of the companies were sold, for an undisclosed sum, to Acquire Inc Ltd. As part of the deal, 32 employees of an associated company transferred to the purchaser.
Group managing director Joseph Battle said:
“Problems were encountered as a result of an unprofitable contract and accrued HMRC arrears which lead to a severe cash flow shortage. We took professional advice and worked with the administrators to enable the business to continue as a going concern and preserve jobs of existing staff. Despite this being a very difficult time, the outcome means the business can continue.
“With the same management team, we can assure clients the same high level of service in the future.”
Kelly Burton, director and insolvency practitioner at Wilson Field, added:
“These companies ran into difficulty following the over calculation of work in progress on a contract, coupled with an accumulation of HMRC arrears. The directors contacted us for advice and have worked closely with us to achieve this result.
“We are pleased that the restructuring of these companies has resulted in the businesses continuing to trade via the successor business.”
Peak Toolmakers Limited
Kelly Burton • Manufacturing • Pre-Pack Administration
A Chesterfield machine tool manufacturer, which supplies to the global automotive industry, has been bought out of administration by sister-company, Peak Toolmakers (Assets) Ltd and managed by two of its current directors, saving all 46 jobs.
Peak Toolmakers Limited, based on Chesterfield Trading Centre on Smeckley Wood Close, had enjoyed a profitable trading history since 2004 and had significantly grown to become a recognised name in the sector.
However, a lack of working capital following a combination of factors together with a number of loss-making contracts with principal customers, competition from overseas, namely the Far East, undercutting prices, and extremely fast and tight timescales to allow its customers to meet contractual supply arrangements, had caused recent cash flow problems.
Insolvency practitioners Joanne Wright and Lisa Hogg from Wilson Field were appointed Administrators on 2 September 2015 to handle the sale out of administration.
The business and assets bought by Peak Toolmakers (Assets) Ltd managed by two of the existing directors, Geoff Bacon and John Buxton.
Joanne Wright from Wilson Field, said:
“Peak Toolmakers Limited had experienced financial difficulties after seeing a drop in demand from a major customer, a loss of more than £500,000 on a contract and was being threatened by enforcement action from HMRC due to arrears.
“The pre-pack deal has meant all 46 employees’ jobs have been saved and ensures a continuity of trading under new ownership.
“We are delighted to have secured a swift sale of this established Chesterfield-based manufacturing business to deliver the best long term solution for the business ensuring it can continue to serve its established customer base.”
Peak Toolmakers Limited’s main business was the production of mould tooling, jigs and fixtures and robot heads which were used in the injection moulding and die casting industries, principally the automotive industry, for internal and external trims together with under bonnet components.
Its customers produce products for a range of automotive manufacturers including Jaguar Land Rover, Nissan, Toyota, BMW and similar manufacturers.
Director Geoff Bacon said:
“Having gone through difficult times, we are very happy to have secured the loyal service of our staff through the help of Wilson Field.”
Wilson Field worked closely with solicitor Neil Kelly from MD Law in Sheffield and valuer and asset management consultant David Smith of Charterfields.
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