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
Berks Healthcare Services Limited
Kelly Burton • Healthcare • Administration
Wilson Field has advised on the sale of a Slough-nursing agency which was bought out of administration saving all 7 jobs.
Berks Healthcare Services Limited, which traded as Enchor Healthcare Services, specialised in providing healthcare professionals for the public and private sector.
It supplied registered general and mental health nursing staff, together with unqualified support and ancillary staff, to private hospitals and care homes in the areas local to the company’s offices in Slough, Portsmouth, Birmingham and Luton.
The company, headed up by healthcare professionals, called in administrators from Wilson Field after suffering from a fall in turnover, which left it struggling to meet unsustainable historic legacy debt. It had also been issued a winding-up petition from HMRC.
Kelly Burton and Emma Bower were appointed as joint administrators on 14 June 2018 and concluded the sale of the business and assets for an undisclosed sum to an unconnected company Connect Care & Support Limited, also based in Slough.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said: “The company had a turnover in the region of £2.9m per annum in 2017. However this is a very competitive marketplace, which is primarily price driven and recent minimum wage legislation changes had also impacted on the company’s potential profit margins.
“As administrators, we sought a purchaser for the business.
“This pre-packaged sale to Connect Care & Support Ltd saved seven permanent jobs as well as numerous temporary agency staff.
“It has also mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay in lieu of notice estimated to total £29,576 as the liabilities have transferred to the successor business under the TUPE regulations.
“This means the business has a new future moving forward.”
Berks Healthcare Services Ltd was incorporated in January 2015, but can be traced back to February 2007. Enchor Health Care was recognised and registered as Recruitment Consultants providing both permanent & temporary staffing solutions to many different Health and Social Care settings. It also had supported living and rehabilitation centres.
Scottish Pub Chain
Kelly Burton • Leisure & Hospitality • Pre-Pack Administration
The director initially approached Wilson Field for assistance with the drafting of a Company Voluntary Arrangement (CVA), following HMRCs refusal to allow the company a time to pay agreement. Wilson Field drafted a CVA proposal, which was rejected by HMRC, who then issued a winding-up petition.
Wilson Field then advised the director to his remaining options, of which placing the company into Administration was one.
Due to the petition, the director was unable to appoint administrators. However, following protracted discussions with the company’s debenture holder, it was agreed that the secured creditor would appoint Wilson Field, at the request of the director.
Insolvency practitioner and director at Wilson Field, Kelly Burton, said:
“After being refused a CVA by HMRC, the company received a winding-up petition and we were appointed Administrators after speaking with the debenture holder.
Although it was a tricky start, there was a good outcome as the assets and business were sold and 75 employees kept their jobs.”
A licence to occupy was granted to an associated company to trade the pubs, whilst a sale could be finalised post appointment.
The sale was completed to an associated party a number of months after appointment, and secured over 75 jobs.
Direct Entry Solutions
Kelly Burton • Transport & Logistics • Pre-Pack Administration
A Middlesex postal service company, whose facilities could handle around 30 tonnes of post a day, has been bought out of administration saving all 25 jobs.
The 13-year-old business, which initially traded as a consultancy service supplying postal services to UK-based wholesale mail companies, has been acquired by an associated company Direct Entry Solutions Worldwide Ltd 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 Direct Entry Solutions on 25 January.
The company had experienced a difficult trading period after diversifying from its core offering to incorporate the physical sorting of post along with returned mail management and various other mail processing services. This resulted in possible enforcement action by creditors including HMRC and the Austrian postal company Osterreichische Post.
The total value of the pre-pack administration deal is undisclosed but it includes the business and the assets of the company based on Stockley Close in West Drayton.
Kelly Burton, director and insolvency practitioner at Wilson Field in Leeds, said;
“The consequences of switching from a consultancy to processing mail involved significant investment and consequential increased ongoing costs.
“The company required a large boost in the staffing levels, a bigger premises in a more suitable location, relevant machinery and equipment for the warehouse operatives, in addition to large injections of cash.
“A number of onerous contracts also caused a pressure on cash flow and a build-up of historical debt.
“Our actions have secured all 25 jobs and brought about a better return to creditors. As the jobs were transferred to Direct Entry Solutions Worldwide, this alone saved over £27,000 in redundancy and wages.
“From what was a difficult situation has emerged a better result for creditors and staff.”
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