Any downside to not liquidating an insolvent company?

I was asked about this yesterday and not sure I have all the details, but in summary...

A couple mid-thirties own a limited company.
The business is not viable.
It has no assets.
It owes Revenue about €30k
It owes Bank of Ireland about €20k - apparently without a personal guarantee.
They don't seem to have any trade creditors - or at least none that is kicking up a fuss.

They have no funds at the moment but are employable and will get jobs and a reasonable income.

Their accountant has told them not to bother with the cost of a liquidation and just to let the company be struck off in time.

That does not sound right to me - but that may be because I don't like loose ends and prefer to see things tidied up.

1) I presume neither Revenue nor Bank of Ireland will take any action. They have bigger fish to fry.
2) Could this have implications down the line for them?
For example, they are currently renting but in time will probably want to buy a house. What searches will the mortgage company do? Presumably they will see that they are directors of a company which was struck off?
3) How much would it cost to liquidate such a company? Is there a cheap option e.g. could a company secretarial service do it?
4) Could/should their accountant do it or could they ask a fellow accountant to do it at a reasonable rate?

Brendan

I presume that they should bring their tax returns and CRO returns up to date as a minimum and then notify both that the company is insolvent.

Brendan

If you wish to allow your company to be struck off, you can do so simply by not filing your annual returns which will result in the company being placed on the strike-off list in CRO, with the strike-off occurring soon after that.

The problem with this approach is that non-filing of Annual Returns could render the company and/or its Directors liable to criminal prosecution.

A liquidation will cost well in excess of €10k and they'll need that in liquid funds upfront to pay a liquidator. It doesn't sound at all cost effective for a case like this.

Revenue and the bank will of course pursue collection of the debts owing to them. The couple should engage with both with a view to discharging both debts in an orderly fashion over as long a period that they can negotiate.

A liquidation is a serious undertaking and can only be done by specially licensed firms. Few accountants and certainly no company secretarial firms would touch them with a bargepole, as the legal liability and professional indemnity implications of a procedural error or omission can be horrendous.

That is great lads thanks.

What grounds does the bank have to pursue them if there is no personal guarantee?

I would have thought that Revenue would just write it off as uncollectable. Would they not have to appoint their own liquidator to see if there was a case against the directors?

Brendan

Unless the bank has some form of charge over the company assets or a personal guarantee from a Director, they will not likely recover anything as an unsecured creditor.

Revenue will at least send in the Sheriff or seek to pursue the debt in the usual way through the courts or attachment before it will write anything off. They could of course appoint a Liquidator but certainly wouldn’t bother if there was no security in an insolvency scenario.

It is reckless to advise any company not to liquidate if it is insolvent.

Brendan Burgess said:

1) I presume neither Revenue nor Bank of Ireland will take any action. They have bigger fish to fry

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If the Revenue debt is PAYE in respect of the directors' personal salaries then the Revenue will raise Section 997 assessments on the directors personally.

Once the company is struck off then the Revenue will notify the Corporate Enforcement Authority that an insolvent company has been struck off and the CEA would probably take disqualification proceedings against the directors.

Brendan Burgess said:

2) Could this have implications down the line for them?

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The Companies Registration Office may also take proceedings against the directors for failing to file annual returns on time.

Brendan Burgess said:

What searches will the mortgage company do? Presumably they will see that they are directors of a company which was struck off?

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In my view it is unlikely that a bank would do company searches for a routine mortgage.

Brendan Burgess said:

3) How much would it cost to liquidate such a company? Is there a cheap option e.g. could a company secretarial service do it?

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The minimal cost would be at least €7,000 + VAT (to include statutory advertising etc)

Only an Authorised Insolvency Practitioner could act as liquidator.

Jim Stafford

Thanks Jim.

They probably wouldn't be too worried about being disqualified as directors. They want to stick with the security of being employees.

Jim Stafford said:

The minimal cost would be at least €7,000 + VAT (to include statutory advertising etc)

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So what happens if the company has no assets and the former directors don't have the money or are not prepared to pay the €10,000?

They have no choice but to let it be struck off and wait to see if the CEA or CRO takes actions against them?

Brendan

Brendan Burgess said:

They have no choice but to let it be struck off and wait to see if the CEA or CRO takes actions against them?

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They could always keep filing their annual returns and not allow the company be struck off. This would however incur the annual costs of preparing accounts as well as the administrative inconvenience. It depends on what value they place on peace of mind.

They’re caught between two stools, but preparing accounts and filing returns avoids prosecution on that front.

Johnno75 said:

They could always keep filing their annual returns and not allow the company be struck off. This would however incur the annual costs of preparing accounts as well as the administrative inconvenience. It depends on what value they place on peace of mind.

They’re caught between two stools, but preparing accounts and filing returns avoids prosecution on that front.

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I agree. Neglecting annual returns at this stage dramatically narrows their options and potentially criminalises them for the sake of a relatively small annual outlay.

Johnno75 said:

They could always keep filing their annual returns and not allow the company be struck off.

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If the company is insolvent and cannot be made viable again then it should be placed into liquidation. Not placing the company into a prompt liquidation means that the insolvency is becoming greater because of interest charges applied by Revenue and the bank. It might also mean that the creditors incur additional costs in terms of legal fees etc.

The directors are benefitting from Limited Liability provided by acting through a company. The price that they pay for that protection is having to pay for a liquidation if liquidation becomes necessary.

Jim Stafford

Jim Stafford said:

If the company is insolvent and cannot be made viable again then it should be placed into liquidation. Not placing the company into a prompt liquidation means that the insolvency is becoming greater because of interest charges applied by Revenue and the bank. It might also mean that the creditors incur additional costs in terms of legal fees etc.

The directors are benefitting from Limited Liability provided by acting through a company. The price that they pay for that protection is having to pay for a liquidation if liquidation becomes necessary.

Jim Stafford

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Hi Jim. I agree entirely. To clarify, I would never advocate a “do nothing” position and I think that the advice to the effect that the company should allow itself to be struck off is wrong and carries significant risk.

Jim Stafford said:

The directors are benefitting from Limited Liability provided by acting through a company. The price that they pay for that protection is having to pay for a liquidation if liquidation becomes necessary.

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That is a really good way of looking at it.

Had a similar situation many years ago.

Circa 1991. (Young and naive ) Owed revenue about £15k, bank about 7k, suppliers about 15k, landlord about 5k

No assets - leased property - virtually no stock. Looked at liquidation and it was too costly.

Accountant advised the 3 of us to write to the creditors including bank and revenue, give reasons for why business failed, explain the near zero assets and suggest we would be supportive of any appointment of a liquidator if they wished to do so.

Suppliers wished us well, bank reluctantly accepted the situation and revenue never replied.

But...
I had a tax inspection about 5 years ago (passed with flying colours) and during the conversation it was mentioned that a company I was involved in back in 1992 had ceased trading with a debt still owed.

It had been written off, but it still exists on the record and most likely all three director's records and possibly was a trigger for an inspection.

Basically, revenue never forget.

peemac said:

Basically, revenue never forget.

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As a retired friend who worked in Revenue once remarked to me: “Revenue never write off debt, they write it out”.

It’s always on the record.

peemac said:

and possibly was a trigger for an inspection

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It's most unlikely that this was the case.

Businesses fail all the time. When it happens, it's a fact of life, not a crime. And from what you said, you did nothing wrong.

What's most likely to have happened here is that while preparing for their visit, the Revenue inspector did routine searches of your name in order to discover past directorships, judgements, publicity etc and this came up.

T McGibney said:

It's most unlikely that this was the case.

Businesses fail all the time. When it happens, it's a fact of life, not a crime. And from what you said, you did nothing wrong.

What's most likely to have happened here is that while preparing for their visit, the Revenue inspector did routine searches of your name in order to discover past directorships, judgements, publicity etc and this came up.

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Yep, probably. But it is more to say that supplier and banks will forget after a few years, but revenue will always keep it on file.

For the original post, if there's no spare cash, I personally would suggest a letter stating what has happened and stating that there are no assets to pay for a liquidation and that you don't intend starting a new business due to the stresses you have encountered and you would be supportive should revenue or the bank wish to appoint a liquidation themselves.

It adds a personal touch and can see a file closed off quickly.

peemac said:

Yep, probably. But it is more to say that supplier and banks will forget after a few years, but revenue will always keep it on file.

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Oddly enough, once in the late celtic tiger period I was engaged by an elderly gentleman (now long deceased) who had had a few scrapes with the taxman in the 1980s and whose solicitor was then adamant that Revenue had taken out a judgement mortgage on a potentially valuable property he owned at the time.

I succeeded in establishing with Revenue assistance that Revenue had no further interest in the property as the considered whatever went on back in the 80s to be at that stage fully closed. I even got a letter from them confirming this. He had previously been anxious about bequeathing the property to any of his children in case this would land them in trouble and the letter was invaluable in putting everyone's minds at ease.