Business in debt - time to give it up?

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hmmmm

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Hi there. Basically, I've got a small business, limited company (just me) that's been going for 4-5 years. Initially a nice little earner, but market conditions have pared everything back. Current situation:

- owe 30k to a supplier (huge multinational company). This has gone to a debt collection agency.
- owe 18k to Revenue. They are sending sheriff-type letters.
- 20k on my bank overdraft. They aren't letting cheques go through.
- 14k on personal credit card. It's reached its limit.

I've made changes to try and pare things back, and I'm owed about 24k by clients, but it's gotten fairly stressful and I don't know if I can trade my way out of this. I need to consider my options.

So, good people of askaboutbusiness, what options do I have? I really don't know anything about liquidation, insolvency, etc. What would be the best way to close the business, without me being declared bankrupt or owing 50-60k?

On a side note, could it be done in such a way that I can continue to work with my clients (6-8 companies)?

I'm very worried about all this, it's taking its toll on me. I hope you can give some advice.

Thanks in advance.
 
have you spoken to your accountant about this? have you a personal gaurantee on the bank loan? i would imagine you have. Also have you personally gauranteed the creditor anything? you may think you have not but you would have to double check anything that was signed. at this stage i would say that there is litlle or no other option but to liquidate so depending on how you traded in the run up to this (wreckless trading etc) the Revenue may not pursue their debt. i acknowledge that you are doing something about this by coming on this board but you really have to take this to the next level.
 
You have about 24k in assets and 68k in business related debts. In simple terms, that says that you have accumulated losses of €44k.

This could because you have lost money in the normal sense of the word.

Or it could be that you made money, but you have taken too much out in salary.

If your business is losing money or not making as much money as you could make elsewhere in a salaried job, then you should quit the business.

You should probably have stopped trading some time ago as you could become personally liable for the debts if it is held that you are trading recklessly.

Why have you lost money?
Is there a profitable business?

Ask yourself this hypothetical question: If the company just went away, could you run a profitable business starting from scratch?

Why would it be any different from the last business which seems to have lost a lot of money?

You should immediately
1) sit down with your accountant.
2) stop incurring any further credit
3) focus on collecting in the debts - can you collect these without trading or providing them with further services?

The problem with appointing a liquidator is that he will take all the assets for his fees. If you can collect the assets and come to some arrangment with the revenue and other creditors to write off the debts, then you might be able to wind it up as a solvent company.
 
Thanks for your answers. dockingtrade, I feel that if I had no debt, yes it would be a viable business, but only with me as an effective freelancer. It would pay my way. Need to keep things tight at the moment, as I'm sure you'll all agree!

I work for 6-8 clients, it's retainer work, don't want to go into detail but it's marketing.

I'm personally down for the business loan and the credit card, obviously.

I guess what I'm getting at is, can this business be wound down and can I start again after? I know the ethical issues with money outstanding, but tbh this supplier has gotten about €300k off of me over the years, and they dropped me like a hot spud when I couldn't pay latest invoice.

And Revenue? Well, they've had a lot of cake too.

I know there's an ethical dimension to my question, but I'd just like to weigh up all my options. Don't own property, no real assets. If this goes down the pan, how screwed am I?
 
You dont owe the revenue or the supplier 48K, your company does and thats a big difference. You need to look at your situation that you arent trading while being insolvent. A dim view can be taken of this.

Is it possible that you could go to someone else in the same field as say I have these 6-8 good clients, I'll come work for you and you'll pay me a commission/profit share/ on them or a salary?

If you are at debt collection/sheriff stage with no realistic chance of paying them then its time to call it a day imho, the bank should be able to convert the OD into a loan if you can secure employment elsewhere
 
You will need to wind the company up by placing it in creditors voluntary liquidation. Your accountant will be able to refer you to a liquidator. The liquidator will need to be paid and this can be as much as 15K but his fee can come out of the money owed to you. You will be able to continue on a freelance basis but get prior approval from the liquidator.
 
I was looking into voluntary liquidation as well but was told I could not wind up my company with an overdrawn bank account - I would need to deposit funds to clear the overdraft and then the liquidators fees. Also, transfer of loans from one company (which is liquidated) to another needs specialist tax advice as Revenue takes a close interest in such transfers of loans when companies are being wound down.

I was also told by the liquidator that Revenue no longer attend creditors meetings where the amount is less than about €48k. Not sure how true this is but the liquidation company was Kavanagh Fennell who would be very well respected.
 
You can put a company in to creditors voluntary liquidation ie insolvent liquidation where a bank account is OD. However if the account has been personally guaranteed by the directors the bank will look to the guarantors to repay the money post liquidation. The RC dont always attend creditors meetings and it wont be a problem either way.
 
The OP seems to be of the opinion that the business would be profitable again if there was no debt. This seems unlikely, based on what we've been told. I think Brendan hit the nail on the head - the business probably is going bust because the OP is paying himself first, and paying himself so much that there's not enough left over for the suppliers and the other creditors, including the Revenue.
 
Hi all, OP here. Just a couple of points. It's just me working in the business now, have moved out of office so I'm effectively freelancing, and have got the clients to make it profitable going forward.

I'm effectively passing on all outside spends to suppliers back to the client, and billing them for my time only, on a retainer-type arrangement. So all that is needed is enough client work to keep me in a salary, so a bare minimum of €45k p.a. (to cover salary and any other expenses). So 6-8 clients, each spending €450 - €600 per month.

I guess I could just cover the debts, but finding it real hard to bring in cheques at the moment, even though the money is owed.

I suppose I wanted to know what my options were at this point, and the ramifications each option would have for me.

I'm surprised this question isn't asked more often. Thanks for your input so far, some really good advice.
 
Who is also named on your paperwork? You need a min of 2 directors for a limited company, it cant just be you.


Your biggest problem is getting paid from clients, i know how that feels. Even if you do get all this money you have to lodge them to your business account so that will take up all of that overdraft, and you still have your suppliers and the revenue.

From the suppliers point of view he's wasting his time.....you cant get blood out of a stone, your business doesn't have the money to pay him. Revenue is a different story, owing them money and setting up again straight away (even as a sole trader) is asking for trouble. Would they even allow you to do this, with 18k outstanding?

You said your clients are ok with this arrangment. We are all about cutting out the middleman your introducing one. Cant speak for everyone but for me personally the added time of having to deal with 2 different people would be a big put off for me, i'd choose to find someone else who could do everything for me. I might say at the beginning it would be ok, but after a few months i could change my mind. Also it could cost them more to go directly to the suppliers as well. Since you said you spent in the region of 300k with them would you not of got some sort of discount with them.

Also how sure are you that you will get 450-600 euro from each client every month? I dont think you can predict things anymore with the current situation we are facing. What if they decided to cut their marketing my half? Will you be able to get more clients?

If you think it will work ( and your not just in dream land ) then it could be an option, but if you run into the same problems it wont be as easy next time around. Being a limited company has sort of saved you a bit from the suppliers and the revenue, even if you did had property they wouldn't of been able to touch it, they can only try and get back what they are owed, from anything the company own's or has available in funds ( which is nothing ).

Good luck hope you manage to get things sorted out.
 
I'd be less worried about what the company owed and more worried about the items he is personally liable for, the 24k doesnt even cover that
 
extopia said:
Not at all. THe business is only owed 24k by clients, a fraction of what it owes suppliers and Revenue.
Click to expand...


Yes but because he hasn't got paid that money puts him in a worse situation.

At the moment he cant pay anyone anything....not saying this would happen but it could, if he had all that money he was owed he could of payed off some of the debt, he could of made an arrangment with the suppliers to pay something off his bill and possible still be able to use them. Now as it stands he cant use them which has stopped him doing business, i'm sure other suppliers are well aware of his situation and wouldn't deal with him either. The OP said the suppliers wont even deal with him anymore cause he cant pay any of the bill. I've dealt with businesses before that have had problems paying bills even in the good times, i was in advertising and a lot of the time i wouldn't get paid for weeks because they were waiting to be paid from other people.

what are the chances of the OP even getting paid all of the 24K that he is owed? If he did then he would be left with 10k not 34k.

So looking at it from his personal view i'll stand by what i said and his biggest problem at the moment is getting paid the money that he is owed. And that should be his first priority at the moment.
 
I'll stand by my opinion that the biggest problem with this business is that its outflows exceed its inflows - even if all customers pay their bills. The business is losing money, probably because the proprietor paid himself more than was available (the phrase "nice little earner" suggests he was getting paid). Which meant the business was borrowing money from its creditors. Which meant the current situation was inevitable.
 
Simple really. If you want to continue with the company you have to put money into the company. If you do not you are liable to being accused of trading whilst insolvent. Your other option is to liquidate the company. In a simple situation a fee of 11k would be plenty to pay a liquidator. The overdrawn bank a/c would be frozen and any money that comes in after the decision to liquidate would go into a seperate bank a/c. You would have to settle - post liquidation the o/d bank a/c and the credit card bill. You also need to accept that the liquidator will not collect all of your debtors and this may necesitate you paying some or all of his fees.
Brendan posed some good questions. Your ability to run a business? A credit card bill of 14k? How did this arise? Did your personal wages exceed your income? If you did not have bad debts this is poor management. I know you have already rectified some of these problems.
 
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