Businesses going bankrupt and restarting

[Rick101]

Bit of a noob question and something I've never really understood, wondering if someone can give me a brief explanation.

Often hear about business going into liquidization, i'm assuming this is the same as bankrupcy. They owe plenty of people money and just shut up shop.

They then open again next day. I think they need to have a different person as director but that seems to be it.

Was reading this article in local press - http://www.yorkpress.co.uk/news/11487047.Police_pr...as_traders_claim_to_have_lost_125_000/
I know with Galtres you had to pre pay credit onto their 'G' card for any purchases. They've obviously had the money but then not paid any of the traders.

How can the business just start again when funds are still owed?
How can you run a business, get all the benefits and then just shut up shop and start again next day?

[anonymous-user]

Google "prepack".

[Rick101]

Cheers but can't say I'm much wiser.

How close can the new owners be to the old owners?
What happens to all the money they're holding?
Do the debts get paid?
Why would anybody want to deal with the new owners knowing they'll go bankrupt again in a year?

[Terminator X]

You can't be a Director of a new company if your old company goes bankrupt. Some people play the system by getting others (family members etc) in effectively as ghost Directors eg Directors in name only whilst having nothing else to do with the company. Seems like a lot of hard work / effort to me though ...

https://www.gov.uk/company-director-disqualificati...

TX.

[Cyberprog]

This is *very* common with festivals, they often have a limited company just for each year!

The traders must have been mad to buy into the cashless system without realising the massive downsides here without any guarantees.

[wattsm666]

Terminator X said:

You can't be a Director of a new company if your old company goes bankrupt. Some people play the system by getting others (family members etc) in effectively as ghost Directors eg Directors in name only whilst having nothing else to do with the company. Seems like a lot of hard work / effort to me though ...

https://www.gov.uk/company-director-disqualificati...

TX.

You can be a director of a new company, unless you have seen disqualified. A failed company does not automatically disqualify you.

[rpguk]

Terminator X said:

You can't be a Director of a new company if your old company goes bankrupt. Some people play the system by getting others (family members etc) in effectively as ghost Directors eg Directors in name only whilst having nothing else to do with the company. Seems like a lot of hard work / effort to me though ...

https://www.gov.uk/company-director-disqualificati...

TX.

That's not quite true. I believe it requires a complaint of bad practice against the directors and by all accounts this isn't very common and certainly not guaranteed.

[Terminator X]

wattsm666 said:

Terminator X said:

You can't be a Director of a new company if your old company goes bankrupt. Some people play the system by getting others (family members etc) in effectively as ghost Directors eg Directors in name only whilst having nothing else to do with the company. Seems like a lot of hard work / effort to me though ...

https://www.gov.uk/company-director-disqualificati...

TX.

You can be a director of a new company, unless you have seen disqualified. A failed company does not automatically disqualify you.

How would you extract yourself from this though "allowing a company to continue trading when it can’t pay its debts"?

TX.

[Rick101]

There are some small independent shops near me. Sell niche products, never seem to have anybody in the shop, never seem to do any business. Open, runs for a few months, closes, re opens. I always wonder if it's some sort of money laundering.

[Martin4x4]

It is not Bankrupcy which is for individuals not companies. Liquidation is when a company sells its assets to raise cash. It may or may not be enforced "winding up" because of company Involvency (the lack of funds to meet debts as they fall due) or voluntary.

What you are talking about is a Phoenix company, which in _itself_ is not illegal but can be a red flag for illegal behaviour. e.g Illegal transfer of assets of the original company to the new company.

Where the directors miss-managed the orginal company or break the Companies Act they can be disqualified and would be illegal to set up a Phoenix company.

[wattsm666]

Terminator X said:

How would you extract yourself from this though "allowing a company to continue trading when it can’t pay its debts"?

TX.

It can sometimes be difficult to prove when you should have stopped and did actually stop. One reason you don't get an automatic disqualification is that an action out of your control may cause your insolvency, e.g. a major customer going bust on you, an employee committing fraud etc etc the list goes on.

[Martin4x4]

Terminator X said:

How would you extract yourself from this though "allowing a company to continue trading when it can’t pay its debts"?

TX.

Because the company does not continue to trade, it is wound up.

A new Pheonix company replaces it buying the assets either from the original company or administrator.

[oldnbold]

It's often refered to as a phoenix, indeed liquidators actually advertise it as a service they can provide. Obviously must be a ltd Co, but basically when a Ltd company gets so far into debt that its debt massivly outstrips assets and cash in hand the directors can put it into voluntary liquidation.

This then removes all debt, but any assets then belong to the liquidator who will sell them to try and recover some funds to pay debtors. If the Ltd Co directors have done nothing legally wrong they can often buy the assets back from the liquidator and open shop under a new Ltd Co. Often these companies have no assets as such as everything is leased or rented or any property is owned personally by a director or his wife etc.

Basically all the debt then disappears and they reopen with a new company. That's why its difficult for start up limited companies to get finance/loans without the directors giving a personal guarentee against there own home etc.

Quick google showed a liquidator ofering pre pack / phoenix.
http://www.finance7.co.uk/services/pre-pack-insolv...

[SpeckledJim]

And if you only get one chance to run a company, and once it goes bust you're ruled out forever, there wouldn't be much of an economy.

[Pit Pony]

Back in the days of That's life and early editions of watch dog, you'd get.

St Helens Glass (Warrington) Ltd, taking orders and deposits, and then going into insolvency, and the following week, the premises, would have Saint Helens Glass (Wigan) Ltd, taking orders and deposits, and 6 months later it would become St Helens Glass (Runcorn) Ltd.

All perfectly legal. bds.

[226bhp]

Isn't there a time lapse between having one LTD company go under and being a Director of another? 4yrs maybe?

[Rick101]

oldnbold said:

If the Ltd Co directors have done nothing legally wrong they can often buy the assets back from the liquidator and open shop under a new Ltd Co.

Are they taking some massive wages or draw down then to be able to buy these assets back? If they are surely isn't that them deliberately running up the debt and causing the problem?

Where does the money the company has made/taken go to?

[oldnbold]

226bhp said:

Isn't there a time lapse between having one LTD company go under and being a Director of another? 4yrs maybe?

Not if the director has done nothing wrong, companies often go under despite the very best efforts of it's directors. Others of course go under due to mis management and even fraud by the directors. If thats proved then they can be barred.

[b0rk]

Rick101 said:

Are they taking some massive wages or draw down then to be able to buy these assets back? If they are surely isn't that them deliberately running up the debt and causing the problem?

Where does the money the company has made/taken go to?

The assets may have limited value outside of the original business so can often be acquired for a nominal amount.
It is also likely that relationships will need be to maintained with pre-existing trade suppliers that effectively represent the core debt for the business to be viable, deals can be done accept a lower recovery for existing debt.

Many businesses will have little tangible assets in the form of plant, property or stock. Stock is commonly held on a sale or return basis, plant and property is leased either from commercial agents or special purpose companies that maybe controlled by the pre-existing directors. The assets are intangibles such as brand, customer lists, long term sale/supply contracts etc.

[sanguinary]

Our family business went under a few years ago. We put everything into it to try to keep it going - houses, cars, any personal assets that were worth anything. It didn't help. We closed the doors on Christmas Eve, knowing we couldn't service its debts any longer.

The business stock and assets were valued at over £200k. The administrator told us we could start over if we could pay him £15k - we owed suppliers in the region of £100k and the bank £150k. Morally I think this is atrocious, as it can make it easy for unscrupulous directors to walk away from any money owing.

We couldn't stomach it any longer though, so walked away with nothing and rebuilt the family life from the bottom up. Maybe we should have bought back into the business, I don't know? But what I do know is that I couldn't have faced seeing the suppliers we left owing money too, if we had restarted.

Those were tough days.