Bankruptcy vs liquidation
Discussion
With all the talk of CV-19 and people's personal finance, and reading the threads on here on various 'colourful' business practices, something is nagging at me.
[A]
If an individual overstretches themselves and fails to pay (for example) taxes, they may be taken to court. Eventually this may reach the High Court and potentially imprisonment.
The consequences of this are dire re. credit rating, job prospects, future.
[B]
However if a business makes bad decisions and faces debt that cannot be serviced, they may go into administration. There is then a list of creditors waiting for their money. There is a long process and the creditors may / may not get their money.
The directors of the company set up a new business and away they go.
I know I am oversimplifying but how to do many directors get away with scenario [B]? Why is the law laid out in this way?
I know that people can be banned from being a director but this only seems to happen rarely when they have run blatant scams, not when they have simply been incompetent.
[A]
If an individual overstretches themselves and fails to pay (for example) taxes, they may be taken to court. Eventually this may reach the High Court and potentially imprisonment.
The consequences of this are dire re. credit rating, job prospects, future.
[B]
However if a business makes bad decisions and faces debt that cannot be serviced, they may go into administration. There is then a list of creditors waiting for their money. There is a long process and the creditors may / may not get their money.
The directors of the company set up a new business and away they go.
I know I am oversimplifying but how to do many directors get away with scenario [B]? Why is the law laid out in this way?
I know that people can be banned from being a director but this only seems to happen rarely when they have run blatant scams, not when they have simply been incompetent.
I've been the victim of more than one business that's gone into admin and then turned up the next day in the same guise, so have no sympathy for dodgy directors, however..
Some businesses fail because of reasons beyond the directors control, if these loses were not 'limited' to the investment owners/directors had in the business then I'd imagine a lot less people would be willing to become directors/ entrepreneurs.
Some businesses fail because of reasons beyond the directors control, if these loses were not 'limited' to the investment owners/directors had in the business then I'd imagine a lot less people would be willing to become directors/ entrepreneurs.
For many years, operating businesses with no reserves or safety margins was looked on as the epitome of efficiency. As having so little cash "tied up" in stock or even in "cash" itself was looked on as an effective way to run a business, as it maximised profits and improved shareholder returns.
All well and good in a situation of growth etc. But it does mean businesses are very vulnerable when things turn bad.
To encourage this very tightly run, reserveless, form of doing business, laws were relaxed to make incorporation easier, liquidation easier and reconstitution of businesses following a collapse easier too.
All well and good in a situation of growth etc. But it does mean businesses are very vulnerable when things turn bad.
To encourage this very tightly run, reserveless, form of doing business, laws were relaxed to make incorporation easier, liquidation easier and reconstitution of businesses following a collapse easier too.
hungry_hog said:
……………………………………………………………………………….
[B]
However if a business makes bad decisions and faces debt that cannot be serviced, they may go into administration. There is then a list of creditors waiting for their money. There is a long process and the creditors may / may not get their money.
The directors of the company set up a new business and away they go.
I know I am oversimplifying but how to do many directors get away with scenario [B]? Why is the law laid out in this way?
I know that people can be banned from being a director but this only seems to happen rarely when they have run blatant scams, not when they have simply been incompetent.
If you own a small company and try to get a big loan you will normally be expected to give some personal guarantees, so limited liability is pretty academic. In any case, why should someone whose business has failed be preventing from having another go? Just because it wasn't a scam doesn't mean it's terminal incompetence, it could have been partly inexperience or just bad luck.[B]
However if a business makes bad decisions and faces debt that cannot be serviced, they may go into administration. There is then a list of creditors waiting for their money. There is a long process and the creditors may / may not get their money.
The directors of the company set up a new business and away they go.
I know I am oversimplifying but how to do many directors get away with scenario [B]? Why is the law laid out in this way?
I know that people can be banned from being a director but this only seems to happen rarely when they have run blatant scams, not when they have simply been incompetent.
Eric Mc said:
For many years, operating businesses with no reserves or safety margins was looked on as the epitome of efficiency. As having so little cash "tied up" in stock or even in "cash" itself was looked on as an effective way to run a business, as it maximised profits and improved shareholder returns.
All well and good in a situation of growth etc. But it does mean businesses are very vulnerable when things turn bad.
Like now you mean ?All well and good in a situation of growth etc. But it does mean businesses are very vulnerable when things turn bad.
Many are trying to run to the treasury cap in hand for bail out and assistance
Thankfully at the moment they are being given the big heave ho and told to find liquidity cash elsewhere.
Another trigger for this.
Couple of years ago my elderly parents got ripped off by some (would be) scaffolders.
When I looked up the address they had given - there were about 50 companies registered to one address. Some of the names were pretty shameless:
cheap labour ltd
cheap workers ltd
that kind of rubbish
Wondering how people get away with it
Couple of years ago my elderly parents got ripped off by some (would be) scaffolders.
When I looked up the address they had given - there were about 50 companies registered to one address. Some of the names were pretty shameless:
cheap labour ltd
cheap workers ltd
that kind of rubbish
Wondering how people get away with it
Nothing of any significance could be built (for example) without limited liability companies. Mistakes happen, trying to make people personally liable would be counterproductive.
As for an address having 50 companies registered, probably an accountant.
A friend of mine has ended up bankrupt due to an almighty cock up by the New Zealand IRD. They refunded 30,000 pounds of VAT in error, then tried to say it had never been paid.
So yes, it's quite possible to become bankrupt without ever borrowing any money.
As for an address having 50 companies registered, probably an accountant.
A friend of mine has ended up bankrupt due to an almighty cock up by the New Zealand IRD. They refunded 30,000 pounds of VAT in error, then tried to say it had never been paid.
So yes, it's quite possible to become bankrupt without ever borrowing any money.
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