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Post Info TOPIC: Selling a company with debts


Guru

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Selling a company with debts


Hi

I'm in uncharted waters here, so not sure what i should do, or the advice I should be giving! : A client is trying to sell his business (the goodwill) but he has not been paying his creditors. I think he believes he can just walk away when he finds a buyer. What should I advise him? And what is the procedure?

Georgie



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Expert

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I think the buyer will want to see up to date accounts, and that should show the creditors figure. Its then down to the solicitor and the buyer to negotiate what's going to happen with creditors. All you can do is provide the correct set of accounts?

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Guru

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Hi Michelle

Thank you and I've done that....I doubt anybody will buy it then in that case! If he just "disappears" what would I need to do? (Just trying to cover all eventualities)!

Georgie

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Master Book-keeper

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Hi Georgie
Anyone buying a company should make sure they do a full due diligence with their own Accountants and Solicitors, although I suspect quite a few dont do it properly given the costs involved.

Im assuming the 'cover all eventualities' means your bill - is there an opportunity to present one and make sure this is paid before you do anything else for him? At least then any work you do afterwards is only minimal?

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 Joanne 

Winner of Bookkeeper of the Year 2015, 2016 & 2017 

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position



Guru

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Hi Joanne,

No I meant things like the VAT and payroll....? I would be left feeling a bit "un" ? ....and would I then get harassed by HMRC or any one?

Georgie

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Master Book-keeper

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You shouldnt be harassed by HMRC, although they may phone you if you are listed as his agent, but they only usually do this in order to help them track him down. I had that happen despite resigning as an agent, about a client who thought he could just walk away from one business, but the fool had set up several others so HMRC didnt need much prompting to look in another direction shall we say.

I would say - document in writing (via post and by email), everything that would need to be doing, stressing that such things are his responsibility eg closing down his PAYE/VAT scheme and clearing anything due to them etc.

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 Joanne 

Winner of Bookkeeper of the Year 2015, 2016 & 2017 

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position



Senior Member

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Georgie wrote:

Hi Joanne,

No I meant things like the VAT and payroll....? I would be left feeling a bit "un" ? ....and would I then get harassed by HMRC or any one?

Georgie


 Not your responsibility Georgie,  HMRC won't harrass you. Any payments not paid to HMRC are solely the responsibility of your client.  if you're an agent I would cancel that once he's no longer your client.   Is he sole trader or Ltd Company?  If a sole trader HMRC will pursue him personally for the debt.  If a Ltd Co, unless he sells the Ltd Co itself and transfers liabilities, he would have to be extremely careful how he closes the company.



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John



Guru

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It's a limited company....

John, what do you mean he would have to be extremely careful how he closes the company?

Georgie

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Veteran Member

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Are you sure that he will pay your fees when he, according to your belief, is not willing to pay other creditors?
My idea would be to ask for upfront payment before undertaking any further work.
But I'm new to the game, so I'm not that experienced like others here.

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Senior Member

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Georgie wrote:

It's a limited company....

John, what do you mean he would have to be extremely careful how he closes the company?

Georgie


 If he's selling the ltd company, and transfers everything over, assets and liabilities, there isn't a probem.

If he;'s just selling the goodwill, and then planning on closing the company, he cant just legally walk away (in practice many do)  Say he has 10k in liabilities, and sells the goodwill for £5k. He must use that 5k to pay off other creditors, and it must be done pro rata, so as no one has been given preferential treatment (HMRC is an ordinary creditor, and should be treated as such)  After that, he can write to his creditors and tell them there's no money in the pot, and give them the opportunity to wind up the company should they wish to.

After 3 months he can send a DS01 form to Companies House (costs £10) and ask for the Company to be struck off. (He must send a copy to each of his creditors too)  If he pockets that money himself, and doesn't use it to pay his creditors, then he can become personally liable for the debt outstanding



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John



Expert

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Chances are if he tried to strike off, HMRC would veto it anyway, knowing he owed them money



-- Edited by FoxAccountancyServices on Thursday 22nd of January 2015 12:35:40 PM

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Senior Member

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duplicated, sorry



-- Edited by 111 Bookkeeping and Payroll on Thursday 22nd of January 2015 12:40:30 PM

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John



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Thank you guys,,I understand now

Georgie

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