Written ByRobert Moore
Marketing Manager
Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.
Rob is now working with the Board at KSA Group Ltd to develop strategic marketing programmes to support the business plan and drive more company rescues.
As the nation struggles with the growing cost of living crisis, rising energy bills are quickly becoming the greatest financial strain, with the vast majority of households and businesses facing the prospect of paying much higher rates for their gas and electricity consumption in the coming months.
The Government has stepped in to support households and businesses with the domestic energy cap set at £1850 for a typical home. The business energy rates are also being discounted on both variable and fixed contracts that have just been renewed. more details here. Either way many businesses are seeing big rises in their bills and the pressure could tip them over.
If your business cannot pay its energy bill then energy suppliers can quite easily disconnect businesses if there is no residential use attached. This can happen even after just a few missed payments. So if you think you can’t pay your bill it is essential to inform your provider as soon as possible. It goes without saying that disconnection of your energy supply will basically make it almost impossible to trade.
First, you must check that the gas and electricity bill you have received is accurate, meaning that it is based on actual meter readings and not an estimate of your energy consumption. If you suspect the amount being requested is inaccurate, don’t be afraid to dispute it by calling your provider and requesting an explanation of how the bill was calculated.
If your gas and electricity bill is accurate, but you are unable to pay, you may be able to enter into a payment plan with your supplier to bring your account current through a series of more manageable monthly payments.
If you cannot pay your energy costs, your utility provider may be willing to negotiate a payment plan. If you already have gas and electricity arrears, you may be granted additional time to pay, or if your cash flow has been temporarily impaired for a particular cause, the utility supplier may agree to a period of reduced payments.
However, you must contact them immediately and explain your business’s financial status and why you cannot pay your energy payments. By being proactive and forthcoming in your communications, you demonstrate that you take payment seriously and that your firm is struggling. It will be useful for you to create a budget beforehand so that you know how much you can realistically pay your energy provider each month.
The charges for disconnection and reconnection will be added to your total debt if you do not make an effort to contact your gas, electricity, or water supplier. Your business’s gas and electric energy supply could be terminated after only 30 days if you fail to pay the amount outstanding and do not notify your supplier.
Inability to pay bills as they become due is a key indicator of insolvency, therefore if you are unable to pay your business’s gas and electricity bills, you should take action. As a director of an insolvent company your duty is to the creditors (including energy suppliers)
If the company has no prospect of paying even a reasonable proportion of its bills, and is no longer viable, then liquidation is the correct course of action. Companies that are struggling to pay energy bills are also very likely to have run up HMRC/Bank debts as well.
If your firm is profitable now but is being impeded by historic debts such as rent/tax and energy bills you may be able to restructure your debt through a formal insolvency procedure called as a Company Voluntary Arrangement (CVA).
If your firm is profitable now but is being impeded by historic debts such as rent/tax and energy bills you may be able to restructure your debt through a formal insolvency procedure called as a Company Voluntary Arrangement (CVA). A CVA is a legally binding agreement with your company’s creditors which allows a proportion of its debts to be paid back over time. 75% of the creditors, by value, who voted need to support the proposal.
A licensed insolvency practitioner (IP) will be assigned to act as nominee and supervisor of the planned CVA, and will submit a payment proposal on your behalf to your utility providers and any other creditors as needed, with the aim of being able to make reasonable repayments towards your debts.
Will I Go Bankrupt If I Am A Director Of A Company That Goes Bust?
This is often the biggest worry of directors of companies which are in financial trouble. Generally speaking the whole point of a limited company is that it allows the people running it, i.e directors, to have a LIMITED liability if things go wrong.They are not completely immune, as the Companies Act 1985 and the Insolvency Act 1986 confer certain responsibilties on directors to act reasonably and fairly. So, for instance, if you lie, deceive, and willfully/recklessly pile on debt to a company that subsequently goes into liquidation then you could be held liable personally. This is know as "lifting the veil of incorporation" What is the process? If the company goes into liquidation or administration then the liquidator, who can be appointed by the court or the company's creditors, has to investigate the actions of the directors. This is so that creditors can understand why the company failed and if there is any culpability.If there has been bad behaviour, such as fraud, then the court can hold the director/s liable for the company's debts. This may well result in bankrupcty. In addition, the directors have to show that they have acted in the best interest of the creditors once the company becomes insolvent. As such, any actions that may prejudice their position can be reversed. The two most common such actions arePaying a preferenceA preference is when the director/s pay one creditor over another because they desire them to be better off. This might be a family member or indeed someone that has a personal guarantee for a loan.A transaction at an undervalueA transaction at an undervalue is when assets of the company are moved to another legal entity such as an associated company, or to the directors personally, at a knock down price so depriving the insolvent company of their actual worth.Both of these actions can be reversed up to 2 years after the company entered insolvency. When might a director become bankrupt? Veil of Incorporation If the liquidator takes action by lifting the veil of incorporation due to fraud and negligence as mentioned above and holds the director personally responsible for the debts of the company. Overdrawn Directors Loan Accounts This is a far more common occurence. In effect, this means that the director/s owe money to the company. They may have borrowed or they have extracted money in the form of dividends when there were no distributable reserves (effectively the same thing).This tends to happen when directors want to maintain their incomes, despite the company being in difficulty, because they believe, rightly or wrongly, that the company will move back into profit. The problem occurs if the directors owe the company money and it has gone bust!The liquidators will then pursue the directors for the money as they are a debtor. This can put severe financial pressure on directors as they may have also lost their ability to earn money from the work they did as the director!Normally liquidators will try and do a deal with director to repay the debt or they may opt for an Individual Voluntary Arrangement to pay back the debt. However, if the liquidators believe there maybe assets belonging to the director then they may issue a bankruptcy petition. Personal Guarantees on Loans It is not uncommon for lenders to small businesses to seek the added security of personal guarantees from the company's directors. If the company goes bust then the lenders will seek recourse from the directors. This can lead to bankruptcy and the resultant loss of your home and other assets. As mentioned above the directors may have lost their main way of earning a living from the company anyhow.
ReadBusiness Asset Disposal Relief
What is Business Asset Disposal Relief? Business Asset Disposal Relief which allows you to pay less capital gains tax, at 10% on gains of all qualifying assets which are sold. It is applied when you sell your business, and usually in a Members Voluntary Liquidation (MVL). Capital Gains Tax is the tax on profit when you are selling something which has increased by value. Am I eligible for the relief? To qualify for Business Asset Disposal Relief , you must meet one or more of the following criteria:You must be disposing all or a part of a business, where you were a sole trader or business partner. Even if you dispose of the assets after, you are still eligible. However, you must own the business for over a year before you sell it and if you are closing the business, the assets must be sold within 3 years. You have at least 5% shares, securities or voting rights within the company being sold. You are also eligible if you have had the chance to buy your shares at least a year before the sale. For this, you must have been an employee of the firm for at least a year, and the company must be one which focuses on trading, instead of those which involve little trading, for example, those who focus purely on investment. You lent an asset to the business and it is being sold. This only applies if your assets were used for a year before the shares were sold, or if you have already sold 5% of your part of the business or shares. You’re selling shares which you got through an Enterprise Management Incentive scheme, after the 5th April 2013.How do I work out the tax I will have to pay?Work out the gains of all the qualifying assets Add all the gains together (deduct any losses) to get the total taxable gain available for Business Asset Disposal Relief Deduct any tax-free allowance You will pay 10% tax on what is left.How do I actually claim for Business Asset Disposal Relief ? To claim for Business Asset Disposal Relief fill in Section A of the Entrepreneurs’ Relief Help sheet here https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet , or you can do it via your Self-Assessment tax return. During your lifetime you can claim up to £1 million relief, with no limit on how many times you can claim for it.Following the first Labour Budget it has been it has been confirmed that the relief remains but from April 2025 the rate will go up to 18% from the current 10%
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Can I Sell My Company’s Assets Prior To A liquidation
Yes you can sell or transfer assets prior to insolvency but you must make sure that the assets are valued correctly and a fair price is paid. Otherwise you run the risk of the transaction being reversed by the liquidator.
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Help for Struggling Businesses
Help for struggling businesses is available from charities, Government agencies and professional advisors. The most important thing is to seek advice early on before financial problems become too great
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What To Do If Your Business Or Company Is In Financial Trouble
If you’re struggling to meet debt payments and cashflow is suffering, don’t panic! There are a number of options available to help turnaround the business or company if it is in financial trouble.
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