Restarting your limited company may seem like a worst case scenario – but if you are suffering financial issues you cannot escape, it may be a viable option.
For every four businesses that startup, one of those will have closed within the first year, and that number will double within the first three years.
If your business represents your only income, then closing it down outright would be untenable, but there is a solution.
Limited company restarts can enable you to start afresh – without the debt weighing your business down.
Our helpful team has a wealth of knowledge in limited company restarts. We can help:
- Give you peace of mind that there is a way out.
- Deal with the stress of negotiating with persistent creditors.
- Communicate with you clearly and transparently, keeping you informed throughout the process.
Contact the Future strategy team today and we can advise whether a limited company restart is the best option for you and your business’ future.
Why choose a limited company restart?
If you’re facing the worst-case scenario of your business being unable to pay its bills, you’ll be faced with some stark options.
It’s a position in which plenty of directors often find themselves. After all, only half of startups survive past their third year in business, so the prospect of closure regularly rears its head.
If your livelihood is on the line and the company can’t pay its debts, your choices are narrow.
Closing your company and starting again is one of those options, but the law must be carefully considered as strict legal boundaries define what you can and can’t do.
Many small businesses suffer financial issues that mean restarting your limited company and transferring the ongoing business to a new company free of debt is the best way forward.
Closing down your failing company means you can continue to trade within a new business, and you may even be able to start the new company using assets of your old firm, bought for your new one for more affordable costs.
Restarting a company can help overcome start-up failures, but they must be handled in a very specific way, taking into account legal boundaries which govern all businesses.
By continuing to trade within a new business, you’re able to:
- Retain staff members, which will ensure your new company has the necessary skills.
- Get rid of any bad debts.
- Release yourself from obligations of bad contracts.
- Keep on your loyal customers.
- Retain brand awareness, which in turn reduces the costs of ‘start-up’ for the new company.
We can help you achieve each of these objectives with careful management targeted at the best solution for you.
Following the law
Making this choice is, of course, not a way to simply illegally remove unfavourable conditions and it’s crucial you adhere to the laws for closure and company formation.
However, it will allow you to carry on trading, continue to earn an income and make sure you’re not put into a situation that could lead to court-imposed fines or even a criminal enquiry.
Restarting your company could, in the long term, save you thousands of pounds in debt fees and running costs, and ensure your business flourishes and grows once again.
This legislation is in place to stop directors simply closing one company and starting another to escape debts (and the consequences).
Is your company insolvent?
In simple terms, if your company can’t pay its bills, then it is probably insolvent. There are three tests to measure whether this is the case:
- The cash flow test – can your company pay its debts when they are due?
- The balance sheet test – does your company owe more than it owns as a company or are the assets exceeded by its liabilities?
- The legal action test – if a business to which you owe money obtains a court judgement that goes unanswered, or if your company has outstanding statutory demands for payment.
If your company fails any of these tests, then it is very likely your company is insolvent, and you must maximise creditors’ interests as a priority.
That doesn’t mean the business must be closed, as there could be options available to you to rescue it.
If you are deeply in the red, you will need to consider appointing an Insolvency Practitioner (IP) to liquidate your assets – known as a Creditors’ Voluntary Liquidation (CVL).
We can help you understand which option is best, and it is vital that you seek professional advice as soon as possible.
What are the restrictions on starting a new company after liquidation or dissolution?
When you start a new business after closing an old one, an application is issued to Companies House.
There are some restrictions to consider when closing a company with debt and starting a completely new one. Here are some factors:
Reusing your old company’s name
There are legal restrictions for using the same name or a similar name as your old business when starting up a new one.
According to Section 216 of the Insolvency Act 1986, if compulsory liquidation was used to liquidate your old company, it’s forbidden to use the same name, or even something similar.
This makes it illegal for anyone who was a director of the company or a shadow director at any time 12 months before the liquidation, to be involved for up to five years afterwards in a company with the same or similar name.
There are, however, some exceptions to reusing a company name in this instance that we can help talk you through.
- Paying a security deposit to HMRC
If HMRC believes, for any reason, there is a risk your new company may fail to pay its tax on time, it may request a security deposit – such as a fixed security payment or a bond.
If you fail to pay your taxes, HMRC will settle the balance with that security deposit. Please note that property or high-value items cannot be used for this security deposit.
- Selling goods and assets
It is a fraudulent act to sell the assets of an old company at a price lower than their market value. When the business is in distress, a quick sale of assets can be carried out at a discounted price.
It’s crucial that the business sale is legitimate, as creditors can later argue against the sale of assets at a discounted price in Court.
- Transfer of employees
Transfer of Undertakings – Protection of Employment (TUPE) regulation does not apply to employees who transfer from an old company to a new one due to a Creditors Voluntary Liquidation (CVL) or compulsory liquidation. As a result, working hours, contract terms and any other benefits can be changed without being deemed unfair.
- Debt guarantees
A limited company is considered a separate legal entity, so you won’t be personally responsible for your company’s debts. However, as the director, if you have signed a personal guarantee and the company cannot repay its debts, you will be held personally responsible. If you have an overdrawn director’s loan account, you may be pursued by the liquidator to repay it.
- Limited credit accounts
If your old company had a poor credit history and unfavourable relationships with its creditors, it is unlikely that they will provide a credit account for your new business without putting extra security in place, such as advance payment or tighter terms.
How to begin a limited company restart
Start by getting in touch with our team for a free initial consultation. We can help you understand if a company restart is a viable option for you – or if there’s a better solution. We’re committed to giving you the best advice for your unique position.
We can talk you through all of your options and find you the right solution
We're always here to help.
For free, immediate and confidential advice about starting a business, please contact us.