Ltd Co - poss insolvency, business o/draft but personal guarantee??

[BusyBee27]

Our business is Limited. We took out a business overdraft in Sep 09 for £17k and had to sign (my husband and I) a personal guarantee. The Business Mgr told us not to worry as they would not come after bricks and mortar. They would take any money we had, if we had any, but not the house...I think we signed naievely (spelling?) as if we have no personal cash and the company goes insolvent, from what I have read, it looks like they will make us repay the debt personally. So much for "limited" protects individuals. Looks to me like this is a sure fire way of making sure the bank gets paid first as they can make personal demands on us where the companies we owe cash to cannot. any thoughts or advice gratefully received. We are not at breaking point yet but have bills we cannot pay, trying to rob Peter to pay Paul but it will not work for much longer so cannot really see a way around insolvency...also concerned it seems to cost a fortune to go insolvent. Do you have to "employ a company" to do it or is there another (free) way??

 

Thanks!!

[Bigdebtor]

BB27

 

I had a similar experience with my limited company's overdraft being covered by a personal guarantee. It does seem to be binding - even to the extent of them being able to get a charging order on your house - so not that much better than a loan secured on your house. I take it your Bank Manager didn't put his promises about bricks and mortar in writing?

 

That's the bad news - now the good news.

 

If you have other unsecured debts (e.g. credit card and personal loan) and are struggling month on month why not try to get charges and interest frozen on them? If so, these guys know they'll be last in the queue if you go insolvent and will be willing to take reduced payments if their back is against the wall.

 

You should talk to CCCS and get a reference no then try to get reduced affordable monthly payments agreed. You should read Wilchil64's excellent thread and see the advice and sample letters given in that.

 

If your only debt is the business overdraft then again try to negotiate lower (or frozen) interest to let you make faster inroads in the debt from your limited funds.

 

In all the above your credit rating will probably be trashed - so you have to decide if that's important for the next 6 years.

 

Good luck!

 

BD

Edited June 25, 2010 by Bigdebtor

[flyingchap]

BusyBee, don't be panicked into doing anything rash in any hurry. I've been through this - the bank will not go all-out at breakneck pace - if you default on a PG'ed loan, you may be amazed at how longwinded they will be: it could be months before they do more than write a letter politely requesting th balance be paid.

 

Generally it will be a year plus before they get firmer, and even then, as long as you are polite and write back summarising your situation, always acknowledging you'd like to clear it up as soon as you can, but you don't have the funds to do so yet and so on: be very calm, polite but yet firm, in a kind of "I can do nothing to help now but assure you I will contact you the moment my financial siatuation improves" tone.

 

You may end up talking to them in this vein for several years : even then, they all have a debt-recovery deaprtment you can go and see (DO go and see them: that quite puts them on the back foot, as they'd rather just deal on the telephone). Find a sensible person in the debt recovery dept and strike up a sensible dialogue on the basis of 'I can't pay you what I don't have'. It is momumentally difficult, expensive and bad PR for them to actually try to take your home, and if you are civilised with them, you can pay them over a long period: all they really want to do, is to get your file back in the filing cabinet without having to mark it 'bad debt'.

 

And what they will never, ever admit, even in the quiet of their own offices, is that they WILL do a deal to close the matter for less than the amount you owe. They'll always deny it, until you make a written offer, and develop the bid with them. They have been known (in previous recessions) to settle for as little as 8 pence in the pound owed: more usually 25-30. When you finally do that deal, require them to sign a paper of yours receipting the monies paid as "accepted in Full and Final settlement" - those specific words. Good luck

[Bigdebtor]

I don't disagree with flyingchap's post - I've been through it too and found that during the long delay before they get heavy, it's important to try and get the interest and charges frozen as early as possible - so any token payments actually reduce the debt and it's not continuing to escalate at unauthorised overdraft interest rates and charges.

 

If you have equity in your home (enough to cover the debt) I don't think they'll negotiate a decent F&F short settlement - they'll possibly take 75% but I think the realism of 25-30% deals are more for credit card debts where the agreement is lost or unenforceable - or a dodgy DN means only the arrears are reclaimable.

 

What Flychap says about being polite and trying to get recognised as a person - not just a problem file - is spot on - and will pay dividends. They are much more used to people burying their heads in the sand, not replying to letters, not returning phone calls etc. So be proactive NOW - flag up the potential issues, do a cash flow forecast (realistic - even pessimistic - but never be too optimistic - it's important to stick to making any payments shown on the forecast) showing you can trade out of your difficulties - BUT ONLY IF they play ball regarding interest and charges.

 

In your letter quote as accurately as you can remember what the bank manager said about "not going after your house" - so at least if they won't confirm this in writing they'll either ignore this point or be forced to deny it in writing. Even this is not that bad as it will be putting them a bit on the back foot - if they say your house is at risk it's even more important to reduce this debt as fast as possible and they should do all they can to hep - especially if it seems there's been a "misunderstanding" regarding the safety of your own home!

 

If you have other unsecured debts with personal loans, credit cards etc. then write to all of them and get them to freeze interest and charges - and accept lower payments. They will recognised the bank has first call through the guarantee and that they would get zilch if the bank played hardball.

 

Hope this helps!

 

BD

[andrew1]

May I ask what potential there is for the business to continue trading and getting back into profitabilty in the future? If this overdraft is causing you a problem and you have other creditors you are finding difficulty in paying AND you think you can turn the business around without the pressure of those creditors, then there is always the possibility of going for a Creditors Voluntary Arrangement (CVA) this freezes the old creditors ability to take action against you and you can get a considerable amount reduced in the process by offering to pay a % n the £ towards those debts. Could be as low as 15%. This then allows you to trade without having the pressure of those creditors and you'll be paying a fixed sum into an Insolvency Administrator who then distributes the monies to the creditors on a pro-rata basis.

 

You need to get the majority share of the creditors to agree, but if this business is viable then it could buy you the space you need to trade out without the bank calling upon the personal guarantee and giving you a chance to get trading again.

 

You can still use the same suppliers, but you need to accept (and so will they) that the old debt will be paid off over say 5yrs but that any new credit taken by you will need to be paid for as you go along. If you default on those new liabilities then they can sue you as normal, but the courts protect you from being sued on those in the cva.

 

There are facilities available for essential creditors such as those which you need to pay for the business to continue, such as rent or key suppliers/contractors who would affect the continuity of the business if they were not paid, to be left outside the CVA arrangement, but you need to make sure there is no-one who you leave out who may come back to sue you and close you down anyway, so be careful with that.

 

This all depends on whether or not you think you can trade out. Costs of getting a cva up and running are about £4500 minimum and any Insolvency Practitioner will advise you how to go about it.

 

Good luck