Case Studies

As a director you open your business with great enthusiasm and work hard to build it up. A connection is made with one supplier or one purchaser and all is going well.

Together with this one company, you and your company grow.

Over time, whether it be short of long, you begin to notice that this other company has become your main supplier or your main purchaser. Then a decision has to be made. Are you comfortable to continue to work in this way i.e., to have all your eggs in one basket. Will this work going forward?

What happens when personnel change in the other company? Will they still want to work with you? How will this impact your business and thus your finances if they don’t want to work with you?

Diversification with your suppliers and purchasers may be something to work upon.

The other way having your eggs in one basket can affect your business is when the customer stops trading. Perhaps due to their own insolvency. If they owe you money, have you got the resilience to work through this rocky financial period? Will your own business need to shut down as the cashflow is not there to pay the bills as and when they become due?

Being supplied by or supplying to one or two entities may not be the best way for a business to function. Reviewing who you supply to and how much of the turnover that supplier commands is an important part of managing your business.

You have run a successful business for a number of years and are well known in your industry as an expert.

What you failed to do was understand how to take money out of your limited company.

Perhaps you have not appointed an accountant. Due to the lack of understanding this has led to a drastic situation.

The Company, although traded successfully, has not had sufficient profits to take out the amount of dividends that the Director has taken. The consequence of submitting the accounts to Companies House, has led to an HMRC enquiry.

As a result, the company has received a demand for outstanding Corporation Tax. This is entirely unexpected and has ultimately led to the demise of the Company.

The moral of this situation is that advice should be obtained early and often. Surround yourself with good people and ensure that the advice given is totally understood. If not ask questions. You do not want to lose your house to pay back money that is due to the Company.
Remember:  
·      Dividends can only be paid out of profits.
·      Dividends are paid after corporation tax has been deducted.
·      If you take a dividend that is not covered by profit, you will have taken out a Directors Loan which must be repaid.

So, getting ‘it’ right it much better than getting ‘it’ wrong.

Here’s the HMRC advice on taking money out of a limited company.

The background
Business owners should never underestimate the value of their staff. We have worked with two companies where issues with staff members developed. In one case there were issues with the standard of work and in the other a group of the staff left and set up their own similar business.

For the company directors of these businesses, it meant that there was a hole in resources which in turn impacted on the business service levels. Also, a ‘sour taste’ was left behind, as the directors had to pick up the pieces and evaluate what the impact was on the continued trading of the companies.

‍What happened next?
After regrouping, the directors of these separate companies soon realised that trading could not continue, and they needed some sound advice about how to move forward. In both cases, the directors discussed this with their accountants who then referred them to Even Keel Solutions.

Whilst discussing the way forward it became evident that the directors of both companies were bitter that their businesses had been forced to cease trading, in their eyes because of the actions of the former employees.

The end result
Dorothy Brown, licensed Insolvency Practitioner at Even Keel Solutions says “I think that this is a good reminder that the majority of directors do not take the action of ceasing to trade lightly, especially with the subsequent issues around the remaining employees, and their own reputations emotions are also part of the process.

This can be why some companies may limp on longer than would seem viable. When a director has spent years building a company, working hard to provide for them their family and their employees, it cannot be easy when as a result of the actions of one or more employees, their company has to stop trading.”

The background
Having a baby should be a happy event for a family, but unplanned medical incidents can have an impact on your financial stability.

We were contacted by a young couple who had recently had a new baby, their third child. Shortly after giving birth, the mother had suffered a stroke, which meant she remained in hospital, whilst the baby went home with the father.

Dad worked in a factory and was only allowed Statutory Sick Pay whilst absent from work, looking after his three young children and his poorly wife. The time taken off work spanned several weeks.

Prior to the baby being born, the couple had some personal debt which they were managing. To make up the shortfall between the benefits and what the family needed to keep a roof over their heads and to clothe and feed everyone, further credit was used.

‍What happened next?
The husband returned to work, but his wife was unable to work. They struggled to pay their credit and were now not managing their accrued debt.

Dorothy Brown, licensed Insolvency Practitioner at Even Keel Solutions says, “I can remember when we met discussing their income and expenditure and saying that I thought something did not add up. The couple told me that the children were fed everyday but for two weeks of every month, they ate baked beans on toast.”

This obviously was not sustainable for the family. By discussing all their options, it was felt that an Individual Voluntary Arrangement (IVA) was the best option for them. A budget was agreed upon, which meant that they paid a single amount every month to their creditors. This was agreed with the creditors and became a legally binding agreement.

The end result
The family remained in their home and creditors were paid a percentage of what they were owed over a period of 5 years.

Dorothy adds, “Whilst there may be arguments for and against using credit to maintain daily life, a life event such as ill health can knock anyone off their path and impact upon a family or individual’s financial situations.  

There is a lot of advice available for people in this situation, such as Martin Lewis’ website www.moneysavingexpert.com . A discussion with a licensed Insolvency Practitioner can help too, to try and find the best solution.”

The background
Even Keel Solutions was approached by an accountant within our professional network, to enquire about extracting funds from one of their client’s companies in which the directors, who were also the main shareholders, wanted to retire and enjoy the accrued fruits of their labour.

The company was a property development company and had sold all the assets it held. The only remaining asset it had was the cash in the bank, an amount well over £25K.

‍What happened next?
The most appropriate option was for the company to go through the process of a Member Voluntary Liquidation (MVL). Proceeds of the company would be taxed as capital distribution and the shareholders would possibly be entitled to Business Asset Disposal Relief, which used to be known as Entrepreneurs’ Relief.

The directors were delightful to work with and had obviously enjoyed working together over time. Over the course of a couple of meetings with them we discussed how the process would work and then moved forward to placing the company into liquidation.

The end result
Once the funds were received, an immediate distribution was made of the majority of the funds to the shareholders.  

The final amount was paid after working with HMRC and obtaining their confirmation that we were able to close the liquidation.

Dorothy Brown, licensed Insolvency Practitioner at Even Keel Solutions comments “this was a satisfying piece of work as I was able to experience working in a positive way with directors. The ability to be at the end of the working life of a company and for the individuals involved receiving their just rewards for their hard work. Whether they spent the money on an around the world cruise or sent money to their grandchildren, I’m not sure, but I do know they were looking forward to spending it!”

The background
A couple with two young children had handed their property back to the mortgage company as they felt they could not afford to pay the mortgage. It was an extremely tough decision to make, but after discussions with each other, they felt this was best for their family.

One of the reasons they felt they could not afford the mortgage was they had other debts totalling around £70K. They were using loans and credit cards to supplement their income. After a number of years in a job, one of them was made redundant. This had a huge impact upon the family finances and meant that their ongoing monthly payments were under pressure and credit cards were used to make up the shortfall.

‍What happened next?
The couple approached us to ask for advice. We explored their monthly income and expenditure and worked out that they had a monthly surplus; beyond paying their priority debts and maintaining their household.

We discussed whether they felt Bankruptcy was best for them or if they would prefer to enter into an Individual Voluntary Arrangement (IVA). The former being the alternate to the latter. An IVA is a legal agreement, between the debtors and the creditors. It can be over a number of months, or years depending on the circumstances.

The end result
The couple decided that an IVA was best for their personal circumstances. They put forward proposals to their creditors and it was agreed that an IVA was acceptable. In this instance it would last for just over 5 years.

We worked with them with their change of circumstances (which does happen in families over such a period of time), through COVID-19 and its impacts.

Dorothy Brown, licensed Insolvency Practitioner at Even Keel Solutions said “Whilst I have no doubt it was very hard, this couple determinedly stuck to the terms agreed and came to the end of their IVA this year (2022). I believe it was a good outcome for all parties and the couple are now debt free and able to rebuild their credit moving forward.”

The background
‍A construction company suffered a devastating loss, when one of the two directors, only in their mid 30s, unexpectedly passed away. What was in place to run the company without this key person?

The former director was fundamental to the operation of the company. Though the remaining director was able to make decisions about what could happen going forward, [in amongst their personal grief]; the company had no plans, no Key Person Insurance and no Power of Attorney in place.

Trading ceased. There were assets in the company, but these were less than the outstanding creditors were owed. Their accountant was helping by piecing together the paperwork from the last few months to see what the level of creditors was.

The letters from creditors began to arrive demanding payment, which was frightening for the director. They had not handled this side of the business before and found it difficult to deal with the requirements of running the company.

‍What happened next?
‍As an Insolvency Practitioner, we were recommended to the director by their accountant and worked with them to find establish the best way forward.  Using active listening skills and demonstrating empathy were important whilst talking to the director all the while ensuring that they fully understood the liquidation process.  

Although there is no requirement by law or regulatory bodies; Even Keel Solutions’ licensed Insolvency Practitioner, Dorothy Brown, felt strongly that her duty of care to the director should acknowledge the former director’s achievements within the business, and allow the remaining director to work within their timeframe. The emotions of loss and grief were deeply felt, affecting the mental health of the remaining director.

The end result
‍The outcome was that by liquidating the company it could be brought to an end. The director remained involved at every stage, as this was part of making their own goodbyes.

The moral of this case study is to think about the future; even if the company is small how will your loved ones be affected by any major changes? How will the company be affected? Will everyone involved be affected in the same way?

Whilst there is no crystal ball, planning will certainly help the future should the worst happen.

Dorothy Brown comments “this situation was heart-breaking. My skills and experience as a trained counsellor were incredibly useful when it came to dealing with the remaining director. It is not only the technical knowledge of insolvency that was important in this case, emotions, feelings, and the understandable fragile mental health of the director also had to be handled very carefully.

It always pays to have a plan in place for your business. Whilst we all hope that these situations are very few and far between, hope is not a strategy and it is quite straightforward to have simple things in place such as a Shareholder Agreement, Key Person Insurance and a Power of Attorney which would have helped tremendously in this case.”

The background
‍This Company sold photographic equipment and accessories and provided a photographic service. It was a family run business employing a number of staff across two premises.

The Company had performed reasonably well for several years, turning a small profit. However, customers online shopping habits coupled with the onset of the covid 19 pandemic led to a decrease in footfall. Ultimately, turnover was in decline.

The impact of Brexit and covid 19 were felt by the company and business almost dried up. The directors could see that even when covid restrictions were lifted, that trading would never be the same as pre-pandemic levels.

‍What happened next?
‍The directors discussed their financial situation with their accountant who in turn referred them to Even Keel Solutions and its licensed Insolvency Practitioner, Dorothy Brown.

As a result of that conversation, it was decided that the Company would benefit to continue to trade over the ‘golden month’ of December. This spike in turnover would benefit the creditors as a whole in the longer term.

The Company then ceased to trade in early January, with unfortunately all staff being made redundant. The directors either retired or found employment elsewhere.

Even Keel Solutions worked with the company directors to value and sell the business assets, in order to achieve the best possible return to the creditors.

The directors then decided that the best possible way forward was to place the company into liquidation, with which Even Keel assisted.

The end result
‍It was extremely sad for a company who had traded for 17 years that it had to close due to insolvency, but the directors were very unhappy and had no appetite to continue running the business in such stressful times.

One of the directors recently fed back that they were relieved to have made the decision to cease trading prior to the steep rise in cost of living and fuel as it would have caused further distress at an already difficult time for them.

Dorothy Brown comments “This company did the right thing from the outset. They knew they were struggling and rather than bury their heads in the sand and take no action, they sought professional advice from their accountant, who then referred them to Even Keel Solutions as licensed Insolvency Practitioners. It was a tough decision for them to make, but had they waited longer to make it, they would have faced untold amounts of stress and further financial difficulty as the economic issues developed further in the UK throughout 2022.”