When a company is insolvent and facing growing pressure from its creditors, it can be a difficult and distressing time for the directors, who often want all these problems to simply go away.
Over recent months we have been asked on an increasing number of occasions by directors that we are advising about insolvency options, whether the advertisement they have seen, or the story that was heard in the “pub” about selling their company for a £1, with no assets but just debts, is a legitimate and legal way to resolve the problem.
Whilst on the one hand, the directors and shareholders of a business are free to take such actions as they deem necessary, including selling its shares, on the other hand it would be important to consider what somebody stands to gain from buying an insolvent business with no assets and unpaid debts?
Such a sale might appear to be a risk-free option, this is certainly how it is marketed, allowing directors to rid themselves of a stressful situation in the short term, however, it is likely to cause greater problems down the road and have hidden costs.
Once the ownership and directors have changed it is more than possible for the new directors to pursue monies and legal actions against the selling directors or that creditors will pursue guarantees signed prior to the sale.
Furthermore, it is possible that the company could end up in an insolvency process at a later date, during which the conduct of all directors from the prior three-year period will be investigated, potentially resulting in claims or disqualification proceedings being brought.
Should you, a client or contact, find yourself in need of insolvency advice it is important to consider all the possible options; but crucially to ensure you are getting your advice from a legitimate source.
This should be from a licensed insolvency practitioner, such as our Restructuring and Insolvency team at Milsted Langdon, who can assist with all possible solutions, including a legitimate sale of the distressed business and assets prior to a formal insolvency process if appropriate.
As with all things in life, if it sounds too good to be true, it often is.
For more information on our Restructuring and Insolvency services please get in touch.