Bank
Facts
- Electrical wholesaler
- Loss making with poor future trading prospects
- Bank overdraft £250,000 secured by a debenture
- Assets estimated to realise £75,000 in a liquidation
- Two directors with unlimited personal guarantees
Background
The
business had been purchased 3 years ago by the directors but had never made the
forecast profits. The customer base made up of independent electrical
stores was contracting and the business model was broken. The directors
wanted out but were concerned about a large call on their personal guarantee to
the bank.
The
problem
The
company owned mainly stock with a book value of £550,000 which was estimated to
realise only £75,000 on break up in a liquidation. After costs that would
have left the directors facing a £200,000 call under the joint and several
personal guarantee.
The
solution
The
directors had already exhausted all avenues exploring the possibility of a
trade sale and now faced mounting pressure from creditors. We advised
that an extended closing down sale would maximise asset realisations and on the
basis that all ongoing costs were met it was reasonable to carry on trading to
that end. Over 3 months stock realised over £200,000 and the company then
went into liquidation. In the end the shortfall to the bank was only
£25,000.
Difference
Most
Insolvency Practitioners would see this as a close down liquidation.
Trading on when a company is insolvent and destined for liquidation is fraught
with difficulties but we advised that it was the best course and effectively
provided professional cover for the directors to do that.
