Sole Trader- Going Out of Business

daithip

A couple I know are in a financial quandry. She is a sole trader and due to the lack of money exchanging hands these days it looks as if she is going out of business. She has a number of loans and outstanding creditors and is worried that she may lose her home to pay them off. I'm of the opinion that if she does go out of business her home cannot be touched as she is in joint ownership with her partner. Her assets (mostly stock) will only cover about 1/3 of her outstanding debt when realised and she wonders will this mean she is bankrupt?? Her partner is in full time employment but I believe most of his earnings go toward paying mortgage, utilities etc. Her main question is really, where does she stand in going out of business and what are her options?

1966

First port of call is for your friend to speak to their bank.

She should find them sympathetic in current climate and remember that banks dont involve a family home unless there is no other option / customer is not playing ball etc.

murphaph

Just because she is a joint owner (joint tenant) doesn't mean a court can't force a sale of the property but it is highly unlikely for it to get that far....civil bill...judgement against...judgement mortgage....well charging order....order for possession is a long road and creditors don't bother due to the expense and unlikely successful outcome for them (they might end up getting an installment order for a tenner a month or something ridiculous and so long as the debtor pays this they can't go any further, the law heavily favours the debtor in default in Ireland). Bankruptcy is rare in Ireland as due to the fact it basically destroys a person financially it means a creditor is unlikely to ever get any money back when they do get back on their feet. Being declared bankrupt in the UK (for example) is a much less severe penalty as the effects don't last forever or as long. If the business has failed and will be wound up, approach creditors (especially bank) asap.

Lplated

daithip wrote: »

A couple I know are in a financial quandry. She is a sole trader and due to the lack of money exchanging hands these days it looks as if she is going out of business. She has a number of loans and outstanding creditors and is worried that she may lose her home to pay them off. I'm of the opinion that if she does go out of business her home cannot be touched as she is in joint ownership with her partner. Her assets (mostly stock) will only cover about 1/3 of her outstanding debt when realised and she wonders will this mean she is bankrupt?? Her partner is in full time employment but I believe most of his earnings go toward paying mortgage, utilities etc. Her main question is really, where does she stand in going out of business and what are her options?

Most important question/s here, are these couple married to each other, and do they have children? (i'm unsure, given modern parlance, whether partner equals husband).

The sole trader is most personally liable for the debts of her business, this is the point of soletrading versus having a limited company.

She holds joint ownership with her partner, so she doesn't own all the house, merely a portion of it. I note there is a mortgage (assuming you're not including this as one of her debts), so at best her creditors can go after the value of the house minus the mortgage AFTER the division of the property between the two of them.

A court will decide in what percentage the two hold the property, it could be 50:50, it could be 90:10.

I agree with the poster who suggested talking to the banks/creditors first (and i would include the bank who holds the mortgage).
She should also get proper legal advice - determining the ownership of a matrimonial home, or a family home, or a property held in joint ownership, is a legal issue.

Mr. Incognito

If she is concerned that the business in not viable she should speak to a solicitor.

Why didn't they incorporate a company to limit their liability- i can never understand people who don't do this.

daithip

Lplated wrote: »

Most important question/s here, are these couple married to each other, and do they have children? (i'm unsure, given modern parlance, whether partner equals husband).

The sole trader is most personally liable for the debts of her business, this is the point of soletrading versus having a limited company.

She holds joint ownership with her partner, so she doesn't own all the house, merely a portion of it. I note there is a mortgage (assuming you're not including this as one of her debts), so at best her creditors can go after the value of the house minus the mortgage AFTER the division of the property between the two of them.

A court will decide in what percentage the two hold the property, it could be 50:50, it could be 90:10.

I agree with the poster who suggested talking to the banks/creditors first (and i would include the bank who holds the mortgage).
She should also get proper legal advice - determining the ownership of a matrimonial home, or a family home, or a property held in joint ownership, is a legal issue.

Yeah they are married with one dependant child! Thanks for the information guys will pass it on. I suggested they speak to MABS, don't know if anyone hass any thoughts on that, but I believe their initial action is to help draft a letter to creditors etc. showing that the debtor is attempting to deal with their debt?

Lplated

daithip wrote: »

Yeah they are married with one dependant child! Thanks for the information guys will pass it on. I suggested they speak to MABS, don't know if anyone hass any thoughts on that, but I believe their initial action is to help draft a letter to creditors etc. showing that the debtor is attempting to deal with their debt?

Well, the good news is that the Family Home Protection Act 1976 applies, (means it will be a bit more difficult for creditors to go after the home, once the husband wasn't involved in the business, or the business wasn't run from home). That won't help her position re potential bankruptcy though.

MD2510

Hi

My company recently went out of business, in the end I was able to wind it up voluntarily but I did speak to a liquidator who was very helpful. Her name was flavien in a company called irish liquidations. She didn't charge me and gave great advice on how I could wind up the company without the cost and hassel of liquidating.

Hope this helps

Mr. Incognito

Mr. Incognito wrote: »

Why didn't they incorporate a company to limit their liability- i can never understand people who don't do this.

But there are more costs associated with that though right ? And surely it depends on the size of the business ?

bluemoo

out of interest would one be able to change their trading status of "sole trader" to "limited company" (knowing they are about to go bang) and then not be liable for monies owed?...than days/weeks later declare bankruptcy?

Interesting......

@bluemoo

@bluemoo,

You could change your status from Sole Trader --> Ltd Company but not if you're about to go bankrupt. No chance.

patftrears

Deleted User wrote: »

@bluemoo,

You could change your status from Sole Trader --> Ltd Company but not if you're about to go bankrupt. No chance.

you don't change your status from sole trader to limited company. A limited company is totally seperate to any business as a sole trader.

You're correct, you can't change your status as I put it literally, but you can become a Ltd company after being a sole trader. eg: joe bloggs the painter can set up a Ltd company at a later date.

dbran

It wont work!!!

You will still have unlimited liability for all the debts run up as a sloe trader and you will be subject to possible unlimited liability if you are convicted of reckless or fraudulent trading by the ODCE.

dbran

leitrim lad

you can indeed change, all liabilities from a sole trader to a ltd company , using one of many loopholes in the companies act under company law ,but i would probably get prosocuted for posting it ,as it would sound like fraud, but its perfectly legal,

i have done it myself whilst in trouble, and im now probably one of the strongest groups of companies in the country, no wolves at the door at all.

however i would advise this woman to write a letter to each creditor and offer them 5cent in each euro she owes them , it will work and is working at present for everyone else, especially with banks,

if they refuse her case in court is a hell of alot stronger ,if they accept she gets a clean slate, you just have to use your head in business, and if you are under pressure in a tight situation like that you shouldnt be in business.

i know some of you will declare me mad for what i said to offer in each euro, but look at the likes of the hanley group, 1 cent in the euro, and all the rest of the big shots who are falling, so its that womans marketing and negociation skills that will get her out of this situation , and for god sake stay the hell away from bankruphsy, its worse than suicide, and you dont need to go bankrupt ,unless revenue, or every bank in the country or world for that matter brings a court motion against you to declare bankrupt.

i know i have been trough it all

Lplated

Deleted User wrote: »

@bluemoo,

You could change your status from Sole Trader --> Ltd Company but not if you're about to go bankrupt. No chance.

This advice is wrong. There is nothing in the Companies Acts that prevents a limited company being set up in these circumstances.

However, a sole trader with debts may already have signed personal guarantees in respect of some of his/her debts, and having a Co will not avoid those guarantees.

Further, it is possible to 'lift the corporate veil' of a Co, and make the directors or shareholders liable for its debts - so the sole trader could transfer its business to the Co but the creditors could seek to 'lift the veil' and have the sole trader made liable nevertheless.

Lplated

dbran wrote: »

It wont work!!!

You will still have unlimited liability for all the debts run up as a sloe trader and you will be subject to possible unlimited liability if you are convicted of reckless or fraudulent trading by the ODCE.

dbran

This is partly wrong.

You're right that changing from sole trader to Co status may not work, as personal guarantees may have been given that won't be lifted just because the debtor changes status.

The second part of the paragraph is wrong though - the ODCE deals with matters arising under the Companies Acts, by definition things done by an individual while a sole trader do not come under the ODCE remit.

If the soletrader transfers its business to a Co, unless the reckless or fraudulent trading acts occurred while the business was a Co, the ODCE will not be able to make out a case - in other words, it won't be able to look back and say that those acts that occured while a sole trader can now support a fraudulent or reckless trading charge just because of the change of status.

leitrim lad

i agree lplated there is alot that can be done,

however the personal grntee is a pain but can also be worked on ,for instance the new company could buy the assets off the soletrader, and the person involved could lend the company the money to buy them, and draw up a loan agreement with the new company, and no money would change hands , this would wipe the personal grntee out and leave it worthless

You learn something new every day I guess.

Thought it was impossible to set up a Ltd company if you're about to go bankrupt. Well that's what I was told.

patftrears

leitrim lad wrote: »

i agree lplated there is alot that can be done,

however the personal grntee is a pain but can also be worked on ,for instance the new company could buy the assets off the soletrader, and the person involved could lend the company the money to buy them, and draw up a loan agreement with the new company, and no money would change hands , this would wipe the personal grntee out and leave it worthless

no it would not

leitrim lad

patftrears wrote: »

no it would not

o yes it would , as you wouldnt own the debt anymore ,the new company would,

i know i have been there and done it and its perfectly legal, and it wiped my slate clean on the icb also.

but do please feel free to elaborate, and tell me im wrong because i am on the war path today and im in the mood to give someone a good ****ing

patftrears

leitrim lad wrote: »

however the personal grntee is a pain but can also be worked on ,for instance the new company could buy the assets off the soletrader, and the person involved could lend the company the money to buy them, and draw up a loan agreement with the new company, and no money would change hands , this would wipe the personal grntee out and leave it worthless

You are saying a sole trader buys an asset gives a personal guarantee on the loan. Then sells the asset.

leitrim lad wrote: »

o yes it would , as you wouldnt own the debt anymore ,the new company would,

A personal guarantee on a loan has nothing to do with owning the asset or getting the actual cash from the loan.
Even if you dispose of the asset your personal guarantee still stands for the loan.
The only way to get out of a personal guarantee is to pay the loan back or ask the bank to let you off

leitrim lad wrote: »

but do please feel free to elaborate, and tell me im wrong because i am on the war path today and im in the mood to give someone a good ****ing

I am right and you are wrong, try and reply is a sensible manner with clear points not just wild inaccurate claims.


Explain this waffle while you're at it

leitrim lad wrote: »

you can indeed change, all liabilities from a sole trader to a ltd company , using one of many loopholes in the companies act under company law ,but i would probably get prosocuted for posting it ,as it would sound like fraud, but its perfectly legal,

Why would you get prosecuted for posting something that is perfectly legal ?

leitrim lad

your missinmg the point
a sole trader bought the asset and borrowed to buy, and gave a personal grntee

then set up a ltd company, the new company buys the asset and the soletrader loans the company the money to buy the asset, however no money changes hands, but the origional contract is now void, so the new ltd company takes out a new contract with the bank to transfer ownership of the asset, leaving the soletrader ion the clear,

therefore the bank has no claim over the soletrader leaving the company with all liability, and if the company defaults its the companies and the banks problem not the individual, as the whole point in a ltd company is to protect its directors, as a company is the same as a seperate person.

i dont know where your going wrong ,because it saved me a number of times from going down

patftrears

leitrim lad wrote: »

your missinmg the point
a sole trader bought the asset and borrowed to buy, and gave a personal grntee

then set up a ltd company, the new company buys the asset and the soletrader loans the company the money to buy the asset, however no money changes hands, but the origional contract is now void, so the new ltd company takes out a new contract with the bank to transfer ownership of the asset, leaving the soletrader ion the clear,

therefore the bank has no claim over the soletrader leaving the company with all liability, and if the company defaults its the companies and the banks problem not the individual, as the whole point in a ltd company is to protect its directors, as a company is the same as a seperate person.

i dont know where your going wrong ,because it saved me a number of times from going down

So was the loan owed by the sole trader repaid when the company bought the asset off the sole trader ?

leitrim lad

patftrears wrote: »

So was the loan owed by the sole trader repaid when the company bought the asset off the sole trader ?

it wasnt repaid on the spot it was restructured into the ltd company , so the soletrader was left clean, and the company was operated shrudely enough as for not to give a personal grntee, but this was in good times , as you know times have changed , it is possible to do ,but i may be harder now

patftrears

leitrim lad wrote: »

it wasnt repaid on the spot it was restructured into the ltd company , so the soletrader was left clean, and the company was operated shrudely enough as for not to give a personal grntee, but this was in good times , as you know times have changed , it is possible to do ,but i may be harder now

This did not wipe out the person guarantee and leave it worthless.
The only way this would have worked is if the bank agreed to release the personal guarantee.
They didn't have to and there was no way to make them if they didn't want to, you changed your story.

Lplated

There are two ways to lift a personal guarantee - the first is to repay the loan in full. The second is by agreement with the lender.

In the type of case that LeitremLad is talking about, the bank/lender would have to agree with the guarantee being transferred from the sole trader to the Co.

An alternative approach that might work would be that having set up the company, seek a loan from a different institution to pay back the original one (and thus cancel the original personal guarantee). This will only work if the new institution will give the loan without such a guarantee.