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Just Joined

2 Posts

Posted - 02 December 2019 :  11:15:10  Show Profile  Reply with Quote
Following an isolated tax issue it is looking likely I will be going down the trust deed route - failing that it will be sequestration.
I run a small catering business as a sole trader. I have three staff. Two part time, one full time. I just want to check if there would be any implications for them if I went down either the trust deed or sequestration routes? The business is profitable outside of this isolated tax issue.
Would I be asked to pay anyone off?
How much influence would my trustee have in the day to day running of the business?

I really dont want to impact the lives of my team.

Also, I have a van that is used for the business and is on being paid for on HP. It is solely a business tool and is used by staff on my days off. It has fridges in the back and needs plugged into the mains outside of operating hours.
Would I be allowed to keep my car? - it is used for business as well, trips to cash n carry, getting me to and from work when the van is already in use, as well as SD&P. It is owned outright and only worth about £2k.

These are probably the first of many questions.
Many thanks for any help

TDA (Debt Adviser)
Trust Deed Expert

13192 Posts

Posted - 02 December 2019 :  11:30:02  Show Profile  Reply with Quote
Welcome to the forum FlatBroke.

There are two routes into bankruptcy (sequestration).

One route is to appoint a trustee who will handle this process for you. This will only be possible if you're able to contribute into the bankruptcy on a regular basis (because this is how the trustee gets paid for the work they do). In this scenario you'll be able to discuss and agree, in advance, any implications for your business and assets.

The second route is to submit an application then await for a trustee to get assigned to your case. You won't know whether there will be any consequences for your business and assets until after you've become bankrupt. This obviously introduces a lot of uncertainty.

A trust deed would be similar to appointing your own bankruptcy trustee. There would be discussions in advance about any implications for your business or assets. If you weren't happy about those implications, you could choose not to go ahead.

You should check the hire purchase agreement to make sure the van isn't at risk if you become bankrupt or start a trust deed. Some HP agreements include clauses about bankruptcy or personal insolvency. It's worth bearing in mind that not every finance provider enforces these clauses, even where they do exist.

If you can demonstrate a reasonable need for a vehicle worth £2000, I wouldn't expect it to be at risk.

Can I ask how much you owe to HMRC, and also how much you owe to any other creditors?

How much do you think you might be able to pay towards the debts each month?

Are you a homeowner?

The answers to these questions will help our experts to provide more useful advice and information to you. You are of course very welcome to continue asking any questions that you have as well.

Qualified Debt Adviser & Forum Administrator - Ask me anything about Trust Deeds    
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Just Joined

2 Posts

Posted - 02 December 2019 :  11:54:23  Show Profile  Reply with Quote
Many thanks for the prompt reply.
I owe HMRC £70k.
There is also a personal loan with around £4k outstanding that will unfortunately be dragged in to it.
I could afford to pay around £420 per month.
I am not a home owner but my wife is (she owned it before we even met).

Edited by - FlatBroke on 02 December 2019 12:01:59
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Paul McDougall
Trust Deed Expert

28 Posts

Posted - 02 December 2019 :  13:25:29  Show Profile  Reply with Quote
Generally speaking, trust deeds are unsuitable for sole traders with staff and/or trading premises.

This is because under the Employment Right Act 1996, an insolvency process is seen as a terminal appointment and the staff may be pushed into redundancy. They would be able to claim for redundancy, holiday pay and wages via the Redundancy Payment Service.

A trustee would have to demonstrate the business is profitable and would have to review cash-flow statements on a regular basis and to put in sufficient safeguards to protect themselves as trustee.

There are also other issues to consider as trading losses, public liability and continuing liabilities for HMRC.

If you are seeking pre insolvency advice, you may wish to consider incorporating a limited company and TUPE the staff over. That way, the company would be a separate legal entity and the trustee would be removed from it (apart from shareholding with is conveyed by you as part of the deed).

Under the trust deed you cannot be a director of a limited company unless there is a clause under the Articles of Association to allow you to be a director. This can be achieved by passing a resolution.

If this is the route you wish to consider you should be careful to value the business before it is transferred otherwise that may be challenged under the trust deed or sequestration process.

Under a sequestration process, you would be unable to act as a director without the consent of the court. In my 16 yearsí experience, I have only seen someone apply for this once under a sequestration.

This does however have pitfalls as the trustee under the trust deed would have to ensure the limited company didnít get the business and assets for free. This can be challengeable under the act.

It is a rather complicated case so if you wish to discuss this then please hit the contact me details on the forum.

Recommended Partner & Trust Deed Expert - Ask me for help setting up a Scottish Trust Deed    

Edited by - Paul McDougall on 02 December 2019 13:26:36
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