A friend in need

[frednick]

Hi,
This post is on behalf of a friend, naturally........
He's in a spot of bother. To cut a long story short, he's been running a successfull business (ltd company) in retail for the last 6 years, recent slumps in profit due to some bad business decisions and the credit crunch have resulted in a situation which shows his stock levels drastically reduced and his current assets & stock wont really cover his debts to suppliers.
What he wants to do of course is just sell his stock, take the money from the bank and go bust.
Obviosuly I have advised him that this sounds risky so I thought I would post the question here. If he does that what would happen? The sum involved would be in the region of £100k
Thanks

[Ian J]

The worst case scenario is that he could be prosecuted for fraudulent preference. There are strict rules in place that govern the distribution of monies once the directors believe the company to be insolvent and any future liquidator is likely to look closely at payments and withdrawals to ensure that no preference has taken place.

[frednick]

Thanks Ian,
If he can show that he had input a lot of his own money would that make any difference?
Also, how deeply do these guys investigate? Do they just start sniffing around if it's blatantly obvious that he's take a preference.
Cheers.

[Ian J]

His own money ranks as an unsecured creditor exactly the same as a trade creditor and he shouldn't pay himself at their expence.

The liquidators will have a deeeper look if they find evidence that fraudulaent preference has taken place but often they are instructed to look deeper by creditors who may suspect something.

[frednick]

Thanks,
I'll pass it on. What is the punishment if he goes ahead anyway?
Thanks you.

[Ian J]

I'm afraid that I don't know the answer to that one.