Many construction companies fail not due to poor management, but because a single major contract is lost. Chris Worden shares a real-life case study of a construction business facing insolvency, highlighting the importance of early advice and understanding director's loan accounts.
- Loss of a major contract can quickly lead to insolvency.
- HMRC debts and overdrawn director's loan accounts are critical risks.
- Early, honest advice is vital for directors.
- Pre-pack liquidation can offer a controlled outcome.
- Personal exposure can be managed with the right approach.
Case Study Overview
The featured construction company lost a key contract overnight, leaving them with £700,000 owed to HMRC and £500,000 to suppliers. Both directors also had overdrawn loan accounts. Despite decades of trading, the business could not recover through trading alone.
Debt Breakdown
- HMRC: £700,000
- Suppliers & Subcontractors: £500,000
- Overdrawn Director's Loan Accounts: £50,000 each
Why Early Advice Matters
Chris Worden explains that panic decisions often worsen directors' personal situations. Many advisors overlook overdrawn director's loan accounts, which do not disappear in liquidation and can follow directors for years.
Pre-Pack Liquidation Process
- Independent valuation of business assets.
- New company set up with a different name (avoiding Section 216 issues).
- Clients and suppliers informed honestly.
- Assets sold to the new company at market value (£45,000 over six months).
- Director's loan accounts settled at a reduced amount (£15,000 each).
Director's Loan Accounts: The Hidden Risk
Overdrawn director's loan accounts are personal liabilities. Only a licensed insolvency practitioner can agree a settlement, but early disclosure and advice can help directors avoid walking in blind.
Key Takeaways
- Losing a major contract can destroy even established businesses.
- Director's loan accounts are not harmless—seek advice early.
- Pre-pack liquidation can offer a controlled, legal outcome.
- Early action and full disclosure improve personal outcomes for directors.
- Chris Worden and Director First provide honest, independent advice.
Frequently Asked Questions
- What is a pre-pack liquidation?
- A pre-pack liquidation is when a company's assets are sold to a new company, often run by the same directors, immediately after insolvency is declared.
- Do director's loan accounts disappear in liquidation?
- No, overdrawn director's loan accounts become personal liabilities and can be pursued by the insolvency practitioner.
- How can directors reduce personal exposure?
- Early advice, full disclosure, and negotiating settlements with the insolvency practitioner can help reduce personal exposure.
- What happens if HMRC is owed money?
- HMRC will be a major creditor in the insolvency process and may force action if directors delay seeking help.
- Can I use the same company name after liquidation?
- Generally, no. Section 216 prohibits using the same or similar name for three years unless specific conditions are met.
Need Help?
If you’re facing similar issues or want advice on pre-pack liquidation, contact us today for a confidential chat.
