October 29th, 2012 / Insight posted in

Cost of premises will ruin us

JP writes: Having lost business, our rented premises are now far bigger than we require. We can afford the rent for only another quarter but have three years left on the lease. What are our options?

This is a common problem in today’s economic climate, writes Ian Robert, corporate recovery partner at Kingston Smith LLP. If you go on as you are, the company will be forced into an insolvent position and this may cause problems for directors who “knew, or should have known” the company had no real prospect of avoiding insolvent liquidation.

If the directors do not take action to prevent further losses, a liquidator could claim these extra losses from the directors personally.

You could try to negotiate the formal surrender of your lease so that the company can walk away. Alternatively, you could consider approaching your landlord to negotiate better terms that the company can afford, or sublet space with your landlord’s consent. If all this fails, you should contact an insolvency practitioner for advice.

Although there may be a number of options available to you, the most likely outcome will be to liquidate the company, because this will mitigate any personal liability that would arise should you continue to trade an unviable business and worsen the plight of your creditors. Of course, this will allow the landlord to forfeit and will, in effect, cause the business to close.

Other options such as administration and company voluntary arrangement should be discussed with an insolvency practitioner. They could allow you to go on trading while a longer-term solution is sought.