Is the ‘Spongebob’ Dissolution Plan flawed, or is it a fair and straightforward?

Finally, the Insolvency Service has all but admitted that the ‘Spongebob Plan’, conceived on UKBF in 2013, holds up to scrutiny.

In guidance issued this week to UK Business Forums, the government agency’s near-admission is desperately needed in the current economic climate.

Despite expectations that inflation will drop to 2% by April 2024, the UK remains in a cost-of-living crisis. In such an environment, it’s crucial for financially struggling company directors to know that appointing an Insolvency Practitioner, if they cannot afford one, is not legally required.

Unfortunately, the Insolvency Service’s six-part guidance doesn’t make this key fact unequivocally clear.

The Spongebob Plan, a term based on a fourm post by “Spongebob”, proposes that insolvent company directors need not appoint an Insolvency Practitioner (IP) or place their company into voluntary liquidation. The Insolvency Service’s recent guidance, while mentioning ‘legal’ requirements six times, fails to confirm these key principles.

This lack of clarity might contribute to ambiguous advice from some IPs, who may have a vested interest in not fully endorsing the plan. The Spongebob Plan suggests a DIY approach to closing a company for a minimal fee, but IPs point out that this method carries risks, including potential investigations and penalties for directors if not handled correctly. Despite the low cost of the plan, experts recommend seeking professional advice to ensure compliance with legal obligations and to mitigate risks.

However, Lisa Thomas, shares her thoughts with UK Business Forums and cautions that HMRC and banks often object to dissolution if there are outstanding debts or tax returns.

“HMRC and most banks automatically object to dissolution where there are outstanding tax returns and debts. However Companies House will eventually strike the company off for non-filing of statutory returns.

[But] the potential risk for directors is that The Insolvency Service can investigate the company post-dissolution, [And it has] powers to disqualify and/or issue compensation notices against the directors personally if there has been wrongdoing.”

Lisa Thomas, Licensed Insolvency Practitioner, Parker Andrews.

For more on this article please click through to the UK Business Forums