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Anglo-Spanish Chartered Accountants

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Archive for May, 2010

I want to go home!

This is the thought that has been on many expats minds in recent times. Many people have actually gathered their families and moved on, others however are still trying to make their living in the sun dream a permanent reality.

There is no point pretending that the last two years have not been challenging for many businesses here on the coast. Some have seen their long established businesses go under in a matter of months; others have seen their dreams of success with a new venture shattered by the harsh conditions and the volatility of demand in their product or service.

I started my own business three years ago, and although we have been fortunate and have built a successful accountancy practice with an excellent team of professionals and clients, the ride has been anything but easy. I have learnt a lot from the experience and I take every opportunity to share that knowledge with other people in business here in Spain in the hope that they will have better chances of success.

If your business is at the stage where you wonder whether you will still be open in another few months or even weeks, perhaps you would like to consider some points carefully:

* Lifespan of debts
* International cooperation
* Personal guarantees
* Continuation of business
* Pro-act, don’t react

If you are just about to start in business or are already on the way, perhaps you should also consider all these issues carefully as prevention is always better than cure and many problems commonly faced by businesses can be mitigated if not avoided altogether.

Many people make decisions based on hear say that unfortunately doesn’t always turn out to be true.

Lifespan of debts

There is a misconception out there that debts expire after a while. You must be careful with this assumption. It is true that when it comes to potential liabilities with the tax office, if they do not start an inspection process within 4 years, then the period is deemed outdated and hence no new liabilities can result from challenges or enquiries. However, it is quite common for tax enquiries to commence just before this 4 year period is up and the mere commencement of the enquiry process will make the financial period and therefore the potential liabilities current and open potentially indefinitely.

Generally you must assume that anything you or your company owe, will continue to be a debt subject to collection by your creditors. If you close down your business owing money to the tax or social security office the chances are that at some point in time, perhaps even many years, this debt will be collected by the authorities by either freezing your assets or taking funds directly from your bank account. These debts don’t just go away and the longer you ignore the problem, the more expensive it will be to settle the debt.

International cooperation

As Europe becomes smaller with harmonized rules and close connections between member countries, the ease with which the tax authorities can pursue debts in other countries is becoming more evident. It is now quite common for the tax authorities to assist each other in the collection of debts, so don’t think that just because you are leaving for another country that any debts will stay in Spain, and just because you don’t intend to come back they will eventually be forgotten.

Personal guarantees

Another common mistake people make is that they believe that when they trade through a limited company any debts will belong to the company and not the shareholder or director. This is a bitter lesson to learn in you have to wait until you become personally responsible for your company’s obligations. Companies afford you a little protection. However, in practice the “veil of responsibility” can be lifted and therefore the director becomes personally liable if the director fails to meet his responsibilities within that role.

It is also common for banks, when they give a loan to a company to include a personal guarantee from the director within the deed. Read the small print and don’t just assume that your bank manager will tell you if that guarantee is indeed being applied!

Continuation of business

If you are advised that one potential option is to close down, and to open up a new company, beware. This option is at the very least dubious practice, potentially dangerous, and in reality may not actually afford you any protection against the debts of the previous company.

This practice was very common in the past, and although it will buy you time it will not provide you with a long term solution to your problems.

You should also bear this in mind if you are acquiring or investing into a business in trouble. You should take the necessary precautions to ensure that you do not inherit someone else’s debts when you take over the business.

Pro-act, don’t re-act

Unfortunately, too many people bury their heads in the sand when the initial signs of trouble appear. This leads to debts spiraling out of control before the decision to either sell or close is made, hence leaving the entrepreneur in a very vulnerable position.

You should tackle signs of trouble head on at the early stages as if you do this, even if you are unable to turn the business around, you will be more likely to walk away without worrying about your future.

Having access to quality professional advice should help you manage your situation whatever the stage of your business, don’t make the mistake of ignoring warning signs or simply walking away from a difficult situation in the hope that the debts will just be forgotten.

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