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Is the Spongebob Plan a Good Idea? Advice From an Insolvency Expert

Back in 2013, a user on the website UK Business Forums wrote a guide on closing a limited company when you can’t afford to pay an insolvency practitioner.

The guide, which later became known as the Spongebob Plan, became tremendously popular on online message boards and is often recommended as an alternative to appointing an insolvency practitioner.

In this article, I’ll look at the Spongebob Plan in more detail and discuss whether or not it’s actually an effective and safe way to close a business.

What is the Spongebob Plan?

The Spongebob Plan is a very simple five-step process designed to close down an insolvent business where it cannot afford the cost of a liquidation.

Here is how it works in practice.

(Note that I’ve removed the original Step 3 — Pursue Debtors and the original step Step 5 — Apply for Strike Off as these only apply to businesses registered in England.)

Step 1 — Cease Trading

Stop trading immediately. Stop taking on new contracts, stop making sales and stop all long-term work.

If you operate from leased premises, vacate immediately and inform the landlord.

The Spongebob Plan recommends moving all stock and assets to a safe location like a self-storage unit. However, if you have stock and assets, you really shouldn’t be following the Plan and ought to appoint a liquidator to safeguard your assets for the benefit of your creditors.

You cannot use stock and assets to pay off some of your creditors and you certainly cannot simply take them and close up shop.

Step 2 — Write to Creditors

The original Spongebob Plan guide provides a basic letter template, which you should personalise and send to your creditors.

It informs your creditors that you are insolvent and do not have the funds to pay your debts. It also tells them that your company will either be struck off by Companies House or wound up by a creditor.

Step 3 — Apply for Strike-Off

Three months after you’ve ceased trading, you can apply to Companies House to have your company struck off the register.

To do this, download and complete form DS01 and send a copy to Companies House and all your creditors. Your creditors will have an opportunity to object to the striking-off.

Read the full article on the 180 Advisory Solutions blog!

[180advisorysolutions-blog]

Britons are loading up their credit cards, taking out large personal loans and diving deep into their saving pots.

New Bank of England data shows personal debt is skyrocketing and has reached a new post-credit crunch high of £192.2bn and is growing a faster each year.

While a sharp increase in credit card usage and personal loans might appear to preface a looming financial disaster (especially considering the role consumer debt played in the infamous collapse of Northern Rock), not everyone agrees.

In this blog, we dig down into consumer debt and discuss whether you should be concerned about our debt-laden financial landscape.