Getting Money Back

Unfortunately, this is a question I have been asked quite frequently recently.

When a company goes into liquidation, an insolvency practitioner will be appointed to gather in all the assets of the company and try to distribute them to pay off the debts of the company. Secured creditors such as banks will seize the assets they have a charge over such as any business premises, etc. and try to recover their money from those. Anything left over will go back to the insolvency practitioner (but there is often not enough for this).

Any monies left for unsecured creditors are then placed into a pot to be distributed. Certain debts are paid off first – mainly certain payments to employees and monies owed to occupational pension funds.

Anything that is left is then parcelled out to the remaining creditors in proportion to the amount they are owed. I’m afraid that in practice that means that there is little prospect of getting back more than a few pence in the pound on your debt.

It is possible to pursue directors and shareholders of limited companies personally if they have been trading fraudulently or if they have been trading wrongfully, that is if they knew or should have known that the business could not avoid insolvency and did not take reasonable steps with a view to minimising the loss to creditors.

That sounds fairly straightforward; however, as always it’s not quite that simple. Firstly, the action can only be brought by the liquidator – and he won’t unless he is sure he will succeed and the creditors pay for it. These claims are extremely difficult to succeed in and are very expensive – realistically in the region of £20,000-£30,000 plus VAT. So, unless the debt is very large and the director you’re pursuing is very rich, it’s usually not worth doing. There are potentially criminal proceedings that can be brought against directors but whilst assets of guilty directors can potentially be confiscated, you won’t get to see much, if any, of that.

That means that ideally action needs to be taken before things get that far:

• Make sure you know who you are dealing with – carry out credit checks on the business and its directors. Find out who the shareholders are.

• Get personal guarantees from the directors and/or shareholders– banks do it, why shouldn’t you?

• Make sure you get as much money as possible up front or at least keep the amount you are owed down. Invoice regularly and don’t do any more work or carry out further deliveries until payments are up-to-date.