Potentially Insolvent Company

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Scenario :

A company is being extremely slow in paying its debts. We are in the process of issuing a Statutory Demand and then go through the winding up process but there is a rumour that the Directors are trying to extract as much as they can from the Company and then do a runner so that there's nothing left for the Creditors.

is there anything we can do to protect ourselves?

[JoshSm]

Are we talking preemptively? And in a legal sense?

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JoshSm said:

Are we talking preemptively? And in a legal sense?

Yes and yes.

Can we stop the Directors taking all the assets of the Company and doing a runner?

[AB]

If they're removing all the money instead of paying invoices then it'll all come out in the wash when they are hit with insolvency/winding up.

That's not to say that people don't get away with it.

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AB said:

If they're removing all the money instead of paying invoices then it'll all come out in the wash when they are hit with insolvency/winding up.

That's not to say that people don't get away with it.

Therein lies the issue.

So it looks like no way of stopping them from doing this?

[AB]

Well I can't see how you can stop them emptying their bank account into their personal accounts but at some point, whether through their choice or a winding up order etc then an insolvency practitioner will go through their accounts.

I don't have much experience with it to be honest, but do have an interest in the replies to this thread as we have a couple of outstanding invoices to a customer who is claiming they have been scammed and lost money to the point they can't settle and are looking to appoint insolvency practitioners themselves.

I have a sneaky suspicion similar might have happened, whether it's blatant or it's been funnelled out via interconnected companies. What I don't know is how much visibility we'll have on that or how it plays out. Assuming a meeting of creditors will take place and it is all public record when going through an insolvency.

[PoorCarCollector]

I've been through this a number of times and as an insolvency practitioner told me "There's never anything left"

A WUP 'may' force payment, if they are trying to continue to trade, if they are insolvent, it's just more money down the drain, as any money the company has will be absorbed by fees / secured creditors

Unfortunately directors rarely seem to be prosecuted

Edited by PoorCarCollector on Thursday 23 April 22:57

[StevieBee]

If the company owns property, you can place a charging order on it. You need to issue a CCJ first. A charging order doesn't mean that you'll get the money straight away, only when the property is sold which if your prediction of the company's future is correct, may be sooner that it might otherwise. You get the money before the debtor gets theirs which means this is a good way to circumvent the insolvency process and get all that you are owed rather than the usual pennies-in-the-pound, or nothing.

I'm not 100% certain but I believe there is a way, or grounds, whereby you can place a charge on a Director's personal property.

Obviously if there is no property owned, then this isn't an option.

Regarding Directors taking money out of the business... as others have noted, there is nothing you can do now to stop this. However, if the company does indeed go into insolvency, there is a two-year period prior to that in which the Liquidators can investigate whether any of the Directors have made preferential or unjust payments to themselves or others and impart measures to claw that money back.

[sleepezy]

CCJ's are frequently overlooked - they can be a real pain for any medium or large size business as they will tank the credit rating (and the agencies are much quicker now at picking up on them), cheap and easy to do. HCEO's are particularly useful if you can get it escalated that far as they can enforce liens very effectively. Stat Demands (or going straight for a WUP) still have their place but they tend to be a longer winded process.

It's a real shame DBT don't pursue Director's more often - and their propensity to do so is lessening every year. IPs can see, and report on, really poor behaviour but nothing is done about it. DBT is supposed to act 'in the best interests of the public' - i.e. not have to take a commercial view on recoverability - but they rarely do. In 15 years of working in the restructuring industry, and having come across some appalling behaviour, I've only seen two proper actions being taken, both against Directors who committed out and out fraud (one a large fresh air invoicing scam and the other a Ponzi scheme) and even then it was only the Ponzi scheme Director who had saw direct financial consequence (both were banned, I think for seven and 12 years respectively).

I am all for Directors being able to take reasonable steps to keep their business going but frequently see Directors working for their own interests, not the creditors, and there are no real repercussions.