Customer in Administration

[jardinec]

Hi,

I recieved a letter today from PWC to say that one of our customers has gone into administration.

They do not owe us any money, however they did send us a cheque last week which was credited to our account on the 20th.

Can this cheque still bounce and the funds be removed from our account?

Thanks

[AndyAudi]

Yes, I'm afraid it can & most likely will given the the time scales you have stated.

[jardinec]

not the answer i was wanting, but kind of what i was expecting...

left a message with the administrator to call me back.

[AndyAudi]

My reasoning was if you banked it on the Thurs 20th giving three days to clear i'd guess it'd be trying to come out of your customers account yesterday. If you received the letter from PWC today your customer would've been in administration at least yesterday.

Only glimmer of hope may be if you banked with the same bank and branch as these often clear same day.

[LivinLaVidaLotus]

Doesn't mean it's cleared properly though, even after 3 days, money can show in your account and then be taken back out because it hasn't properly cleared, only on an "honesty" basis.

[jardinec]

yeah, I figured it was like that scam where the buyer pays too much for something by cheque - then weeks later it bounces.

Fingers Crossed, £3.5k is a lot to our business right now

[Piglet]

Hmmm just thinking, if the company made a decision to make the payment and wrote the cheque before going into administration then (assuming there is money in the account) then I wonder if you have grounds to argue that the cheque should be honoured as it was pre the administration?

If they are only in administration then there might well still be money in the account.

Do you know if it was voluntary administration?

[rpguk]

If your account was credited on the 20th I presume that you paid the cheque in a few days earlier?

As I understand it, when the cheque is paid in the banks might 'loan' you it's value for the first few days but after 5 days in most cases the money has been removed from the other parties account and the money is pretty safe, unless fraud is suspected (as per the car sale horror stories)

If the money left the clients account before the company went into administration (i.e the time between you paying in the cheque and the PWC coming in is more then 5 days) then I'd say you'll be OK.

[jardinec]

Just a quick update, I have spoken to a few people today, and here is what they say:

My Accountant: call the bank, but she thinks it can still be taken back for a few days

Bank Business Manager: Hmmm, its there now, but you cant be sure until 5 working days after payment

The Adminstrator: Hmmm, they did pay a few bill before calling us, might be ok / might not - wait and see if it clears...and don't file as a creditor until you know for sure.

So a resounding 'wait and see' from all concerned. It was voluntary liquidation btw, and they are looking for a buyer

Update to follow on Friday

[Piglet]

I think it sounds hopeful. If it was a legitimate decision of the Company prior to them making the decision to go into Administration I'm not sure that the Administrator can stop it (assuming the funds are there and given this was voluntary there might well have been a credit line still in place).

[mogul]

Don't wish to put the cat amongst the pigeons but a bank can bounce a cheque and recall funds paid some months after it has been presented and cleared.

I'm not sure of the exact timescale but 6 months springs to mind.

[rpguk]

mogul said:

Don't wish to put the cat amongst the pigeons but a bank can bounce a cheque and recall funds paid some months after it has been presented and cleared.

I'm not sure of the exact timescale but 6 months springs to mind.

But surely only in the case of fraudulent activity? They won't go pulling money out of customers accounts left right and centre just because the administrators ask and the administrators won't ask for money back which has been sucessfully paid out before they were on the scene.

[mogul]

rpguk said:

mogul said:

Don't wish to put the cat amongst the pigeons but a bank can bounce a cheque and recall funds paid some months after it has been presented and cleared.

I'm not sure of the exact timescale but 6 months springs to mind.

But surely only in the case of fraudulent activity? They won't go pulling money out of customers accounts left right and centre just because the administrators ask and the administrators won't ask for money back which has been sucessfully paid out before they were on the scene.

I hear what you say and have to agree. It's unlikely if there are funds in an account and a cheque clears the said cheque will bounce some months later and funds be called back to the issuing bank.

My post was written from memory of a conversation some time ago with a friend about a bank who honoured a cheque but subsequently bounced the cheque some months later. I was astonished to say the least!

I have searched today since my post through APACS and various other websites to confirm either way but I can't find anything other than the current clearing times for cheques which are referred to as 2, 4 6 (which refers of amounts of days to currently clear a cheque)....

I don't think it will be a problem here but it has happened (if only for my own peace of mind I could confirm or deny it!)

Sorry to have caused any confusion!

[2 sMoKiN bArReLs]

I once had to send a cheque (after a bit of a scrap) to an administrator to cover a cheque that we had banked & had cleared. Apparently it was paid to us under duress () and as such was deemed to be paid in preference to others unlawfully.

[rpguk]

2 sMoKiN bArReLs said:

I once had to send a cheque (after a bit of a scrap) to an administrator to cover a cheque that we had banked & had cleared. Apparently it was paid to us under duress () and as such was deemed to be paid in preference to others unlawfully.

I think I get the picture

Seriously though, what did they deem under duress? Was the cheque paid before the administrators were called in?

By the way I'd like to use this opportunity to express my hatred of the Administrators and their robbing ways.

[2 sMoKiN bArReLs]

rpguk said:

2 sMoKiN bArReLs said:

I once had to send a cheque (after a bit of a scrap) to an administrator to cover a cheque that we had banked & had cleared. Apparently it was paid to us under duress () and as such was deemed to be paid in preference to others unlawfully.

I think I get the picture

Seriously though, what did they deem under duress? Was the cheque paid before the administrators were called in?

By the way I'd like to use this opportunity to express my hatred of the Administrators and their robbing ways.

I am not at liberty to answer any of the above, to ensure that I do remain at liberty

[kiwisr]

Probably unlikely, but I believe the administrators could ask for that money back if they wanted. If the firm was trading as insolvent and paid you, then they have given preference to a creditor. I think they can go back 6 years.

[Piglet]

A company that has gone into voluntary administration is not necessarily technically (or even actually) insolvent.

The rules (AFAIK) are different for Administration and Receivership.

Any news from the OP?

[sleepezy]

Piglet - I think your confusing a members volutary liquidation with an adminstration. The Directors can voluntarily appoint an administrator under the enterprise act, but this is invariably due to the business becoming insolvent. In an MVL the business has to be solvent, and the Directors testify to that fact, and therefore pays all its creditors in full. There is no such requirement in an adminsitration. (you may even be confusing a creditors voluntary administration with Admninistration but your comments on solvency have lead me to think you're referring to an MVL)

2SB - presuming your actions weren't illegal you must have been deemed to be a related party, otherwise they would have had to go to court to prove a preferance... no need to comment !

The adminstrator has a duty to protect the interests of the creditor body as a whole including recovery of assets. However in this case it would be the Bank of the insolvent comany who would cancel the transaction. In doing so they would reduce their exposure. There is (quite rightly) little an Administrator can do to unwind a commercial transaction undertaken at arms length.

Kiwisr - the treatment of the payment will depend on whether the parties are related or not - the burded of proof and timescales involved vary between related/unrelated party transactions.

[Piglet]

sleepezy said:

Piglet - I think your confusing a members volutary liquidation with an adminstration. The Directors can voluntarily appoint an administrator under the enterprise act, but this is invariably due to the business becoming insolvent. In an MVL the business has to be solvent, and the Directors testify to that fact, and therefore pays all its creditors in full. There is no such requirement in an adminsitration. (you may even be confusing a creditors voluntary administration with Admninistration but your comments on solvency have lead me to think you're referring to an MVL)

Nope I'm referring to administration and suggesting that their may well be situations where businesses choose administration even though not technically insolvent.

As I've said previously it's not my area of law so my terminology may not be entirely on the ball.

Edited to add - Sleepezy, what is your advice on the OP's situation?

Edited by Piglet on Saturday 29th September 21:38