Claims and dissolving companies
Discussion
If I start the legal process of a claim (as a private individual) through my solicitor against a business that currently has significant assets and owes me a lot of money, can the director of that business simply wind up the company and move assets to a new co without having to deal with the claim? Is there any mechanism whereby one cannot dissolve a company if a claim has been raised against it? Or is there a mechanism that would make it illegal to do so. I notice that with BBLs people have been convicted for not informing creditors when dissolving a business, is there anything that applies here or am I (likely) pissing in the wind?
Yes thanks for the replies panamax.
Could the director, for example, liquidate all the assets and declare a dividend, take the cash, and then wind up the business?
I think what I'm trying to get to is when does a claim that is in progress become a liability that needs to be settled if the company is wound up.
Could the director, for example, liquidate all the assets and declare a dividend, take the cash, and then wind up the business?
I think what I'm trying to get to is when does a claim that is in progress become a liability that needs to be settled if the company is wound up.
Panamax said:
No, not without breaking the law and becoming personally liable for the company's debts. Also risking being banned as a director.
Generally speaking a company is only allowed to dividend out its "distributable profits". The capital of the company (the amount paid in to buy its shares) must stay in the company.
HOWEVER, if the company has, say, share capital of £100 and distributable profits of £1m it can pay out the £1m just leaving £100 in the company, which would be no use to you at all.
So the next question is "how are distributable reserves calculated if there's significant litigation in progress?" That is, indeed, the question. You can't just issue a writ against the company for £1m and assume that will lock everything solid. The directors and/or advisers and auditors of the company can form a view as to the likely outcome of the litigation (i.e. the liability) and set aside appropriate cash to deal with it. Other cash (distributable reserves, not capital) could still be paid out as dividend.
Thank you. That is what I was hoping is the case. So I need to keep my eyes peeled for any notice to dissolve the business should they go that way, and notify whoever is dealing with it that we are in the process of a claim (which by that point we will know the value of the claim).Generally speaking a company is only allowed to dividend out its "distributable profits". The capital of the company (the amount paid in to buy its shares) must stay in the company.
HOWEVER, if the company has, say, share capital of £100 and distributable profits of £1m it can pay out the £1m just leaving £100 in the company, which would be no use to you at all.
So the next question is "how are distributable reserves calculated if there's significant litigation in progress?" That is, indeed, the question. You can't just issue a writ against the company for £1m and assume that will lock everything solid. The directors and/or advisers and auditors of the company can form a view as to the likely outcome of the litigation (i.e. the liability) and set aside appropriate cash to deal with it. Other cash (distributable reserves, not capital) could still be paid out as dividend.
Panamax said:
M1AGM said:
So I need to keep my eyes peeled for any notice to dissolve the business should they go that way, and notify whoever is dealing with it that we are in the process of a claim (which by that point we will know the value of the claim).
Frankly I'd get proceedings issued asap, either for simple recovery of the debt or for winding-up. Very often these things are coloured by the "hope" of future business. That's the big bridge you need to either cross or swerve away from.Gassing Station | Business | Top of Page | What's New | My Stuff