Our Expert, Peter Blair from Begbies Traynor insolvency practitioners, answers your questions about insolvency.

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Question:

We have a subcontractor that has now gone into liquidation but they have failed to complete the project which we tasked them with.  Can we put ourselves on the list of creditors, as it's a reasonable amount of money, and if so how do we go about doing it?

Peter Blair replies:

This business has the rights to assess what damage has been done as a result of the Liquidation.  This needs to be documented using either physical evidence, such as invoices received as a result, or correspondence from customers saying why they are not paying an amount, and/or “estimated” costs (although these would need to be evidenced later or be clearly demonstrable).

The liquidator needs to be contacted to ask for a claim form.  You can do this over the phone and give reasons why you think you are a creditor; otherwise you can send a written request including evidence/schedules prepared as above.

The liquidator should be asked to send copies of all correspondence previously sent to other known creditors such as notice of the meeting and any reports sent afterwards re. the outcome.  This should provide an indication of the likelihood of you, as a potential unsecured creditor, being paid any dividend.

The liquidator may accept your claim or raise questions.  It is up to you and them to reach a fair level of claim.

Unfortunately, if it is clear that any payback is unlikely, the liquidator may just log your interest in case something miraculous happens, but at least you are on the list.

Hopefully this helps, but if there is any unfair resistance encountered, please do not hesitate to contact me for guidance.

Question:

My company has run into financial trouble and I just want to know if I can always avoid personal liability for the company’s debts?

Peter Blair replies:

If you are a director of a company with fully paid-up shares you should be able to avoid most personal liability.  Some personal liability can be created if you are forced to give personal guarantees to funders or suppliers, or a surety to cover any shortcomings to a landlord. 

Directors post-liquidation may be found personally liable if they are guilty of wrongful trading, i.e. after they knew or ought to have known that the company could not avoid liability. 

If a company is in an insolvent position but believes it can trade out, this belief must be demonstrable with cash-flows and profit forecasts, and closely monitored, to ensure and show that losses have been stemmed.  It must also show that it has not made any one creditor worse without very good reason and some use cash-on-delivery or paying off as much old debt from a supplier as the new purchases that they are making. 

It can be difficult, but if the rescue plans fail, you can show to any creditor or subsequent liquidator that you were not to worsening the situation and try to avoid personal liability challenges against executive and non-executive directors. 

To get detailed advice, a free initial visit to an Insolvency Practitioner will provide the tailored guidance needed.

Question:

Recently my business lost a major contract which will lead to the company moving into a loss making situation.  What action should I take if the losses are untenable?

Peter Blair replies:

If the company cannot replace sales, costs need to be cut to match and attempt to return the company to break-even.  Employee liabilities due to redundancy can place a potentially terminal cash pressure, but the Redundancy Payment office can offer some delayed repayment schemes.  Also, scaling down property costs where capacity is not required is not easy and can be costly and time consuming. 

If the books cannot be rebalanced quickly, the directors could be risking wrongful trading, discussed above.  Unless the business can be re-financed or an investor found, cessation of trade may need to be considered. 

Every case is different and before any action is taken, it would be worthwhile contacting your accountant and contemplate a visit for a free consultation with an Insolvency Practitioner.

Question:

Can I just close my company one day and open up the next day as a different company?

Peter Blair replies:

Anybody can, but the old company needs to be dealt with properly.  If it goes into liquidation, there are serious restrictions on re-use of company names.  A director may have a black mark against various records and find it hard to refinance new co or obtain supplies.  TUPE re employees may be an issue. 

Therefore, before ditching a company, all positive solutions need to be explored and full consequences understood (including guaranteed liabilities that may crystallise.  Again, advisors and an Insolvency Practitioner can help – do not make a rash decision on your own. 

If the business is a sole trader or partnership, you cannot leave liabilities behind – they will follow you.  Other personal insolvency vehicles may need to be considered.

Please note: the answers given above are general advice based on the questions.  They should not be taken as detailed advice or as a recommendation to pursue any particular course of action - Begbies Traynor would need to review the specific circumstances to provide such advice/recommendation.

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