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Insolvency Litigation Solicitors to help with your Insolvency Litigation problems
Our Insolvency Litigation Solicitors act both for and against Insolvency Practitioners. We believe that gives us a competitive edge. We know what the opponent wants and how best to achieve desired outcomes for our clients.
Our Insolvency Litigation Specialists reduced an insolvency claim for an overdrawn director's loan account, by c.£120,000. Our client was overjoyed. A massive weight was lifted from his, and his family's, shoulders.
This testimonial is from a client who was in a commercial dispute with his former business partners. He instructed our commercial litigation specialists to act for him as despite retaining a shareholding, he was being excluded from any involvement in the company. We secured a settlement of £400,000 for him, plus costs.
We have been shortlisted for the Birmingham Law Society’s prestigious Law Firm of the Year Award for 2019 (up to 5 partners).
This is our 4th short-listing, all in a row, for the same award, having been the winners in 2016; an achievement we are really proud of.
If you are faced with any of the claims relating to insolvency litigation as detailed below, call us now on (0121) 200 7040 for a FREE initial discussion on the phone or over a coffee with our experienced solicitors, or contact us online.
We advise on the following areas (click on a section below to expand it):
Breach of Fiduciary Duties/Misfeasance Claims
Transactions at an Undervalue
Wrongful Trading and Fraudulent Trading
The Court’s discretion may be exercised at any time. However, any decision to annul must achieve a just and proportionate result as the making of a bankruptcy order is a class remedy, intended to be for the benefit of all creditors of the debtor.
In the recent case of Taylor v The Macdonald Partnership and others  EWCA Civ 921, the Court of Appeal refused permission for the debtor to bring a second appeal against an order dismissing her application to annul a bankruptcy order made against her.
The Court of Appeal stated the debtor’s appeal did not raise an important point of principle or practice or offer any other compelling reason to hear it. As such it also dismissed the debtor’s other various applications for orders including disclosure, an account or enquiry and an extension of time for filing her notice of appeal.
The decision of the Court of Appeal highlights the importance and need for any debtor who is considering making an application to annual, to act quickly and promptly. There is presently no limitation period of when an annulment application should be brought. However, this recent case clearly demonstrates that the older the bankruptcy order, the less likely the Court is to grant an order to annul it.
Once a bankruptcy order is made by the Court the order must be advertised by the Official Receiver in the Gazette (an official publication which contains legal notices). Advertisement of the bankruptcy order can be prevented, but the debtor must act promptly and without delay in notifying the Court and filing an application for annulment.
Once an individual is made bankrupt, he or she is subject to various restraints and obligations, the breach of which may lead to criminal sanctions. Some of these obligations and restraints are as follows:
• To give the Official Receiver details of your finances, assets and creditors.
• To look after assets and hand them over to the Official Receiver with the relevant paperwork, such as bank statements and insurance policies.
• Tell the trustee (either the Official Receiver or Insolvency Practitioner) about any new assets or income during your bankruptcy.
• Stop using credit cards and bank or building society accounts.
• Not obtain credit over £500 without telling the creditor that you’re bankrupt.
• Not make payments direct to your bankruptcy creditors (there are exceptions to this, such as mortgage arrears and outstanding child support payments).
• Not become a director of a limited company.
The above is not an exhaustive list and there are other restrictions a bankrupt is subject to, once made bankrupt and prior to any annulment application being granted.
If you have recently been made bankrupt the earlier you get in touch with us the better and the more likely an annulment application will be successful. Please call us today on 0121 200 7040, or contact us for a no obligation/no pressure chat.
The Matrimonial Home
To do so is not without risk because if the company goes into liquidation or administration, its Insolvency Practitioner may be entitled to ask for the money back. The key areas are:
The Risks of Paying Illegal Dividends. Most owners of small limited company businesses are doing all they can to save money right now. Many do so by taking the bulk of their drawings from their company by way of a dividend rather than remuneration through the PAYE system. They do this because it saves national insurance. However, this is not without risk because unless they follow all the procedures for legally doing so (and most owners have no idea what the procedures are!), if the company later goes into liquidation or administration its insolvency practitioner will simply ask for the money back.
In broad terms, as the dividend payments are made an overdrawn director’s loan account is created (an amount the business owner owes to the company). However as the credit entry writing this off either is invalid, because the procedures to validate it have not been followed properly, or the entries have not been made (for example with late dividend payments), the debtor balance is repayable. And there is no margin for error, mistake or omission in the procedures – you either get them right or not.
Let’s go back to a few basic principles arising from the statute and case law on this subject:
- The law requires that all administrators and liquidators investigate companies over which they are appointed. One of the purposes of that investigation is to ascertain whether monies could be recovered for the benefit of creditors. The insolvency practitioners’ prime duties are owed to the creditors, not to you the director/shareholder of the company. One source of potential recovery of assets is from you, if you have taken illegal dividends.
- Dividends can only be paid out of distributable profits. In broad terms this is the balance shown on the company’s balance sheet for its ‘profit and loss account’ – the total profits (less losses) you have made over time but not paid out. If the company does not have a positive profit and loss balance, then you cannot legally pay yourself a dividend. If you do so, the liquidator or administrator will ask you for the money back because all you have done is create an overdrawn director’s loan account.
- Assuming your company has ‘distributable profits’, you still have to go through several legal hoops, and at the appropriate time, to be able to safely draw dividends from them. You cannot go through these hoops later on, after the company has gone into insolvency as one accountant recently tried on a case I am dealing with – again you will be asked for the money back. Insolvency practitioners see many cases where the paperwork doesn’t exist because the paperwork has been left for the accountant to sort out when he prepares the annual accounts. Often the company goes into liquidation before the paperwork is prepared.
- Accounts have to be drawn up on a proper basis proving that the company has sufficient distributable profits to pay the dividends – these can either be the previous year’s filed accounts or more recent management accounts but either way, they have to be drawn up using proper accounting principles – a ‘back of a fag packet’ exercise will simply not do.
- Having demonstrated the company has sufficient distributable reserves to pay the dividends, you then have to hold a meeting of the members authorising its declaration and payment. This meeting has to be properly recorded, even if you are the sole shareholder! If it is not properly recorded, any dividends you have taken will be illegal and repayable.
- Those minutes have to show that you have properly considered the effect of the dividend on the future viability of the company. If the dividend leaves the company in a weakened financial position, prone to collapse, it can be upset by the insolvency practitioner: you could see yourself sued for misfeasance (the courts have held that the taking of excessive dividends gives rise to an action for misfeasance) and you could also be banned as a director. This is because the reasonableness of your actions will be assessed by both the insolvency practitioner and BERR, and if you have not done as the man on the Clapham omnibus would have done under the circumstances, if your actions have exposed the company’s creditors, you will be held accountable.
In conclusion, there are real drawbacks to taking dividends from a weakened company. Most small business owners simply go into these things blind, thinking that they can what monies they like from their company how and when they want and somehow backfill later, deferring the paperwork to their accountant. To do so is very risky indeed. To reduce the risks of personal attack from an insolvency practitioner or the Revenue, all the right procedures have to be gone through at the right time, and that costs money, eliminating some of the savings made.
On a practical level an insolvency practitioner will not query your reasonable remuneration passing through the PAYE system but he will look to you to repay even small amounts of dividends paid illegally. And he will always report illegal dividends to the DTI, who could ban you from being a director. And he could sue you for misfeasance. But it’s even worse than that! HM Revenue & Customs could also ask you to personally pay the tax on the money you have taken from the company – they can treat the money paid to you as net remuneration and gross it up.
If you go to an accountant on the basis of expense in an attempt to save money, and as a consequence you do not work closely with him/her and fail to do all the right things at the right time to record and justify any dividends you take, you are risking yourself unnecessarily. It’s far better for you to merely pass your drawings through the PAYE system and pay over the tax. This is yet another instance where scrimping on professional support or picking the wrong accountant can cost you very dear indeed.
If you are faced with any of the issues relating to the payment of illegal dividends as detailed above, call us now on (0121) 200 7040, or contact us online, for a free initial consultation with our experienced solicitors.
Prohibited Name Issues – Reuse of a company name after liquidation
The restriction will also apply to companies which have been wound up and placed in liquidation as an exit route from administration. Click here for a legal summary of the complicated issues around prohibited names. (goes to a new page).
Prohibited Name Issues – A legal summary. A prohibited name is one by which the liquidated company was known or which the company used as a trading name at any time in the 12 months immediately before liquidation. A name which is similar to the prohibited name will also be caught by this provision.
The restriction applies to any person who was or acted as a director at any time during the 12 months immediately before the winding-up. For five years from the date of liquidation that person is not permitted to be a director or take part in the promotion, formation, or management of a company using a prohibited name. The prohibition extends to the reuse of the prohibited name by a business partnership or a sole trader.
Penalties. It is a criminal offence to contravene section 216. The penalties are a possible fine or even a term of imprisonment. Furthermore a director who trades using a prohibited name may be personally liable for the debts incurred by the successor company. It is also an offence to assist somebody in managing a business which trades under a prohibited name.
The exceptions. There are three exceptions:
- Where substantially all the assets of the business are sold by an insolvency practitioner, for example, a Liquidator or an Administrator and the purchasing company gives notice in a specified form to all the creditors of the insolvent company. This procedure is complex with many pitfalls and legal advice should be taken and is unlikely to be applicable to a company which goes into liquidation without previously being in administration.
- Where the Court grants permission for the director to reuse the name. This application should be made within seven days of the date of liquidation, although in certain circumstances it can be made at a later date. Legal advice must be taken before making such an application.
- Where a person is a director of another company that has already used a prohibited name continuously for twelve months up to the date of liquidation provided that the company has not been dormant.
This information on this page regarding insolvency litigation, contains summaries of complicated issues and should not be relied upon in relation to specific matters. Contact us for help and advice.
You are advised to take legal advice on particular problems and we would be happy to assist. Please contact us for a FREE initial consultation.
10 Reasons to talk to us if you are threatened with a Misfeasance Claim
If you are a director or a shareholder and you are threatened with a Misfeasance Claim or Director Disqualification, we advise you to take professional advice, quickly. Our specialist solicitors have a strong record of success in these areas. Click here to see 10 reasons why you should consider using us to defend you against a Misfeasance Claim or Director Disqualification.