Problem: After not being paid for electrical work, the company folds
I may have been scammed! I carried out some electrical work for a new client company, put the invoice in and some months later, having not been paid, the client company folded.
You may say that that is all part of business, risk and reward and that the client company going under was the risk. However, I found out that the sole director of the client company has not only set up a new limited company that is doing the same work as the old company, but his new company has taken all the assets of the old company.
How can it be legal to order goods and services knowing that you do not have the funds to make payment? Is it legal to sell assets to a director of a liquidated company? Are the debts of the company that is in liquidation now written off?
Response: Failure to pay construction advice
It is up to the appointed liquidator to investigate the director’s conduct and consider whether the director can be pursued in a personal capacity in relation to the assets that may have been removed or assets that may have been sold at below market prices, and any breaches of Phoenix Company law.
It is not against the law for the old company to sell off assets of the business prior to liquidation, as this could be a genuine attempt to inject much-needed capital into the failing business. However, it is illegal to sell assets below market valuation or to transfer assets to another company without accounting for the value.
The liquidator will also contact the Insolvency Service with any concerns over the conduct of the director. The Insolvency Service is a Government agency that tackles financial wrongdoing and assists creditors in maximising returns.
If a director allows a company to continue trading whilst being insolvent, this is also an offence, but again the liquidator will investigate this.
As to the monies that the old company owes you, that debt is not written off but is an unsecured debt and, in all probability, you will be fortunate to receive any payment in the future (and any payment will probably be pennies in the pound).
© Michael P. Gerard
The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.