February 2010 - Getting money out of insolvent companies

At long last, it seems that Britain is slowly crawling out of recession. However, it doesn’t seem that way for countless small businesses, many of whom are still finding it hard to see the hoped-for rise in sales.

The latest insolvency statistics show a slight slowdown in company liquidations in the last quarter of 2009 compared to the previous quarter (4,566 from 4,648) but individual insolvencies are up (35,574 from 35,242). Compared with the previous year, company insolvencies are down only 1.1% but individual insolvencies are up a massive 24.9%.

What these statistics show is that the prospect of liquidations and bankruptcies remains high, and this creates a dangerous climate for many small and medium-sized businesses. It only takes one or two major bad debts before you too could be faced with the bleak prospect of insolvency. Our best advice to avoid this is to tighten up your credit control procedures and take The Zero Tolerance Approach to Bad Debt.

When a company has gone into liquidation owing you money, is there any way you can get the directors of the company to pay? Sadly, the answer to this question is usually no – the main reason for setting up a limited liability company is after all to safeguard owners and directors of firms from personal liability. However, you might be able to get directors to pay out of their own pocket in certain circumstances.

The best method is to obtain a Personal Guarantee from the directors. This should be done when you first do business with them and means that, if their company defaults, you can still go after them personally for the money. If you also decide the maximum credit you’ll allow them, then at least you know how much you stand to lose if the director himself doesn’t have enough money.

The liquidator of a company can take action against the directors in certain circumstances – see Directors' responsibilities in times of financial trouble, for details. However, it’s up to the liquidator whether he takes such action and much will depend on whether the director has sufficient personal assets and whether there are enough funds available to fight the case. This often means the creditors, or some of them, will have to put in their own money to fight the case and, if anything is recovered, it must then be distributed according to insolvency law – with generally the costs of the court case being paid first, then the liquidation costs and finally the rest being distributed equally between all creditors in proportion to the amounts owed to them.

If you were in the unfortunate position of having won court proceedings against a company that then goes into liquidation rather than paying you, you can in some circumstances at least get the court to order that your costs are paid by a director personally. The courts will only consider this if a company director financed the litigation with his own money, made decisions about the litigation and stood to gain personally from it if the company won. This could well be the case with a small insolvent company. You should also notify the director of your intention to claim money from him personally while the proceedings are still ongoing. If you think this might apply to your case, you should get advice as soon as possible from a solicitor who specialises in dispute management and really understands how legal costs work.

For specialist advice contact Cousins Business Law - 0845 003 5639.

Disputes are a sad and unavoidable fact of business life. From the moment you start your business until you sell up or retire, you face conflict wherever you look, whether it’s suppliers failing to deliver on time, or customers arguing over payment terms or the quality of what you’ve delivered.

To help business owners and managers prevent and manage commercial disputes, Cousins Business Law has published a free guide - “The Definitive Guide to Solving Business Disputes”. The guide stresses the significant cost to business of badly-managed disputes and provides practical advice on how to avoid conflict in the workplace as well as steps to take should a dispute be on the cards.

The Guide includes 6 essential tips for avoiding disputes with customers, suppliers and employees as well as a series of steps you can take if conflict seems inevitable.

It’s the kind of advice we give our clients on a regular basis and is peppered throughout our website but this pulls it all together in one handy Guide.

The Definitive Guide to Solving Business Disputes can be downloaded for free from the Cousins Business Law website as a PDF document or requested in hard copy format by emailing nigel.musgrove@business-lawfirm.co.uk.

Pubs and other venues which pay licence fees to PPL (Phonographic Performance Limited) for playing music are due a substantial repayment following a High Court ruling on 12 February.

This all goes back to a tariff introduced by PPL which was effective from 1 January 2005. The tariff was challenged as unfair and the Copyright Tribunal upheld this challenge. For example, the tariff imposed increases in bands according to the “audible area”. For up to 100² metres, the increase was 17% over the previous tariff, but this jumped massively for areas over 100² metres; between 100² and 200² metres, the increase was 134%, 201-300: 250%, 301-400: 367%, and 401-450: 419%. There was a discretionary discount of 50% for premises with an audible area of under 50² metres playing broadcast sound recordings only.

The Tribunal decided that the new tariff introduced from 1 January 2005 was unreasonable and unjustifiable. The PPL can’t have been too pleased as the new tariff had helped increase their fees from £6.6 million to £10.8 million per year!

The previous tariff has now been reinstated, with some changes, and a cautionary 50% surcharge for the first year if a licensee plays music without first obtaining a PPL Licence.

So what does this mean in real terms? A pub, hotel or restaurant with an audible area of say 350² metres was paying £464.80 per year but, as a result of this decision, they will only be paying about £110 per year. That is a significant saving.

It is estimated that pubs, hotels and restaurants have been overcharged to the tune of £10 million since 2005, and it should result in savings of over £3 million a year to the industry. The only crumb for PPL is that if the overpayments are £50 (ex VAT) or less per premises, no refund will be due. But if a number of premises are under common ownership, the refunds per premises can be added together to clear the £50 threshold.

Full details of how to claim are due shortly. PPL say on their website that they will be writing to all licence holders affected with details of the repayments due, or you can call them on 020 7534 1000.

This is a welcome boost to the trade at a time when the bottom line will be challenged by the rates increases due in April.

Members of the team at Cousins Business Law are on the online business networking site, LinkedIn. Connect with us there; it’s a great way to find new business partners, share business ideas and woes, as well as recruit new members of staff.

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