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Stephen Lane
Member - 2 posts
Is this allowed under company law? A company starts up "XYZ" and places an order with our company for services to produce advertising for an event. The event being the first of its kind produces a mixed response. "XYZ" unable to meet the outstanding invoice promises to pay the invoice upon the success of the event the next year. That has now passed and had more success.
Now as we now find out, the company "XYZ" had ceased trading and the director started another company to put on the latest event. He says that we have no claim on the assets of his new company and there is no money in the old "XYZ" which he is in the processes of winding up.
What options do we have?
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Ciaron Dunne
Member - 85 posts
Stephen,
You may need to find a company law expert to answer this query; unfortuntely, we don't specialise in company law at Workplace Law.
However, from our experience the director of the new company may be correct in what he is saying: the debtor has no claim against his new company because this is a separate legal entity. The debtor may have a claim against the director personally, if he can prove that the director has broken his fiduciary duties and traded wrongfully.
Wrongful trading is a legal term, and can include a director trading where he does not have the ability to meet the debts he incurs whilst carrying out the course of his trade. It can be difficult to prove, because you must show that the director knew that he could not pay the debts that he was incurring while trading.
Hopefully, members may have something to add to that.
Ciaron Dunne
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Simon Colledge - Orchard
Online advisor - 2 posts
Your contract was with ?XYZ? so you could bring an action for the debt against ?XYZ?. If ?XYZ? is being wound up then a liquidator will be appointed. Your debt will presumably be unsecured and therefore you will only receive money from ?XYZ? (if there is any) after all secured and preferential creditors have been paid. The liquidator should contact you in due course, however, if you are worried that ?XYZ? will not have kept records of the debt owed to you then you could search for the name of the liquidator at Companies House and contact him yourself.
You have no contractual claim against the ?new? company which is a separate legal entity even though it may be owned and controlled by the same person(s). It is theoretically possible that a claim could be brought against the ?new? company if the court ?pierced the corporate veil?. The best way of pursuing this claim would be through the liquidator of ?XYZ? but it is likely that you would need to fund this action and you should consider the size of your debt against the costs of, and the inherent risk in, any such action. You should seek formal legal advice before taking any such step.
One practical way forward might be to write to the director and set out your version of events (including any written documents backing this up) and ask him to provide suggestions as to how to resolve this matter. You might also mention that if no satisfactory response is received you intend to refer the matter to the DTI.
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