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Can a charge-holder appoint an administrator after a company has been wound up?

Tim Francis
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Ordinarily, once a company is wound up there is a ban on the appointment of an administrator. However, there is a rarely used exception in the Insolvency Act 1986, Paragraph 37 of Schedule B1, which allows a qualifying charge-holder to apply to the court...

Why are fixed and floating charges necessary?

Tim Francis
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Francis Wilks & Jones is regularly instructed to advise lenders in the alternative finance market. This includes Asset Based Lenders (ABLs), platform finance providers and private lenders. The most important thing to any lender is ensuring that risk is...

Risks that Directors Face: Liabilities arising in insolvency

Stephen Downie
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There are numerous types of transaction which may be subject to a claim by appointed Liquidators and Administrators over an insolvent company.   Quite often the transactions will be conventional debts due as shown in the Company’s books and...

The desire to prefer a Creditor

Stephen Downie
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For a preference to have taken place the insolvent company must, at the time of the making of the Preference, have been influenced by a desire to put the Recipient in a better position than the Recipient would be in the event of a later insolvency.  ...

Prosecution by Companies House: likely sentences

Stephen Downie
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Although the legislation (as it stands as of writing) does not provide for any prison sentence for failing to file annual accounts and/or returns, the Magistrates Court will fine the Director and this will be a criminal conviction and will mean a Director...

Compensation Orders/Undertakings can they be changed?

Stephen Downie
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The Small Business, Enterprise and Employment Act 2015 incorporates a new Section 15C into the Company Directors Disqualification Act 1986 which allows an application to court to vary the compensation payable under a Compensation Undertaking and even to seek...

Risks that Directors Face: Personal Liability Notices

Stephen Downie
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Section 121C of the Social Security Administration Act 1992 provides HMRC with the powers to recover unpaid National Insurance Contributions, plus any interest and penalties, from the Directors or other officers of the company. “Other officers”...

Defences to a Preference Claim?

Stephen Downie
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Aside from the defence that a transaction may have preceded or fallen outside of the Relevant Time, the remaining defences can be summarized as follows: Insolvency – was the company insolvent or did it become insolvent as a result of the transaction?...

Consequences of a Breach of a Directors Fiduciary Duties

Stephen Downie
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The consequences of a breach of a directors fiduciary duties can be quite severe.  A shareholder, creditor or the company can bring proceedings against a director personally for a breach of such duties, provided loss or damage was caused as a result of...

Do Defences exist to a prosecution by Companies House?

Stephen Downie
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As with any claim, all subjective matters have to be taken into consideration before deciding whether a Defendant is guilty.  There also exist some prescribed statutory defences in certaing circumstancs. For prosecutions on the basis of a failure to...

What do Companies House generally Prosecute Directors for?

Stephen Downie
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Part 15 of the Companies Act 2006 is the legal framework outlining what accounts and reports that must be filed at Companies House.  These sections also deal with the consequences of failing to file such accounts and reports with the Registrar of...

Risks that Directors Face: Prosecution for failing to file Accounts or Returns

Stephen Downie
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Under the Companies Act 2006 all Directors of a Company can be subject to criminal proceedings for failing to file Annual Financial Accounts and/or Annual Returns in accordance with the statutory deadlines.  The requirements in respect of Annual Returns...

Compensation Orders: why give a Disqualification Undertaking?

Stephen Downie
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Compensation orders will be available to the Secretary of State regardless as to whether the original disqualification proceedings were contested or not.  In England and Wales most directors are disqualified by way of a voluntary undertaking following...

Prosecutions of Directors by Companies House

Stephen Downie
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There are certain requirements that a Company must abide by at law, to give effect to the transparency of corporate information and to ensure that the legal vehicle of the Company (especially its limited liability) is not abused.   As Directors may...

Risks that Directors Face: Director Disqualification

Stephen Downie
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Once the Company has been placed into an insolvency process, the Official Receiver or the nominated Administrator or Liquidator is required by law to make a report on the conduct of all Directors in the period leading up to the commencement of the insolvency...

How do I avoid being personally liable for a Breach of my Fiduciary Duties?

Stephen Downie
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The first answer to this is obviously always going to be, don’t breach such fiduciary duties. Directors are expected to achieve a certain standard of behaviour in decision-making, and whether there is any doubt as to the validity of a decision made...

Risks that Directors Face: Unfair Prejudice Claims

Stephen Downie
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Under Section 994 of the Companies Act 2006 a shareholder can bring a claim against a co-shareholder for any loss (i.e. prejudice) they have suffered as a result of the other shareholder’s actions. This is commonly used in small to medium-sized...

Who does a Director owe such Fiduciary Duties to?

Stephen Downie
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A Director’s fiduciary duties is primarily owed to the shareholders of the Company, which essentially comprises of the company in a global sense.   Such fiduciary duties do not apply to specific shareholders or specific groups of shareholders, as...

Risks that Directors Face: Guarantee liabilities

Stephen Downie
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It is not uncommon for a trading company, dependant on its business, to require financial support to promote growth into new areas or to expand its current business. This can come as funding in various forms, including straightforward loans, more...

How much will i have to pay under a Compensation Order or undertaking?

Stephen Downie
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This is specified by Section 15B of the Company Directors Disqualification Act 1986 which has been introduced by the Small Business Enterprise and Employment Act 2015.  In summary, a Compensation Order or Undertaking will require a Director to pay an...

Being CONNECTED with a company and being an associate

Stephen Downie
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There are various claims which can be made against directors, their spouses, friends or third parties under the Insolvency Act 1986 for recovery of assets or sums received as a result of transactions that occurred between them and the company before it was...

Exceptions to such Fiduciary Duties

Stephen Downie
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There are of course circumstances where a Director’s fiduciary duties are different, perhaps by reason of the reasons the Company exists.   Some companies are not incorporated or set up to provide profits and dividends to shareholders.  The...

Risks that Directors Face: Compensation Orders

Stephen Downie
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From 26 March 2015 the Small Business Enterprise and Employment Act 2015 introduced changes to legislation such that, when Directors are disqualified (either by Court Order or by way of a voluntary undertaking) there is a further two year limitation period...

What are Directors Duties?

Stephen Downie
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The word “fiduciary” is defined by common law as an individual or entity that acts for another in a particular matter in circumstances which give rise to a relationship of trust and confidence.   A fiduciary should act exclusively in the...

Compensation Order claims

Stephen Downie
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Following recent legislation, as from 1st October 2015 any conduct which leads to a Director being disqualified, either by the Secretary of State or Official Receiver where a company goes into insolvency or in criminal proceedings (for example those brought...

How can I decide whether I am Associated to the Company?

Stephen Downie
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The legal complexities caused by differentiating between someone unconnected with the company and someone who is connected with the company is complicated further by including (in addition to Directors, by whatsoever name called) the definition of an...

Risks that Directors Face: Statutory Derivative Claims

Stephen Downie
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A Statutory Derivative Claimant (or “Derivative Claim”) is brought by Shareholders under Part 11 of the Companies Act 2006 in respect of one of the following circumstances: In respect of a cause of action vested in the Company; or Seeking...

Risks that Directors Face: Disqualification for consecutive Prosecutions

Stephen Downie
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As described by the last point, a Director can be prosecuted in the criminal courts for a failure to deal with Companies House filings. If a Director does this in consecutive years, and is prosecuted on more than one occasion, then when bringing such...

The consequences of a Preference

Stephen Downie
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A preference is a voidable transaction. This means that an appointed Liquidator or Administrator can apply to Court for an order to “set aside” any Preference transaction that they think has occurred.  If the Court agrees that there has...

When should the Preference transaction have occurred?

Stephen Downie
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A preference has to take place within the “Relevant Time” as defined for all pre-insolvency Antecedent Transactions under the Insolvency Act 1986 (an associated legislation).   If the transaction did not occur within this Relevant Time then...

Types of Preference?

Stephen Downie
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Anything that an insolvent party does, influences or allows to be done which puts a Recipient in a better financial position or improves the Recipient’s financial position in the period before an insolvency could be seen to be a preference.  ...

What is a Preference?

Stephen Downie
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If a company does something or allows something to be done which puts a creditor , surety or guarantor (“the Recipient”) in a better position than it would otherwise have been in (in the event that the company is placed into an insolvent ...

Will the recovery not just reduce my Personal Guarantee of the Debenture?

Stephen Downie
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The answer to this question, which is often one raised by many Directors faced by insolvency proceedings, is no subject to certain exceptions. Recoveries into the Liquidation estate will not directly benefit Charge holders, as they are not considered...

What is the punishment for Wrongful Trading and Fraudulent Trading?

Stephen Downie
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Under the Insolvency Act 1986, the difference between damages awarded for Wrongful Trading as opposed to Fraudulent Trading is that the former is deemed compensatory whereas the latter is punitive. Accordingly, a Director may be liable for all or some of...

What Defences exist to a Wrongful Trading of Fraudulent Trading claim?

Stephen Downie
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Again, as with all litigation, the circumstances are subjective and a Defence may largely be by reference to that Director’s role and the Director’s fiduciary duties. The Burden of Proof for Fraudulent Trading claims is much higher and...

How do I protect against a Wrongful Trading claim?

Stephen Downie
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As stated above, and in reality, it is often difficult to look at justifying Company decisions at the time and in circumstances where the Company may be struggling or under pressure. Although there is no magic formula to preventing such potential claims, a...

How can I tell if I am trading in breach of the Wrongful or Fraudulent Trading provisions?

Stephen Downie
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Ultimately, these type of claims are determined at a much later stage when a Liquidator is appointed and some evidence may not have survived the Liquidation process. For Wrongful Trading, as a Director you have to consider whether any decision is: ...

What is Fraudulent Trading?

Stephen Downie
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Fraudulent Trading is far more serious and overlaps with criminal law.  Section 213 of the Insolvency Act 1986 enables a claim to be made by a Liquidator against a Director where the following is demonstrated to have occurred: Where the Company has...

What is Wrongful Trading?

Stephen Downie
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Wrongful trading is a statutory term for the civil offence under Section 214 of the Insolvency Act 1986 which enables a claim to be made against the Company’s director(s) in the following circumstances: Where the Company has been placed into an...

Can a Creditor sue a Liquidator or an Administrator for Misfeasance?

Stephen Downie
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It is possible under the legislation for a creditor to take such action against a Liquidator or an Administrator where s/he considers that they have made decisions on behalf of the Company which have caused losses and for which is can be shown that such...

What can be the extent of a Directors liability for Misfeasance?

Stephen Downie
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Misfeasance is a remedy for a claim made on behalf of the Company.  The amount that can be repayable is defined by the legislation as follows: To repay, restore or account for the money or property or any part of it, with interest…; or To...

What are the Defences to Misfeasance?

Stephen Downie
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The answer to this question will often depend on the allegation that supports the remedy sought.   Where an insolvency claim exists, for example preferring a creditor or causing or allowing the Company to be involved in a transaction at an undervalue,...

Can past Directors be liable for Misfeasance?

Stephen Downie
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This is a question that is obviously concerning to directors who retire or depart the Company and fear they may be later penalised personally for matters which have arose out of events or circumstances that preceded their departure. The simple answer to...

Who can bring a Misfeasance Claim?

Stephen Downie
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Misfeasance claims are generally brought by Liquidators.  They are only available where the Company has been placed into liquidation and such a claim does not exist where the Company is placed into Administration (although that does not preclude a claim...

What sort of transactions can be subject to Misfeasance Claims?

Stephen Downie
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Any misconduct by a Director which leads to a loss to the Company or its creditors as a whole can form the basis of a claim for Misfeasance against that Director personally.  The claim is one which lies with the Company and is brought by its appointed...

What is Misfeasance?

Stephen Downie
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In exchange for the protection of a limited liability, company law requires that Directors adhere to their fiduciary duties when directing a Company and do not act in breach of the public interest, do not prejudice a stakeholders’ interests (including...

What if I do not pay or write off the balance on my Directors Loan Account?

Stephen Downie
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A Director’s loan is ultimately a debt owed to the Company.  It is generally repayable upon demand (unless there is an alternative agreement providing for repayment terms). Both the Company and the Director face risks personally if...

Can a Director lend money from the Company without approval by Shareholders?

Stephen Downie
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The answer to this question generally is no and the Directors loan account should not normally be debited with any such transactions. However, there are some exceptions which exist to manage the conflict between shareholders and Directors but balance this...

What are the Restrictions on a Directors Loan?

Stephen Downie
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A Director’s Loan will either be a loan to the Company or a loan from the Company. It is perfectly legitimate, subject to any amendment to the Company’s Constitution or otherwise, for a Director to loan money to a Company provided there are no...

Can my drawings be a Directors Loan?

Stephen Downie
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Money drawn from a company by Directors can be accounted for in several ways – as payments for expenses, as salary or remuneration payments, as dividends (where he Directors are also shareholders) or – if none of the above apply –...