Types of Common Claim Against Spouses and Friends

As a relatively innocent party connected to a company in administration or liquidation, you would expect to be largely unaffected by the onset of insolvency proceedings.

However, this is not the case. If you are a non-executive director, a wife or husband who considers they are a director in name only, a family member with a shareholding or a creditor then there is a very real risk that you may be subject to very expensive legal proceedings brought against you once the Company is placed into Administration or Liquidation if you have received any payments or assets from the company at any time in the period leading up to the commencement of the insolvency proceedings.

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The typical types of proceedings that might be brought against you are as follows, although this list is in no way exhaustive and should you have any concern please do not hesitate to contact us for an initial no obligation chat as regards your circumstances:

Void Transaction - Sums Paid after Presentation of Winding-Up Petition Read more

If you receive any payment or asset from a company subject to a winding-up petition, whether the payment was legitimately made in repayment of an outstanding liability or otherwise, then that payment is automatically void and repayable to the Company upon the making of a Winding-Up Order.

This is the case even where you are the Creditor Petitioning for the Winding-Up of the Company.

The only exception to this rule is where the Court has granted leave to make any such payment or distribution of assets. This is called a Validation Order and please see our booklet on Transferring Assets Pre-Insolvency which deals with such matters.

If you are a creditor who has issued a Winding-Up petition, it would appear entirely acceptable to receive payment and be entitled to retain such payment. This is not the case and in the absence of a Validation Order being obtained we often see another creditor take over the Winding-Up proceedings and (upon a Winding-Up Order being made upon this other creditor’s petition) the original petitioning creditor being required to repay this sum.

Accordingly, it is vital that if you are about to receive payment from a company subject to a winding-up petition (whether you are a petitioning creditor, a creditor generally or in any other way associated to a company) you seek legal advice on whether you would be later required to return any such payment. At Francis Wilks & Jones we can advise you on such matters.

Transaction at an Undervalue Read more

Any company asset which is ransferred to you, be that for money or otherwise, for less than its market value or, as in the case of cash payments, for no consideration can potentially be reclaimed as a Transaction at an Undervalue. Please see our booklet entitled Defending Claims that You Removed Company Assets Pre-Insolvency - 15 FAQs which addresses this issue in more detail.

Examples of where this can occur are, for example, in the case of cash payments by the company pre-insolvency, transfers of substantial or main company assets for less than the market value of such payments or even false/misleading expense claims over a period of years leading up to insolvency.

It may appear to make sense to use the insolvency process to ensure the company can survive, and indeed that is what the legal framework is designed to do. However, the main purpose of insolvency is to ensure that the company’s assets are realised and best applied to maximise repayments to creditors of the company.

If there are timing issues, and the transfer of such assets is essential for the continuation of the company’s business or for some other purpose, from the company’s point of view it is vital that professional advice is sought as regards valuations, the choice of insolvency procedures and management decision-making.

Such decisions/transactions are acceptable and free from criticism in specific circumstances.

If you are a third party receiving any such assets or payments, it is important that you are aware of the risk of recovery of such sums and the potential claim that could be made by a Liquidator or Administrator for interest and their legal fees. At Francis Wilks & Jones we can advise you on such matters.

Preferences Read more

A Preference is a transaction where one or more creditors are preferred (in terms of receiving a payment of some or all of their debts pre-insolvency) before a company is placed into liquidation or administration. The typical scenario is where creditors (who may be used in any surviving business) are selectively repaid their debts from a dwindling pool of funds in the company.

Please see our booklet entitled Preferring Creditors which addresses this subject in more detail.

The creditor may be an unassociated trade creditor who the directors may wish to maintain a relationship with, or alternatively it may be a director (or his/her spouse) who is repaid his/her loan balance. Often creditors should not permit payment of a debt out of company assets for this very reason where it appears the company is being placed into insolvency.

Dependent on the type of creditor and the relationship, the defence to any sum claim may be different and at Francis Wilks & Jones we can advise on such matters.

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