Issues with liquidator

[busybee]

Hello! I wonder if anyone here experienced similar situation when closing a limited company? I entered into CVL about 2 years ago, due to COVID pandemic. I appointed a liquidator who explained how the debts will be written off. I paid his fees (£6k). But after several months of signing up with him, he started pursuing me for my DLA. He made up his own calculation of the DLA which was completely wrong and was asking for £30k. I disputed the figures of the DLA, but didn’t hear back for more than a year. Then I was chased again. I told them I don’t have any money, I am barely surviving every month, and because of the stress from the liquidator, I now have depression and anxiety (medicated and managed by my GP).
I’ve asked my accountant to verify the DLA figures and she came back with DLA of £3,500. I have communicated this information to the liquidator, but got a shocking response - accusing me of preferential payments, breaching IA section 171 to 177, and now demand £50,000 from me.

I am completely destroyed and don’t know what to do. I can’t afford to pay lawyers. I am afraid what they can do to me, I am a home owner. How should I approach this?

The creditors were: BBL £30k
HMRC £3k

 

[Frank Wessely]

Hello! I wonder if anyone here experienced similar situation when closing a limited company? I entered into CVL about 2 years ago, due to COVID pandemic. I appointed a liquidator who explained how the debts will be written off. I paid his fees (£6k). But after several months of signing up with him, he started pursuing me for my DLA. He made up his own calculation of the DLA which was completely wrong and was asking for £30k. I disputed the figures of the DLA, but didn’t hear back for more than a year. Then I was chased again. I told them I don’t have any money, I am barely surviving every month, and because of the stress from the liquidator, I now have depression and anxiety (medicated and managed by my GP).
I’ve asked my accountant to verify the DLA figures and she came back with DLA of £3,500. I have communicated this information to the liquidator, but got a shocking response - accusing me of preferential payments, breaching IA section 171 to 177, and now demand £50,000 from me.

I am completely destroyed and don’t know what to do. I can’t afford to pay lawyers. I am afraid what they can do to me, I am a home owner. How should I approach this?

The creditors were: BBL £30k
HMRC £3k

Hi @busybee

A few questions:-

Was the £6k fee for the whole procedure or just the pre appointment work enabling the company to be liquidated?

Was the DLA disclosed on the Statement of Affairs? If so, at what value?

I think that you are referring to the Companies Act 2006, not the Insolvency Act.

Can you please explain, in general terms, a little more about the business, the types of transactions which are alleged to be preferential payments, the £ amounts, were they paid to trade suppliers, who else was being paid at that time, over what period and why you made those payments.

Was the company repaying the BBL during this period?

Thanks.

 

[busybee]

Hi @busybee

A few questions:-

Was the £6k fee for the whole procedure or just the pre appointment work enabling the company to be liquidated?

Was the DLA disclosed on the Statement of Affairs? If so, at what value?

I think that you are referring to the Companies Act 2006, not the Insolvency Act.

Can you please explain, in general terms, a little more about the business, the types of transactions which are alleged to be preferential payments, the £ amounts, were they paid to trade suppliers, who else was being paid at that time, over what period and why you made those payments.

Was the company repaying the BBL during this period?

Thanks.

Hi Frank, Thank you so much for your reply. I really appreciate it as in a very desperate situation here.

I was told that the £6k fee was all I had to pay in terms of liquidator’s fee. He also wanted my statutory redundancy pay, which I was entitled to, but it was never paid out because the Redundancy Service doesn’t pay this to directors with overdrawn DLA. My liquidator didn’t know that i was not going to be paid. He chased me for this money initially.

Was the DLA disclosed on the Statement of Affairs? - Yes, £18,000

You are right, it is the Companies Act 2006, not the Insolvency Act. I got confused. Sorry about that.

The payments were made to myself. It was for my living expenses mainly and some personal credit cards because I used them for the company (i.e. paid rates and vat on them when the company didn’t have enough cash flow. I have a proof of this).

Was the company repaying the BBL during this period? Not yet, the repayments were due to start in 3-4 months.

I was up to date with all payments. I had payment plans with HMRC and never missed a payment.

I feel I should have never entered the CVL. The IP didn’t explain the process properly and the implications that can have on me personally.

 

[Lisa Thomas]

I suspect you have become confused between the liquidators fee and what you would be expected to pay towards the liquidation versus what you personally owed the company.

This is easily done if not explained properly by the IP, but it should have been explained in their engagement documents. Did they explain the investigation to you before you liquidated? (Many IP's do not because they don't want the directors to know about it, until it is too late, which is why I prefer to discuss it up front.)

The DLA was disclosed at £18k so it seems you accepted that you owed the company at least £18k?

What did your director report tell creditors will happen as regards the £18,000?

I note you say you would not have liquidated had you know about this but the company was insolvent.

You seem to be implying you wouldn't have liquidated had you known you would have had to repay the DLA etc but you would have had a conflict in your duties as a director because the company was insolvent so something probably had to be done with it.

There would also have been a risk that had you not liquidated, another creditor could have forced the company into liquidation.

It's hard to comment on the validity of the £50k without knowing all the facts, but it would a Liquidator would not state an illegal preference has occurred if they don't have the evidence for this.

In order to defend or dispute the amounts I suggest you take advice from a solicitor who specialises in insolvency. I can recommend one if needed but they will need paying...

I appreciate you state you barely have funds to live off of. This may help you in your negotiations if you are personally insolvent and have nothing to offer.

But do you have any assets they could pursue - for example a property with equity in it?

 

[bovine]

Unfortunately this isnt an uncommon tale. You have engaged and paid the IP thinking you would then be in the clear. Actually you have paid someone who has now a legal obligation to chase you for any money owed to the company, which you have agreed is at least £18k. They have looked at the books and have also decided they can perhaps reverse some payments and say you owe more with the preferential payments line.

You should engage professionals to represent you to help minimise what you owe. Hopefully they reduce what the appointed IP has stated is owed. And remember, you can always make a offer to pay back a reduced amount to make it go away. The IP wants to get as much money in with the least amount of hassle/cost.

You are a home owner, so there is an asset. You need to work out what you can raise to settle this and then move on. If there really is no way to pay, then bankruptcy is a possibility, but this is rarely as bad as people think. Ive seen statements where people say its the best thing to happen to them as they were able to finally move past what theyve been battling, clear the slate and start again.

Its hard and not going to be easy but things will get better once this is all behind you. Everything seems insurmountable, but try to hold fast and get a good support network around you.

 

[Frank Wessely]

I suspect you have become confused between the liquidators fee and what you would be expected to pay towards the liquidation versus what you personally owed the company.

This is easily done if not explained properly by the IP, but it should have been explained in their engagement documents. Did they explain the investigation to you before you liquidated? (Many IP's do not because they don't want the directors to know about it, until it is too late, which is why I prefer to discuss it up front.)

The DLA was disclosed at £18k so it seems you accepted that you owed the company at least £18k?

What did your director report tell creditors will happen as regards the £18,000?

I note you say you would not have liquidated had you know about this but the company was insolvent.

You seem to be implying you wouldn't have liquidated had you known you would have had to repay the DLA etc but you would have had a conflict in your duties as a director because the company was insolvent so something probably had to be done with it.

There would also have been a risk that had you not liquidated, another creditor could have forced the company into liquidation.

It's hard to comment on the validity of the £50k without knowing all the facts, but it would a Liquidator would not state an illegal preference has occurred if they don't have the evidence for this.

In order to defend or dispute the amounts I suggest you take advice from a solicitor who specialises in insolvency. I can recommend one if needed but they will need paying...

I appreciate you state you barely have funds to live off of. This may help you in your negotiations if you are personally insolvent and have nothing to offer.

But do you have any assets they could pursue - for example a property with equity in it?

The OP is a homeowner although we do not know the equity position nor that of any co-owners.

 

[busybee]

The OP is a homeowner although we do not know the equity position nor that of any co-owners.

I do have 2 properties but not sure about how much equity I have, as I own our main home with my husband 50/50. And the rental property is on interest only mortgage with not much equity at all. I already tried to sell this one before the liquidation as I wanted to raise some funds to save the business. But there were no offers at all to make a profit. It was on the market for 6 months. The property market is really not favourable at the moment.

 

[japancool]

The payments were made to myself. It was for my living expenses mainly and some personal credit cards because I used them for the company (i.e. paid rates and vat on them when the company didn’t have enough cash flow. I have a proof of this).

I'm not really qualified to comment, but this sounds wrong. If you personally paid out a company liability, rather than pay yourself back from the company, it should have been accounted for as a reduction in your director's loan. So I can see why the IP would regard this as a preferential payment.

 

[busybee]

I suspect you have become confused between the liquidators fee and what you would be expected to pay towards the liquidation versus what you personally owed the company.

This is easily done if not explained properly by the IP, but it should have been explained in their engagement documents. Did they explain the investigation to you before you liquidated? (Many IP's do not because they don't want the directors to know about it, until it is too late, which is why I prefer to discuss it up front.)

The DLA was disclosed at £18k so it seems you accepted that you owed the company at least £18k?

What did your director report tell creditors will happen as regards the £18,000?

I note you say you would not have liquidated had you know about this but the company was insolvent.

You seem to be implying you wouldn't have liquidated had you known you would have had to repay the DLA etc but you would have had a conflict in your duties as a director because the company was insolvent so something probably had to be done with it.

There would also have been a risk that had you not liquidated, another creditor could have forced the company into liquidation.

It's hard to comment on the validity of the £50k without knowing all the facts, but it would a Liquidator would not state an illegal preference has occurred if they don't have the evidence for this.

In order to defend or dispute the amounts I suggest you take advice from a solicitor who specialises in insolvency. I can recommend one if needed but they will need paying...

I appreciate you state you barely have funds to live off of. This may help you in your negotiations if you are personally insolvent and have nothing to offer.

But do you have any assets they could pursue - for example a property with equity in it?

They didn’t explain the process of liquidation, investigation and potential impact on me personally at all. They promised me to write BBL and HMRC off.

If I used the money (the £6k) that I paid the liquidator, to pay HMRC and start paying repayments for BBL, I would be fine.

 

[fisicx]

How did you choose the IP? There are some very dodgy operators whose business model revolves around you having to pay more and more as the process evolves.

 

[Frank Wessely]

They didn’t explain the process of liquidation, investigation and potential impact on me personally at all. They promised me to write BBL and HMRC off.

If I used the money (the £6k) that I paid the liquidator, to pay HMRC and start paying repayments for BBL, I would be fine.

Hi @busybee

It is not possible to say based upon the current narrative whether there is clear evidence of any possible preference or not. I suspect that the liquidator has reviewed the company bank statements and identified the cumulative payments to you but it does not appear that they asked you to clarify the context and background to these payments, which they should have done before sending the demand letter for repayment.

With the benefit of hindsight it would have been helpful for your accountant to have reconciled the DLA ahead of the liquidation.

It is interesting that the Liquidator has demanded repayment of £50k when the company debts are £33k. I have seen this tactic used before.

I would be happy to have a telephone call with you to discuss these issues further and to outline your realistic options, without any charge or obligation. My contact details are below.

Thanks.

 

[Lisa Thomas]

The OP is a homeowner although we do not know the equity position nor that of any co-owners.

I missed that. Then this is serious and warrants getting proper paid for legal advice, assuming there is material equity in the property.

 

[busybee]

Thank you all for your responses, especially Frank Wessely who has been so kind and gave me so much time and valuable advice directly. I appreciate all of your inputs, and am grateful for this forum.

 

[prb]

Busybee I'm having very very similar issues - I went to the IP asking for guidance at the start of lockdown as I was concerned that if some key company debtors stopped operating I could have been trading insolvently. I also had an oDL, but despite being paid to assess my company, having copies of the relevant accounts and access to my accountant, the IP did not mention the oDL at all until a few day AFTER appointment had taken place. I was shocked but eventually agreed a settlement with the IP after working with them for a few months. After I'd agreed settlement, I didn't then hear from the IP for over a year by which time the IP had changed companies. The IP astonishingly then denied that a settlement had ever been agreed and in fact I'd never even made and offer and I was making it up - he told his solicitors the same thing. He continued to deny even the offer for about 8 months and then I issued a DSAR to him which meant he had to send all info about the case relating to me. The info his new company sent back showed the offer he denied knowing anything about. I thought this would finally let me pay the agreed settlement and close the case (it's been going nearly 4 years now and is continually stressful). What happened instead is that the IP chose to sell my claim to a litigation funder at 7x the agreed settlement amount and did not mention to them that I had agreed a settlement when he was at hhis previous company.

So I'm wondering, because of the parallels with your case, if you used the same IP or if that kind of behaviour is common in the industry.

 

[Lisa Thomas]

Sadly I have heard of this happening quite often. Some IP's do it on purpose because they want to get the instruction and don't want to scare the director off by explaining their responsibility to repay what they can afford of any overdrawn DLA (or other claims for misconduct) so they keep quiet about it.

If you have agreed a deal about repayment of the DLA with your instructed IP always get that agreement in writing before you instruct them formally.

Also, please note that creditors can veto your choice of liquidator and appoint their own, in which case any agreement regarding the DLA will not stand.

This is why I always prefer to discuss the investigation and our powers to pursue directors personally upfront. This scares a lot of potential clients off, but I prefer a director to be fully informed and aware of all the potential issues and risks upfront.

It's better than ignoring it, and getting a letter out of the blue demanding repayment a few months after the liquidators have been appointed.

 

[busybee]

Busybee I'm having very very similar issues - I went to the IP asking for guidance at the start of lockdown as I was concerned that if some key company debtors stopped operating I could have been trading insolvently. I also had an oDL, but despite being paid to assess my company, having copies of the relevant accounts and access to my accountant, the IP did not mention the oDL at all until a few day AFTER appointment had taken place. I was shocked but eventually agreed a settlement with the IP after working with them for a few months. After I'd agreed settlement, I didn't then hear from the IP for over a year by which time the IP had changed companies. The IP astonishingly then denied that a settlement had ever been agreed and in fact I'd never even made and offer and I was making it up - he told his solicitors the same thing. He continued to deny even the offer for about 8 months and then I issued a DSAR to him which meant he had to send all info about the case relating to me. The info his new company sent back showed the offer he denied knowing anything about. I thought this would finally let me pay the agreed settlement and close the case (it's been going nearly 4 years now and is continually stressful). What happened instead is that the IP chose to sell my claim to a litigation funder at 7x the agreed settlement amount and did not mention to them that I had agreed a settlement when he was at hhis previous company.

So I'm wondering, because of the parallels with your case, if you used the same IP or if that kind of behaviour is common in the industry.

Hello prb, Thank you for reaching out. I am so sorry to hear about your situation. I totally understand the distress you are going through. I would like to connect with you privately, just so we don’t compromise anybody’s position on a public domain. Please email me [email protected]