Liquidator questions

[Martin GR]

Hello
We'd be grateful for some advice and comments please.
A limited company was trading as a Food home delivery business. A creditor took action to liquidate for unpaid invoice of £1200. The company ceased trading, and a Liquidator is handling the case. Company bank statements showing weekly cash withdrawals of around £1800, used to pay delivery drivers (casual self employed) and some food stock purchases from supermarkets, suppliers cash paid (receipts not kept) and incidentals. Casual drivers paid cash nightly. The only information kept about drivers were their first names as they were regarded as self employed only, and mostly worked temporarily. There was a high turnover of drivers. No other information was kept because of GDPR. The Liquidator has asked for supporting documents for these amounts? What's best way to deal with this matter ? Thanks in advance

 

[pentel]

The only information kept about drivers were their first names as they were regarded as self employed only, and mostly worked temporarily. There was a high turnover of drivers. No other information was kept because of GDPR

Under GDPR there are legitimate interests to retain details of the drivers so this information should have been full and have been retained for 6 years minimum. The legitimate interests would be HMRC requirement to keep records & defence of potential claim from drivers.

Did you receive invoice from the "self employed" drivers which you kept or did you you give them a handful of cash at the end of each evening?

Self employment or employee is decided by fact, not "regarded as".

food stock purchases from supermarkets, suppliers cash paid (receipts not kept) and incidentals.

Oh dear.... If there is no paper trail it didn't happen. Even with receipts stock purchases from supermarkets can be a fraught area. Who is to say that item X was for business or own use?

Hopefully you have full records of every sale made, delivery locations etc. From this you might be able to reconstruct some sort of detail of costs associated with each sale. This will be far more labour intensive than keeping proper records would have been with far less chance of being accepted.

Your best bet would be to scrape together as much information as you can and present this to the liquidator.

 

[NicoJ]

I echo pentel here. This is not the intended use of GDPR.

Have you got the contact details of any of the drivers? If so, you could attempt to get them to sign to say they received x amount on x date. I would expect a struggle but it is worth a try.

In regards to supermarkets etc you may need to write down ingredients that you used and try to recreate the purchase pattern. As you don't have physical proof of purchase you need alternative evidence. What do you cook, what ingredients would you need, how often would you need to buy these and work out an average cost.

 

[Frank Wessely]

Hi @Martin GR

I would echo the above guidance. To complete the reconstruction exercise you should work backwards from the date of closure calculating turnover figures (which should be evidenced) and then based on the usual margins achieved, work out the likely costs of sales and related overheads. Relate these to the cash drawings. Thus drawing up P&L accounts for the final two trading periods. You can base the margins on figures from historic accounts. You do have accounts?

 

[ChrisCallaghan]

Completely agree with @pentel and @Frank Wessely . Sounds like you've got some hard work to do!

 

[Martin GR]

Under GDPR there are legitimate interests to retain details of the drivers so this information should have been full and have been retained for 6 years minimum. The legitimate interests would be HMRC requirement to keep records & defence of potential claim from drivers.

Did you receive invoice from the "self employed" drivers which you kept or did you you give them a handful of cash at the end of each evening?

Self employment or employee is decided by fact, not "regarded as".



Oh dear.... If there is no paper trail it didn't happen. Even with receipts stock purchases from supermarkets can be a fraught area. Who is to say that item X was for business or own use?

Hopefully you have full records of every sale made, delivery locations etc. From this you might be able to reconstruct some sort of detail of costs associated with each sale. This will be far more labour intensive than keeping proper records would have been with far less chance of being accepted.

Your best bet would be to scrape together as much information as you can and present this to the liquidator.

Thank you for that. The average sale would have been around £16, delivered within a 3 mile radius of the kitchen.

 

[Martin GR]

I echo pentel here. This is not the intended use of GDPR.

Have you got the contact details of any of the drivers? If so, you could attempt to get them to sign to say they received x amount on x date. I would expect a struggle but it is worth a try.

In regards to supermarkets etc you may need to write down ingredients that you used and try to recreate the purchase pattern. As you don't have physical proof of purchase you need alternative evidence. What do you cook, what ingredients would you need, how often would you need to buy these and work out an average cost.

Thank you. I am not saying that this was caused by GDPR. It's common that with home delivery food outlets, self employed drivers are used to do the deliveries, who work when they decide to, on adhoc basis it suits them.

 

[Martin GR]

Completely agree with @pentel and @Frank Wessely . Sounds like you've got some hard work to do!

Thanks for that.

 

[Martin GR]

I echo pentel here. This is not the intended use of GDPR.

Have you got the contact details of any of the drivers? If so, you could attempt to get them to sign to say they received x amount on x date. I would expect a struggle but it is worth a try.

In regards to supermarkets etc you may need to write down ingredients that you used and try to recreate the purchase pattern. As you don't have physical proof of purchase you need alternative evidence. What do you cook, what ingredients would you need, how often would you need to buy these and work out an average cost.

Yes I'll be able to get contact details of the drivers. Is it likely that they would be contacted for confirmation? Some of them had day jobs.

 

[IanSuth]

Did you get your "self employed" drivers to sign anything regarding the nature of their work etc. If so you will have a list of all drivers which is a good place to start, if you did not keep any record because basically let's be frank, they would work for less if they could have it cash in hand and pay no tax/ni then you are in for a heap of hurt from someone somewhere.

Start with the easy side - you must have records of how many sales you made, how many deliveries, to where and the income from those.

Then list what you paid to the drivers and put that to one side (as currently you seem unable to prove that), look at your other costs. If you were buying from suppliers (even in cash) they should have some form of record of your orders, try and get a summary from each.

That will start to build up a picture of how the business was run cashflow wise.

Even if you can't prove it all currently, being able to show that in an average week you made X sales spread over the week like Y that cost you A in delivery pay, B in main ingredients, C in fixed costs and then on average your bits & bobs purchases inc supermarket spend came to D will at least allow someone to see the general flows of money and what they really want you to prove.

 

[Martin GR]

I forgot to ask, could this court order be revered, since it was given in absence?
Is it possible to recall a liquidation order?
Thanks in advance

 

[Frank Wessely]

I forgot to ask, could this court order be revered, since it was given in absence?
Is it possible to recall a liquidation order?
Thanks in advance

No, not in the circumstances you have described.

 

[Elliot Green]

I forgot to ask, could this court order be revered, since it was given in absence?
Is it possible to recall a liquidation order?
Thanks in advance

Perhaps see paragraphs 19 and 20 of Preston v Green, Re Cre8atsea Ltd [2016] EWHC 2522 (Ch) https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2016/2522.html but consider taking formal legal advice on such matters. I imagine you will face an uphill struggle.

I once had a Director who I had to ask some challenging questions of and in response they asked me 'is this Liquidation reversible' - I said it was not.

Because of the following position from the case of Toone v Robbins & Anor [2018] EWHC 569 (Ch) the burden is usually squarely on the Director to justify payments from a company, particularly when money is received by the Director in some way. Once the Liquidator has proven the payment the burden is then typically on the Director to justify it and perhaps you might want to consider the following extract:

"Directors who receive money from the company cannot be heard to say: -
"We have received company money: but our record keeping is so bad that the basis upon which we received it is unclear. So by reason of our defaults we ask you to assume in our favour that we took the money lawfully"."

 

[Martin GR]

Perhaps see paragraphs 19 and 20 of Preston v Green, Re Cre8atsea Ltd [2016] EWHC 2522 (Ch) https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2016/2522.html but consider taking formal legal advice on such matters. I imagine you will face an uphill struggle.

I once had a Director who I had to ask some challenging questions of and in response they asked me 'is this Liquidation reversible' - I said it was not.

Because of the following position from the case of Toone v Robbins & Anor [2018] EWHC 569 (Ch) the burden is usually squarely on the Director to justify payments from a company, particularly when money is received by the Director in some way. Once the Liquidator has proven the payment the duty is then typically on the Director to justify it and perhaps you might want to consider the following extract:

"Directors who receive money from the company cannot be heard to say: -
"We have received company money: but our record keeping is so bad that the basis upon which we received it is unclear. So by reason of our defaults we ask you to assume in our favour that we took the money lawfully"."

Thank you for that, appreciated. It's common practice that food delivery drivers working locally do so on adhoc basis and it's understood to be on Freelance basis, which nobody will dispute. Whether on not such delivery drivers take advice of their income position is a matter entirely for them? In our case obviously the business could not operate without delivery drivers. The issue is that the business only kept records of drivers first name and amount paid in cash. Would this explantion be satisfactory to the liquidators? Regards

 

[Elliot Green]

Thank you for that, appreciated. It's common practice that food delivery drivers working locally do so on adhoc basis and it's understood to be on Freelance basis, which nobody will dispute. Whether on not such delivery drivers take advice of their income position is a matter entirely for them? In our case obviously the business could not operate without delivery drivers. The issue is that the business only kept records of drivers first name and amount paid in cash. Would this explantion be satisfactory to the liquidators? Regards

If you can reconstruct the records then that might be a way forward. It is not ideal as the perfect record is usually a contemporaneous one.

Ideally, you would have a spreadsheet/ledger with the date, name, delivery detail, order reference, driver etc. The more detail the better so that someone can see that the payment is likely to have been deployed as you say and not for something else. There are presumably emails that show what trading activity has taken place that you might be able to assemble and refer to. Records you already handed over to the Liquidator can usually be inspected.

In terms of what is satisfactory for a Liquidator is down to the individual officeholder to determine. As Liquidators, we have a good deal of discretion as to what we can accept. If someone is taking a robust stance then you want to ideally assemble as much contemporary evidence as you can to demonstrate that the payments were made bona fide.

 

[Newchodge]

Thank you for that, appreciated. It's common practice that food delivery drivers working locally do so on adhoc basis and it's understood to be on Freelance basis, which nobody will dispute. Whether on not such delivery drivers take advice of their income position is a matter entirely for them? In our case obviously the business could not operate without delivery drivers. The issue is that the business only kept records of drivers first name and amount paid in cash. Would this explantion be satisfactory to the liquidators? Regards

I think you are misunderstanding several different elements here.

• A business must keep records of its income and expenditure,
• A business must be able to prove its income and expenditure (invoices, receipts etc)
• If you use freelancers you must be able to identify them - name, date of birth, address
• When you pay freelancers they should give you an invoice for the work being paid for
• If they will not give you an invoice you must get a receipt from them for the money paid out.
• Whether the delivery drivers are self employed or workers or employees is a legal fact, not everyone's opinion. whatever they are does not affect the requirement to keep records,

I don't think you are likely to satisfy the liquidators.

 

[Elliot Green]

I think you are misunderstanding several different elements here.

• A business must keep records of its income and expenditure,
• A business must be able to prove its income and expenditure (invoices, receipts etc)
• If you use freelancers you must be able to identify them - name, date of birth, address
• When you pay freelancers they should give you an invoice for the work being paid for
• If they will not give you an invoice you must get a receipt from them for the money paid out.
• Whether the delivery drivers are self employed or workers or employees is a legal fact, not everyone's opinion. whatever they are does not affect the requirement to keep records,

I don't think you are likely to satisfy the liquidators.

In a worst case scenario, it is not the Liquidator that needs to be satisfied; it is the Court.

The Liquidator can only decide if he or she is willing to personally accept the position but has no power of their own per se.

An absence of documents makes the Court's task harder but the rule referred to in Idessa (UK) Ltd, Re [2011] EWHC 804 (Ch) https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2011/804.html provides for an absence of records as well:

"... the well-settled principle that a fiduciary is obliged to account for his dealings with the trust estate that Mr Aslett is correct to say that once the liquidator proves the relevant payment has been made the evidential burden is on the Respondents to explain the transactions in question. Depending on the other evidence, it may be that the absence of a satisfactory explanation drives the Court to conclude that there was no proper justification for the payment. However, it seems to me to be a step too far for Mr Aslett to say that, absent such an explanation, in all cases the default position is liability for the Respondent directors. In some cases, despite the absence of any adequate explanation, it may be clear from the other evidence that the payment was one which was made in good faith and for proper company purposes." [added emphasis]

 

[Martin GR]

Did you get your "self employed" drivers to sign anything regarding the nature of their work etc. If so you will have a list of all drivers which is a good place to start, if you did not keep any record because basically let's be frank, they would work for less if they could have it cash in hand and pay no tax/ni then you are in for a heap of hurt from someone somewhere.

Start with the easy side - you must have records of how many sales you made, how many deliveries, to where and the income from those.

Then list what you paid to the drivers and put that to one side (as currently you seem unable to prove that), look at your other costs. If you were buying from suppliers (even in cash) they should have some form of record of your orders, try and get a summary from each.

That will start to build up a picture of how the business was run cashflow wise.

Even if you can't prove it all currently, being able to show that in an average week you made X sales spread over the week like Y that cost you A in delivery pay, B in main ingredients, C in fixed costs and then on average your bits & bobs purchases inc supermarket spend came to D will at least allow someone to see the general flows of money and what they really want you to prove.

That's great, Thank you

 

[Martin GR]

In a worst case scenario, it is not the Liquidator that needs to be satisfied; it is the Court.

The Liquidator can only decide if he or she is willing to personally accept the position but has no power of their own per se.

An absence of documents makes the Court's task harder but the rule referred to in Idessa (UK) Ltd, Re [2011] EWHC 804 (Ch) https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2011/804.html provides for an absence of records as well:

"... the well-settled principle that a fiduciary is obliged to account for his dealings with the trust estate that Mr Aslett is correct to say that once the liquidator proves the relevant payment has been made the evidential burden is on the Respondents to explain the transactions in question. Depending on the other evidence, it may be that the absence of a satisfactory explanation drives the Court to conclude that there was no proper justification for the payment. However, it seems to me to be a step too far for Mr Aslett to say that, absent such an explanation, in all cases the default position is liability for the Respondent directors. In some cases, despite the absence of any adequate explanation, it may be clear from the other evidence that the payment was one which was made in good faith and for proper company purposes." [added emphasis]

Thank you.