Sole Trader to Limited Company to avoid liability for debt

[Jacobi]

Hello

Had a browse round but can't see this has been asked already.

Can a sole trader with a huge business debt suddenly form a limited company to avoid liability for the debt incurred whilst trading as a sole entity?

A sole trader owes me and several others money but is now claiming he is a limited company so he is not liable for the debt.

Would really appreciate some help.

Thanks.

Jac

 

[David Griffiths]

No, the individual remains liable for any debts incurred as a sole trader

 

[LawHound]

Absolutely right, unless he is bankrupt, he will remain responsible personally for the debts incurred as a sole trader.

 

[Jacobi]

Thank you so much. The guy is claiming he isn't liable for the debt so I'm going to see a solicitor.

Thanks again.

Jac

 

[akirk]

people often don't understand ltd companies.

in essence - think of a limited company as a person... as a director of a limited company your liability is reduced because another person (the company) has taken the liability (it is a limited company because it has limited liability)...

with a limited company the contract for work can be person to person (ltd co to ltd co or ltd co to individual etc.), but in the absence of a ltd co, the 'person' is the individual as there is no other 'person'

thinking of the ltd. co as a person is helpful because in this scenario the person (the ltd. co) wasn't born at the time, so wasn't there to hold liability...

so the above comments apply - he was the person and therefore liable...


however, as I understand it (and this is not my specialist knowledge, so happy to be corrected) a sole trader can sell its debts to a ltd. co which could then liquidate removing the debts... to prevent this you have to ensure in your contract that debts are non-transferrable...

but I am guessing if he has a basic misunderstanding of the nature of ltd companies this will not have happened.

Alasdair

 

[Michael Gerard]

Thank you so much. The guy is claiming he isn't liable for the debt so I'm going to see a solicitor.

Thanks again.

Jac

The other posters are all spot-on. However, before you go running off to see a solicitor and spend zillions of pounds, if it is a proven and undisputed debt, why not consider issuing a statutory demand?

 

[akirk]

The other posters are all spot-on. However, before you go running off to see a solicitor and spend zillions of pounds, if it is a proven and undisputed debt, why not consider issuing a statutory demand?

I would look at value first - and preference towards small claims court if below that limit...

statutory demands are pointless in themselves unless you then go on to wind them up - e.g. bankruptcy, but can be expensive to follow through - small claims is much cheaper and when he gets the letter from the court he will realise you are serious.

Alasdair

 

[Steve Thornbury]

Happy to chat with you about your options.

 

[Michael Gerard]

I would look at value first - and preference towards small claims court if below that limit...

statutory demands are pointless in themselves unless you then go on to wind them up - e.g. bankruptcy, but can be expensive to follow through - small claims is much cheaper and when he gets the letter from the court he will realise you are serious.

Alasdair

SD's can be powerful tools when a solvent debtor is faced with one and there is no dispute as to the debt.

I agree that it costs to bring a petition for actual bankruptcy and if it goes through, then there is little chance of of getting anything out of the bankrupt as he or she is technically insolvent. However, it is worth a go IMO as it costs virtually nothing to serve the SD.

 

[Steve Thornbury]

SD is a good tool in the right circumstances. This clearly is not the right route for you. SD's cost time, money and effort and the end result for you should be to get your money back Clearly as per your 1st post, this is going to be a problem!

 

[Alan R Price]

I agree with Charlie here. I am a licensed IP and we frequently use stat demands to pursue debts, particularly in the case of suspected "won't-pays" (as opposed to can't-pays). If somebody is trying it on, the threat of a bankruptcy or winding up petition usually focuses his attention!