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What can I do if a company in liquidation owes me money?

What can I do if a company in liquidation owes me money? Federal Management

What can I do if a company in liquidation owes me money?

When a company to which you are a creditor goes into liquidation, it can be a stressful and complicated situation. However, understanding your rights and the process of liquidation can alleviate some of this stress. This article aims to provide you with a comprehensive guide on what to do if a UK company owes you money and has gone into liquidation.

Understanding Liquidation

Liquidation is a legal process where a company’s assets are sold off to repay creditors. This usually happens when a company is insolvent, meaning it cannot pay its debts when they’re due. They are usually served with a statutory demand prior to being wound up in the courts.

There are two types of liquidation: voluntary, initiated by the company’s directors, and compulsory, enforced by the courts.

Your Rights as a Creditor

As a creditor, you have specific rights during the liquidation process. According to the UK government’s official website, if a Limited Company is insolvent, it means they cannot pay their debts. In this case, you have the right to claim the money owed to you. However, there is no guarantee that the full amount will be paid, as this depends on whether enough funds are raised from the sale of the Company’s assets.

Claiming Money Owed to You

If you are owed money by a business that has filed for liquidation, you should submit a creditor claim to the liquidator. This claim will be repaid in priority order, based on the Insolvency Act 1986. Typically, secured creditors are paid first, followed by preferential creditors (including employees), unsecured creditors, and finally, shareholders.

The Process of Administration and Liquidation

When a company goes into administration, an administrator is appointed to manage the company’s affairs and try to rescue the company or obtain a better result for creditors than in immediate winding up. If this is not possible, the administrator may sell the company’s assets to pay off its debts.

If the company then goes into liquidation, a liquidator is appointed to sell off the company’s remaining assets. The proceeds from these sales are used to pay off any outstanding debts, starting with secured creditors and then moving down the priority list.

What to Do When a Company Owes You Money

If a company that owes you money goes bankrupt, there are several steps you can take:

  1. File a Proof of Claim: Filing a proof of claim with the insolvency practitioner handling the liquidation is vital. This document outlines how much the company owes you and why you are a creditor.

  2. Attend Creditors’ Meetings: These meetings provide crucial information about the company’s financial status and the progress of the liquidation. Attending these meetings also allows you to vote on important matters, such as the appointment of a liquidator.

  3. Keep Records: Maintain all records of transactions with the company. This includes contracts, invoices, and communication records. These documents serve as evidence of your claim.

  4. Seek Legal Advice: If you’re unsure about any part of the process, it’s wise to seek advice from a legal professional with experience in insolvency.

How to check if a Company in liquidation

The quickest way to check if a company is in liquidation is with the  companies house webcheck. Their web check form allows you to run a simple check and ascertain the status of the company. It has been known for struggling Limited Companies to claim they are going into liquidation to act as a smokescreen to creditors. Checking with companies house will clarify the situation.

There are legal protocols that must be followed for a Limited company to enter into the liquidation process.

Personal guarantee from a Director?

If the company has provided you with a personal guarantee from one of its directors, this can be used to claim funds directly from the director after liquidation. This type of ‘guarantee’ is used maybe where the Limited company already has a poor credit rating. It is sometimes used by banks as a safeguard.

If you have a Directors personal guarantee, Debt Collection action is an option to collect what you are owed.

Seek professional advice

While it’s unsettling when a company that owes you money goes into liquidation, knowing your rights and what actions to take can increase your chances of recovering some or all of your money. It’s crucial to act promptly, stay informed, and seek professional advice when necessary.

Remember, each case is unique, and the outcome depends largely on the company’s financial situation and the order of priority. Regardless, understanding the process can help you navigate this challenging situation with confidence.

A Limited company debt is not always as straight forward as one would think. There are grey areas that can be used to the creditors advantage however this does not apply is a company has been dissolved.

How to prevent the situation

Amazingly, even in this modern tech age, some enterprises still do not credit check. It is essential to credit check and vet potential customers prior to providing goods or services.

In addition, if you are owed money by a Limited company. take debt collection action as quickly as possible. No business wants customers that do not pay. Taking prompt and firm action will help you get your business paid what it is owed.