There are techniques to recovering money from a liquidated company. And I say this with confidence because I’ve recently been engaged in a number of situations where I successfully collected monies due by bankrupt firms. In this post, I’ll provide some pointers based on my recent experiences..
4 Techniques to Recovering Money From a Liquidated Company
1. Influence The Bankruptcy Process
Liquidators and administrators have broad authorities and responsibilities to examine a company’s activities and, in some situations, prosecute its directors. Because liquidations and administrations are ultimately creditor-driven procedures, it is important to remember that big creditors, in particular, can influence and hold such office holders accountable, and in certain cases, even replace or appoint them.
In a recent instance, our client, the general contractor on a building project, was awarded adjudication against the developer. However, this was not paid, and we were asked to advice on how to enforce the award. While this is generally done by filing an application in court for summary judgment, there were worries about the developer’s financial status, therefore we recommended the client to threaten winding-up proceedings by submitting a statutory demand for payment.
The developer originally denied the debt and threatened a lawsuit. However, it subsequently hired insolvency practitioners to help in organizing a creditors’ meeting geared towards gaining access into the Creditors’ Voluntary Liquidation. We were worried, however, about the possibility of the developer getting its preferred liquidator, and encouraged our client to remain tough on its threat to bring winding-up proceedings. Following this, we planned to help our client, as the largest creditor, in appointing a liquidator of its choice, who would, among other things, investigate potential claims against the developer’s directors. Before the need for winding-up procedures, a settlement worth somewhat more than two-thirds of the adjudication verdict was obtained.
2. Claim Against The Insurance Of A Bankrupt Corporation
The Third Parties (Rights Against Insurers) Act 1930, which is set to be replaced by the Third Parties (Rights Against Insurers) Act 2010, transfers an insured’s right to make a claim under a policy to a relevant third party when a company or individual becomes subject to certain insolvency processes.
We recently represented a civil engineering contractor in a court action against an equipment supplier that caused our client damages. The claim was extensively fought, but while we were confident in our client’s cause, the supplier went out of business in the middle of the proceedings. We sought payment from the defendant’s insurers under the 1930 Act, but the insurers not only denied culpability for the occurrence but also argued that the claim was not covered by the policy and that the indemnity level was insufficient to settle the claim. Despite this, we were able to reach an agreement on a settlement at around half of the claim’s value through discussion.
3. Obtain and Enforce a Judgment
Even if the debtor is unable to pay all of its debts, consideration should always be given to obtaining and enforcing a judgment against a firm in circumstances where it is considered to have some assets. In extraordinary circumstances, when there is a danger of funds being exhausted, and especially if fraud is suspected, freezing orders may be considered.
4. Present a ‘Proof of Debt’
This may seem simple, but filing Proof of Debt to a liquidator or administrator and ensuring that it is done correctly is always a good idea. For example, we recently represented the landlord of a former Blockbuster location. The client’s prior attorneys had not completed the form correctly, resulting in the claim not being recorded at all.
The debt was subsequently assigned to the incorrect group business with less assets, resulting in a dividend of just 5p in the pound being paid. We collected an interim dividend on behalf of the customer after showing which firm had been the renter. While the dividend was 18p in the pound, landlords can collect a portion of future rent until the end of the lease, as well as payments for dilapidations, as a consequence of which we recovered a large sum despite the fact that there were no arrears at the time of administration.
What Other Choices Are There?
While legal proceedings against a company may be pursued in a formal insolvency process, subject to certain limitations, it is rarely cost-effective to pursue such a claim. This is because, unless you have a proprietary right or security over the company’s assets, your claim will rank at the same level as those of other unsecured creditors. Of course, if you have proper security over the company’s assets, you are significantly more likely to be able to recover what you are due. However, as a floating charge holder, you would only be entitled to the net profits of a sale of the assets after certain other creditors were paid.
Other than as an unsecured creditor, there are numerous other scenarios in which you may file a claim.
Retention of Title Claims
If you supplied goods to the debtor company under a contract that included a valid retention of title clause, you may be able to establish that you still have title to those goods if, among other things, the contract was entered into before the goods were supplied, there are goods that have not been paid for, and they can be physically identified. We have recovered goods subject to such clauses in a number of situations when corporations, liquidators, or administrators originally refused to relinquish them.
Personal Liability Of Directors Other Than To Administrators And Liquidators
If a director provides a personal guarantee or contracts personally, they will be personally liable. In certain cases, they may also be personally accountable if they committed false misrepresentations, if a limited company is a sham, or if assets were fraudulently moved away from their firm.
Pursuing claims against bankrupt corporations and related third parties is an arduous process fraught with dangers and obstacles. However, with these steps and the right legal guidance, you have very little to worry about. Kindly drop your thoughts and questions in the comments section below. Thanks for your time!