Are company directors liable for debts run up by the company?
Thread poster: Dr. Andrew Frankland

Dr. Andrew Frankland  Identity Verified
Spain
Local time: 10:51
Member (2007)
English
+ ...
May 9, 2008

Dear All,

I, and several other translators, am currently encountering serious problems in getting paid for a series of jobs that I did for a London-based translation agency earlier this year. I've checked with Companies House and the company has two directors, each of whom holds 2000 shares in the company. Several of us are thinking of starting legal action in the small claims court to recover our money. My question now is: assuming the court approves our claims, are the company directors personally liable for these debts or can they simply file for bankruptcy and pay nothing?

Surprisingly, the same two people have recently established a new translation company at the same address, which to me sounds like they're about to wind up the first company and do all their business through the new one. Would we have any recourse against these people if they were to do this?

Thanks in advance for any advice on this matter.

Andy


Direct link Reply with quote
 

Ralf Lemster  Identity Verified
Germany
Local time: 10:51
English to German
+ ...
*Limited* company May 9, 2008

Hi Andy,

I, and several other translators, am currently encountering serious problems in getting paid for a series of jobs that I did for a London-based translation agency earlier this year. I've checked with Companies House and the company has two directors, each of whom holds 2000 shares in the company. Several of us are thinking of starting legal action in the small claims court to recover our money. My question now is: assuming the court approves our claims, are the company directors personally liable for these debts or can they simply file for bankruptcy and pay nothing?

Assuming that this is a private limited company, and further assuming that there is no evidence of criminal offences involved, liability is limited to the company's assets - hence the name.

Surprisingly, the same two people have recently established a new translation company at the same address, which to me sounds like they're about to wind up the first company and do all their business through the new one. Would we have any recourse against these people if they were to do this?

You would need to ask a lawyer; IIRC directors of a bankrupt company may be banned from directorship. I used to be a director of a private limited company myself, but do not recall all the details.

Best regards,
Ralf


Direct link Reply with quote
 

Dr. Andrew Frankland  Identity Verified
Spain
Local time: 10:51
Member (2007)
English
+ ...
TOPIC STARTER
Private Company Limited by shares May 9, 2008

Thanks Ralf,

I guess that answers one of my questions. However, one could consider that they acted fraudulently in contracting a service that they never paid for (I think).

Do you know of any way of finding out about what assets a company might have? All I can get from Companies House is the Current Appointments Report and the 363a form.

Andy


Direct link Reply with quote
 

Dr. Andrew Frankland  Identity Verified
Spain
Local time: 10:51
Member (2007)
English
+ ...
TOPIC STARTER
Problem solved May 9, 2008

My threat of County Court action this morning seems to have done the trick and almost all my outstanding invoices have now been paid. I've also copied my email to all the other people affected by this company so they're going to be kept busy over the next few days!!

I know for a fact that the same people have recently set up another translation company (same registered address, same directors and company secretary). Should I contact Site Staff to ask them to keep on eye out for this company?

Andy


Direct link Reply with quote
 

Samuel Murray  Identity Verified
Netherlands
Local time: 10:51
Member (2006)
English to Afrikaans
+ ...
Depends on creditors' tenacity May 9, 2008

Dr. Andrew Frankland wrote:
I've checked with Companies House and the company has two directors, each of whom holds 2000 shares in the company. ... My question now is: assuming the court approves our claims, are the company directors personally liable for these debts or can they simply file for bankruptcy and pay nothing?


I don't know about your country specifically, but there seems to be a belief among some people that the liability of a limited company is limited. But just imagine how difficult it would be to run a small business if the business' liabilities can never exceed the amounts owed by it to its owners. No bank is going to lend it money. No creditor in his right mind will do business with such a business. Well, it may depend on the country, but don't believe for a second that a two-director company's liabilities are limited to the owners' equity.

A mistake often made by small business people in my own country is that they believe it is dangerous to trade in their personal capacity, but safe to trade as a business, as if having a registered business would protect them from creditors. In truth, owners of a business can easily be held personally liable for debts of the company in various scenarios, even if the company is a so-called "limited" company.

So take heart -- ask yourself "what would the bank do in my position". Rarely will the answer be "the bank is powerless to get its money back", and the same applies to you, if you are a creditor.

This is not legal advice.


Direct link Reply with quote
 
Daniel García
English to Spanish
+ ...
Which circumstances? May 10, 2008

A mistake often made by small business people in my own country is that they believe it is dangerous to trade in their personal capacity, but safe to trade as a business, as if having a registered business would protect them from creditors. In truth, owners of a business can easily be held personally liable for debts of the company in various scenarios, even if the company is a so-called "limited" company.


Hi, Samuel,

As far as I know, in Spain, the liability of a limited company is restricted to its own assets.

If the company goes bankrupt, the owner does not have to pay the company's debt using his own money.

The only exception (similar to what Ralf was mentioning) would be when the owner has committed legal offenses when running this company.

For instance, if it can be proved that the owner stole money from the company (and hence causing it to go bankrupt), then the creditors could try to obtain compensations out of the owners personal equity.

From what you say, in South Africa, the situation is different as it is easier to make the business owner to pay the companies debts from his own assets. You mention "Various scenarios", which scenarios are these, I would be curious to know.

Daniel


Direct link Reply with quote
 


To report site rules violations or get help, contact a site moderator:


You can also contact site staff by submitting a support request »

Are company directors liable for debts run up by the company?

Advanced search







Across v6.3
Translation Toolkit and Sales Potential under One Roof

Apart from features that enable you to translate more efficiently, the new Across Translator Edition v6.3 comprises your crossMarket membership. The new online network for Across users assists you in exploring new sales potential and generating revenue.

More info »
Protemos translation business management system
Create your account in minutes, and start working! 3-month trial for agencies, and free for freelancers!

The system lets you keep client/vendor database, with contacts and rates, manage projects and assign jobs to vendors, issue invoices, track payments, store and manage project files, generate business reports on turnover profit per client/manager etc.

More info »



All of ProZ.com
  • All of ProZ.com
  • Term search
  • Jobs