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If it sounds too good to be true….

How many of you read the title and finished the saying off?

When companies are under distress, more often than not, so too are its directors.  This can be an area of vulnerability as directors desperately look for solutions.

Unfortunately, this includes social media invitations to “Rid you of your worries,” or “We can extinguish your company debts,” together with similar assurances, all without proper attendance in front of an experienced person.  The directors are told either they pay a fee from their personal savings or, the other approach is an offer to acquire the company shares for a nominal £1 albeit, you have to pay a percentage of the asset value to the “Acquiring” company.  In both cases, the directors are assured the company debts will “Go away” and they can get on with their lives without any more worry.

Subsequent to the liquidator being appointed those who paid a fixed fee soon discover they are being held liable for various claims where it is alleged, they are personally liable and must pay to restore a position.  PBC have been asked to assist directors who have fell victim to this approach and two familiar traits are clear, namely:

  1. The claim is often spurious and has little (if any) chance of being enforced through the courts. 
  2. The approach can feel frightening to the receiving director and any negative response to their approach is met with an insistence a claim exists.

It should be mentioned, claims against directors happen in many insolvency matters.  However, more often than not a director will have been advised from the outset of potential headings for claims and an insolvency practitioner is generally more open to the commercial considerations surrounding a claim and any settlement.

Gary Pettit of PBC added,

“I was appointed liquidator by the Secretary of State over a company that was wound up by the court.  The PBC Team discovered the directors had been in the process of selling the company for £1 whilst also paying £10,000 to the acquiring party.  Who believes that is a good deal?  Unfortunately, this is what desperate people can do.

That planned deal was stopped, the £10,000 recovered and the assets were eventually sold for £180,000 – slightly more than the proposed £10,000!  Had that deal been completed the director could have been held personally liable for the resulting loss.”

The stress on directors of a company in financial difficulties can be high and often lead to making hasty decisions.  Those decisions can often be encouraged by businesses who entice the directors with an escape plan that can lead to the prospect of facing personal liability and potential directors’ disqualification for breaches of duty.  That deal very quickly takes on a different complexion.

If you require any advice or assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss your situation on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.