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Helping directors settle claims made by liquidators

Helping directors settle claims made by liquidators

In the aftermath of the pandemic, and the impact on small businesses of the downturn in trade since then, the first quarter of 2023 saw company insolvencies remaining close to their highest quarterly level since 1960. This trend has led to an increase in claims made by liquidators against directors of insolvent companies.

We have been advising directors of liquidated companies who are facing claims against them by liquidators for recovery of monies which it is said the directors owe to the company, whether due to the misappropriation of company funds or the management of the company’s transactions in the period leading up to the liquidation.

In our experience, we have found that some claims can be evidenced as being lawful and once a liquidator receives a detailed explanation about a particular transaction, and evidence is produced supporting the director’s version of events, the claim is resolved.

In most cases where we act for directors facing these claims, we are successful in achieving a resolution and settlement of these claims without the need for any court proceedings.

In a recent case, a director of a liquidated company was pursued by a liquidator for recovery of monies amounting to over £195,000. The claim largely related to monies spent by the company on staff, suppliers and on the purchase of assets for the benefit of the company.

We were able to advise the client on the extent of his personal liability, worked with him to put together submissions, explanations and supporting evidence to present his case to the liquidator, and prove that 95% of the claim had no merit.

Had the liquidator spent any reasonable amount of time analysing the company’s books and records, the legitimacy of the transactions concerned would have become apparent. Sadly, that did not seem to have happened. We were able to review the evidence and present detailed explanations, supported by documents, which proved the transactions were valid.

As a result, the claim settled for less than 5% of the liquidator’s claim with no legal action.

Stephensons insolvency law team advise directors and officers of distressed and insolvent companies on their rights, duties and obligations, and regularly assist in responding to claims made by liquidators. If you are a company director and need advice on the issues raised in this note, please do not hesitate to contact us.