Debtor in Liquidation

[McVicar Marketing]

This is more out of interest that ‘what should I do’.

I have a debtor who was subject to a winding up order (on petition by HMRC).

They’d been horrendously overdue on a payment, and I’d done a significant amount of chasing etc. However, due to the level of debt (which would have been dwarfed by the cost of my time if I’d spent more than a day or so on it),I’d decided to write it off before the end of the financial year.

I’d heard rumours that this company was in far deeper debt than was due to me, and knew that there was little chance I’d even register on their radar for priority repayment.

Then I got a letter from the Liquidator, which has got me a bit confused.

I understand that the liquidator has found the company to have no assets, so therefore ‘there is no prospect of any dividend to creditors in this case’.

But, I know for a fact that the company is still trading and so presumably must be making money/profit.

(Their main business is running a nightclub, so there’s no issues of customers making complaints about services and products paid for but not supplied. I’m assuming that they’ve managed to wangle a deal with the venue and other suppliers which is either proforma, or based on payment once they have the takings from each night).

Question is: is it legally correct that a company can be in liquidation, have no assets, therefore is unable to pay back any debt, but can still trade?

Isn’t this just taking the proverbial out of the creditors who can’t do anything to chase their debt because the company is in liquidation - but could be chasing for payment from the new money the company is making?

As I said at the start, there’s no real point in me continuing to worry about this company and their debt to me – but it’s becoming a bit of a thorn in my side due to the feeling that someone is having a laugh at the creditor’s expense.

I also heard the one of the directors, when he realised what a nasty financial state they were in, very early on decided to let the company slide into liquidation rather than make an effort to find a resolution that would pay back his creditors.

It sounds like he thinks he can simply create a company, build up profit by not paying for services, then liquidate and bank the cash by not using any accounting system (they never lodged any accounts with Companies House despite being Ltd).

NB: I have asked the Liquidator this question, but no definitive answer so far.

Also NB: I’ve been lucky so far in avoiding bad debts – this was my first and only one. I got caught out because I made the decision to extend credit to a new customer in order to get a charity campaign up and running to a very tight deadline – I know better and shouldn’t have wandered away from my proforma basis for new customers (while I do their credit check).

 

[Former Member 1]

Question is: is it legally correct that a company can be in liquidation, have no assets, therefore is unable to pay back any debt, but can still trade?

Not a question I could answer myself; though I suspect the answer is possibly under certain limited circumstances...

Thing is; are you sure it's the company you were dealing with that is actually trading?

From the outside it's often not entirely clear... I for instance have a limited company that exists only to hold and administer our I.P. People often think that's the production company when it's not...

IF the company you're talking about had not assets how did it function as a nightclub? Was it perhaps 'hiring' its facilities from another entity? And it's that you see functioning now?

 

[Scottish Business Owner]

Hi Inga,

I will respond in more detail later but in the meantime can you forward me (via PM) the limited company details and I will do some checking for you?

 

[McVicar Marketing]

Hi ,

Cheers for that. Will PM you in a moment.

Hi Matt,

Cheers for the reply.

Good point re the entity differences.

The Liquidator puts it this way ‘The company was incorporated on x and subsequently operated a nightclub, x, from leased premises at x’

So, I think I can assume that the club night had no existence as a separate entity, and was the sole product/service offered by the company.

It’s very common for club promoters to function without any assets. I’m being very general here – but, at a very basic level, all a club promoter needs to do is pay for a DJ and some flyers. All equipment, drinks stock, staff (etc) are provided by the venue who get their money via the lease/share of the door/benefits in kind. Club promoters costs are very transient, and they can run a club night without any investment. That’s very different from, for example, a publican.

Where I’m confused is that I’d actually never heard of the Ltd company until I got the letter through from the Liquidator. The invoice was under the nightclub name.

Maybe what has happened is that the Ltd company is in liquidation, but that the nightclub’s brand has been ‘extracted’ by the directors to trade now under its own right.

Which, if this is the case, the directors can resurrect their brand without customer knowledge of the Liquidation – and continue to benefit from its brand’s reputation. That might just be hard luck on the debtors.

What set me off on thinking that this couldn’t be correct is that one of the Directors still promotes the nightclub under its original name, calls himself a director and gives his length of time as a director to correlate with the incorporation of the Ltd company. But, that might just be me being pedantic … especially as this is my only bad debt, and was created out of me trying to do something nice for charity!

Thanks,
Inga

 

[Former Member 1]

Where I’m confused is that I’d actually never heard of the Ltd company until I got the letter through from the Liquidator. The invoice was under the nightclub name.

Which is against the law... Limited Companies need to show their status and company number on all communications; and certainly if they were applying for any form of trade terms...

Again; I'm certainly out of my depth here but I'd be wondering if there's a case against whoever signed the purchase order/contract? One thing's for sure; they sound like people I'd REALLY like to avoid doing business with! :sad:

 

[McVicar Marketing]

Couldn't agree with you more Matt.

Lesson learnt - never, ever, step outside of your own policies.

Technically - I didn't even extend them credit. They had an invoice to be paid within 7 days, which I should have insisted was paid before the project went ahead.

However, I took the call to carry on as the project was for charity, had to hit a key deadline, and this was the only company (out of 12) who was overdue.

It hasn’t been too costly a lesson. I’m just fascinated about how liquidation works, and where the rights of the creditors come into play.