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Legal Eagle

Company Law

Q: Non-payment for supplies

What comeback do I have against the management of a limited company which goes into liquidation owing me for backstage equipment supplied for a production?

A: If you had the foresight to include in your contract for supplying the equipment a 'reservation of title clause', a clause to the effect that ownership of the equipment remains vested in you until payment is made in full, then you would be able to repossess the equipment concerned, but otherwise not. You should remember that in future, as it could make all the difference.

There are circumstances in which officers of the company can be made personally liable but I have no means of knowing if they apply in your case. For example, if the directors of the company continued to allow the company to trade after they knew or ought to have concluded, that there was no reasonable prospect of avoiding a liquidation and failed to take every step with a view to minimising potential loss to the company's creditors, then they can be ordered to make such personal contribution to the company's assets as the court thinks proper.

Delinquent directors of a company can also be prosecuted for various offences under the Companies Act relating to any mismanagement of the company's affairs. Also anyone responsible for carrying on the business of a company with intent to defraud creditors can be ordered to make such personal contributions to the company's assets as the court thinks proper.

This will not necessarily get you your money back but, if applicable, it might go some way towards doing so, depending on the financial state of the company in liquidation. Also, if you can show that an officer of the company or a person who has been concerned or taken part in its management has misapplied or retained or become accountable for any money or property of the company or been guilty of any breach of duty in relation to the company's affairs you can yourself, as a creditor, ask the court to examine the conduct of such person and compel him to make restitution. Be warned, however, that allegations of the kind described above are notoriously difficult to prove. The cost is prohibitive and it is not easy to get the authorities to act in relation to them or wise to take action yourself except in the most clear cut cases.

It may be worth mentioning a few other points. If you have a personal written guarantee of payment from one or more of the directors or managers of the company you will obviously have a good claim against the guarantor(s). In the unlikely event that the shareholders of the company have not fully paid the company for the nominal value of their shareholdings they will be required to do so in the liquidation, but the amount may not be significant and again may not much if any difference to you personally. Finally I have assumed the company has gone into liquidation due to insolvency, but this is not necessarily the case, and if the company is in members (as distinct from creditors) voluntary winding up you should get paid out in full in the liquidation.

First published February 1995