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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3653
Experience:  Solicitors 2 years plus PQE
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I am a director of a limited company. A client is suing the

Resolved Question:

I am a director of a limited company. A client is suing the company (High Court). My company was in the process of being closed, voluntarily, not because of debts or anything like that, I just don't need it any more. As a consequence, the company has very limited funds and so cannot afford legal representation for the case. I was considering defending the case myself, in my capacity as the company's Managing Director, but I am frightened this could leave me open to be sued personally by me giving my time to this case being constituted as third party funding of the litigation. Can someone advise me whether me defending this case personally, not financially, but with my time and obviously travel to and from the court, could be class me personally as a third party funder of litigation and so leave me personally liable?
Submitted: 2 years ago.
Category: Law
Expert:  Alex J. replied 2 years ago.
Alex J. :

Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you.

Alex J. :

Generally you cannot be held personally liable for a cause of action against a company.

Alex J. :

You can be held liable for a company's debts in limited circumstances where the company is insolvent.

Alex J. :

See. S214-217 of the Insolvency Act 1986.

Alex J. :

Are there are grounds for joining you as a party? E.g have you personally guaranteed any debts of the company?

Alex J. :

If the claimant suspects that the company is going insolvent then they may request that you submit security for costs in order to defend the claim.

Alex J. :

Further more is there any suggestion that you have personally taken or dealt with any of the assets of the company in the last 12 months?

Alex J. :

I would make clear to the claimant that the company has no funds and the likelihood of any adverse judgment would result in insolvency.

Alex J. :

I look forward to hearing from you.

Kind regards

Alex J. :

AJ

Customer:

Hi,

Alex J. :

Hi

Customer:

I'm sorry but that hasn't answered my question at all. The company is not insolvent, I did say that. I asked can I personally be held to be a third party funder of litigation if I defend this case in my capacity as a director because the company itself cannot afford any legal representation? That is my only question.

Alex J. :

Have you received notice of the third party funder?

Alex J. :

You are an agent of the company as a director - you are not liable for the company's debts including any costs orders.

Alex J. :

Unless you handle the litigation in such a way so as to increase the costs - then any costs order will be against the company.

Alex J. :

In order to obtain a third party cost order against you personally they would have to show that you are acting in your own interests and not those of the company

Customer:

Hi Alex. Thank you. I have informed the claimants my company effectively ceased trading in August and has next to no funds available to it. If I defend this case as a director of the company, could they argue I am doing that to protect my own interests, because essentially what happens to the company doesn't matter, but if they gain judgment against the company and then apply to wind it up because it cannot pay any costs/f awardedpersonally

Alex J. :

Hi, Thank you. Do you have any personal interest in defending the claim?

Alex J. :

What is to be gained from defending the claim?

Customer:

costs/damages, they might be able to argue the only reason I defended the case was because how it would affect me personally as a director in the future as I would be classed as a failed director/director of a company that went insolvent.

Alex J. :

If they ultimately put the company into liquidation - has the company conducted any transactions that could reflect on you personally in any way?

Alex J. :

Just because a company goes insolvent, it does not mean you will be subject to Director Disqualification Orders.

Customer:

Only thing to be gained by defending the claim is I don't want to be associated personally with a failed company if I don't have to be and the claim is truly spurious; the client is an out and out liar unfortunately.

Alex J. :

If the company goes insolvent, people will be able to see on Companies House that you were the director of it before it went insolvent, but that does not necessarily have any negative consequences.

Customer:

I have taken funds out of the company over the past year as I have to live off the income of the company.

Alex J. :

Who are the shareholders?

Alex J. :

Did you take the funds out as a salary?

Customer:

There were 3 directors. One retired in August and because we knew we were essentially ceasing trading at the same time, the other director resigned, just leaving me on to tie everything up before we dissolved it. Depends what you class as salary. I did bank transfers from the company account into my personal account as salary payments, but they aren't for the same amount every month. Depends how much is available to take and if I needed to take any, but these payments never made the company insolvent at any time. The company will only go insolvent if it loses the case and an award is made against it.

Alex J. :

Hi, Thank you. Did you have a service contract or any contractual right from the company to withdraw this money from the company?

Customer:

I withdrew this money from the company as MD of the company. The other directors were aware of this.

Alex J. :

Hi, Thank you. Was there any documentation approving this - board resolution etc?

Alex J. :

Also are the three directors also the shareholders?

Customer:

no to the board resolution, yes the 3 directors were also the 3 shareholders

Alex J. :

Thank you. What is their opinion as shareholders? Really you have to ask them aswell due to the potential ramifications. If they want you to defend the proceedings - you should ask them for an indemnity.?

Customer:

it's my wife and father-in-law; we look on ourselves as one

Alex J. :

Ah I see.

Alex J. :

Can I tell you what the Insolvency Service advises -

Alex J. :

The best way to avoid personal liability is to take the professional advice of Insolvency Practitioner and follow it;

Alex J. :

In my opinion if you get the written opinion of an Insolvency Practitioner and follow their advice - if the company goes into insolvent liquidation (whether it be from a cost order or otherwise) - as long as you have followed the advice.....

Alex J. :

you can use these as a defence against any claim against you personally.

Alex J. :

You will then also have the benefit that the advice from an Insolvency Practitioner is underpinned by professional indemnity insurance.

Customer:

thank you, ***** ***** makes sense.

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