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Ben Jones
Ben Jones, UK Lawyer
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There, I used to work company called Imagecroft

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Hi there,
I used to work for this company called Imagecroft Ltd, I confronted my boss about him syphoning off company funds, he then unfairly dismissed me. I approached lawyers to sue for unfair dismissal. The former boss then proceeded to liquidate the company as he foresaw that I could win a lot of money from damages in unfair dismissal.
I won the unfair dismissal case at the Employment Tribunal, the judge awarded me £30,000.
Now the company has been liquidated and the Liquidator is now demanding that I repay the directors loan which i have taken from the company worth £8,000. But the judge awarded me £30,000 for unfair dismissal before the company was liquidated. I am telling the liquidator to off-set the amount that I owe as a debtor with the £30,000 that the company owes me as a creditor. The liquidators response is, "The offset for the unpaid directors loan is not acceptable. Where a loan to a director remains unpaid for more than 9 months and one day, HMRC requirements are that it must be repaid or in the event of a liquidation may be offset against dividend on an in specie basis. Interest, however, is payable at the official rate to the company to the date of repayment or deemed repayment by in specie settlement". He is threatening to assign this £8,000 to a debt collector. Please advise.
Submitted: 1 year ago.
Category: Law
Expert:  Ben Jones replied 1 year ago.
Hello, my name is***** am a qualified solicitor and it is my pleasure to assist you with your question today. When was the loan due for repayment?
Customer: replied 1 year ago.
Hi Ben,The loan was taken out on September 2013, there's no set date of when the loan was due to be paid back. Imagecroft Ltd went to liquidation in 15th August 2014. I was unfairly dismissed one month after i was given the loan, i was not asked to repay the loan by my boss at the company. At the employment tribunal, my former boss told the judge that he'll offset the loan that i owe with the salary that he is due to pay me, but the judge said that he cannot do this.
Expert:  Ben Jones replied 1 year ago.
The issue here is that these two amounts are independent from each other. You owe the company money and they owe you money but you cannot demand that these are offset against each other. Both are governed by different rules so it is not as simple as offsetting them. What they have said about the repayment of the loan is correct – it needs to be repaid within 9 months and a day from the end of the company’s accounting period. If it is not repaid then the company will have to pay tax on it. If you are due money from a tribunal claim for unfair dismissal then that will rank as an unsecured debt against the company and will rank in priority against other debts. You can check the order of repayment here and as you will see as an unsecured creditor you will rank quite near the bottom: http://www.brettsbr.co.uk/wp-content/uploads/2013/06/Creditors-15.04.13.pdf The reason the company are unwilling to offset the amount you owe them is because they probably know that there is not enough money to pay you all or even any of the money owed so they will not get it back in any other way. They are entirely within their right to refuse such an offer. You can only wait to see whether there are enough assets to pay your part of the debt but in the meantime they can take their own action to recover the loan given to you. If you refuse to pay and in the end it goes to court, it will have the option to decide whether to allow such an offset or not, but there is no guarantee of that happening ad you could still be asked to repay the loan before you are allowed to pursue your money. I hope this has answered your query. I would be grateful if you could please take a second to leave a positive rating (3, 4 or 5 stars) as that is an important part of our process and recognises the time I have spent assisting you. If you need me to clarify anything before you go - please get back to me on here and I will assist further as best as I can. Thank you
Customer: replied 1 year ago.
Hi Ben,The liquidator says that HMRC states you can offset dividends against directors loan, why not off-set a tribunal decision against directors loans, because are not dividends and directors loans also governed by different rules?If the liquidator assigns the loan debt to a third party to recover the loan as he threatens, can I challenge it? You said if the case goes to court the judge can decide, does it means that I have a chance for the directors loan to be off-set against the tribunal award?You state: "It needs to be repaid within 9 months and a day from the end of the company’s accounting period. If it is not repaid then the company will have to pay tax on it". How can a company that's been liquidated pay tax? Why should I care?
Expert:  Ben Jones replied 1 year ago.
A dividend is completely different to a tribunal judgment. And this is all to do with complex tax rules, the fact is you cannot offset the judgment against the loan. I am not sure how you can challenge the loan as it is owed - you cannot say that you are owed money from a tribunal judgment and then challenge it on those grounds - remember they are entirely separate debts and the repayment of one does not depend on the repayment of the other. A liquidated company will still have tax liabilities even after it stops trading. It is not for you to care really, I was just explaining why they have said it must be repaid within 9 months
Customer: replied 1 year ago.
According to Wikipedia it states: In certain jurisdictions (including the UK[citation needed]), set-off takes place automatically upon the insolvency of a company. This means that, for each party which is both a creditor and debtor of the insolvent company, mutual debts are set-off against each other, and then either the bankrupt's creditor can claim the balance in the bankruptcy or the trustee in bankruptcy can ask for the balance remaining to be paid, depending on which side owed the most.Can this not apply to me?
Expert:  Ben Jones replied 1 year ago.
This is known as ‘insolvency set off’ and to rely on it you must be able to show the following: That before the liquidation of a company, "there have been mutual credits, mutual debts or other mutual dealings" between the company and a creditor. However, the obtainment of a tribunal judgment would not fall within these. Had you been owed money for holiday for example, and this was not paid to you, then it would qualify but not a judgment which is based on a judge’s opinion rather than something more specific. So it would not be covered under these rules. Hope this clarifies?
Customer: replied 1 year ago.
Hi Ben, there must be a loophole. This man siphoned money from the company, paid me low wages, close to minimum wage in return for sweat equity, my hard work as a robotics engineer, i made his company lots of money. He would have his accountants fiddle the books to avoid paying corporation tax, or his shareholders any dividends. he never paid corporation tax, only claimed refund from hmrc. He screwed me over big time, i worked for him for seven years only to be frauded by him. He owes me £30,000. He declared on his website that his business is going strong and that he had to liquidate to avoid paying me this money that has been awarded to me by the judge. And now you're telling me I have to pay this scum £10,000? I can't accept this injustice. I have no job, i have no income, my wife has been supporting me for the last 2 years, she's pregnant with her first child. Why does this man get away with fraud with hmrc, avoid paying me unfair dismissal and now I have to pay him back the money.
Expert:  Ben Jones replied 1 year ago.
I understand your position but all I can do is tell you what the law states. You do not have to pay the loan back before you claim the money though. So if you wanted to you could try and take enforcement action against them but as they are in liquidation this will be dealt with under strict rules as mentioned above. You are not required to repay the loan before you can do that so if you do not wish to do it, it would not prevent you from formally pursuing the tribunal award
Customer: replied 1 year ago.
So I can tell the liquidator that i wish to pursue the unfair dismissal award first? I can say that to him. He's given me a deadline for this Friday to let him know whether I can pay back the loan, otherwise he'l refer my debt to a third party. This is scaring me. Will the third party debt turn upto my house to seize my car, or will I be given a chance to contest it in court? What are my options?
Expert:  Ben Jones replied 1 year ago.
When they pass this on to debt collectors they are just there to threaten you and try and force you to pay. They cannot seize any of your property. To do that, the company has to go to court and obtain a curt judgment against you, which they can then try and enforce formally, such as by suing bailiffs. That is where they have the power to seize property but you can challenge it in court before it gets to that. Also they will have to follow strict rules so they cannot just turn up and take property. So you can refuse to pay the loan back and try to pursue your tribunal claim, then deal with any third parties separately as mentioned above. If your original question has been answered I would be grateful if you could please quickly rate my answer by selecting 3, 4 or 5 starts at the top of the page - it only takes a second to do and is an important part of our process. I can still answer follow up questions afterwards if needed. Thank you
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