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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3840
Experience:  Solicitors 2 years plus PQE
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Need advice regarding a company in compulsory liquidation in

Customer Question

Need advice regarding a company in compulsory liquidation in the UK
Submitted: 4 months ago.
Category: Law
Expert:  Alex J. replied 4 months ago.

Thank you for your question and welcome. My name is ***** ***** I will assist you. Please can you provide me with some further information? Kind regards AJ

Customer: replied 4 months ago.
I have a company which was put into compulsory liquidation by hmrc.It is being run by the official receiver (insolvency examiner) and they have asked their solicitor to recover their view of monies to the estate.There is a directors loan outstanding of approximately 40K plus they have now added an additional 80K which relates to dividends taken but say it is unlawful because it resulted in negative shareholder funds.I am the only director, my parents are also shareholders but have never been active in the business.My question ultimately is how can I reduce the amount they are demanding and what are my options and strategies to formulate a response?Thanks and all the best
Expert:  Alex J. replied 4 months ago.

Thank you. Is the demand only being made to you? Were the dividends declared and recorded and approved by your parents? Do you have access to the accounts and company books?

Customer: replied 4 months ago.
The company is or should I say was Limited. Yes the demand is being made to me. I need to urgently respond to their solicitor today. I do have accounts (but only for the previous 2 years as hmrc wound up the company before we created any accounts, but they have the bank statements and have included the final year as well. Parents have a different class of shares and never received any. Accounts were created retrospectively and late as a result of my inability to focus on the business because of the deterioration and final family breakdown with my partner
Customer: replied 4 months ago.
The company traded since 2006.
Expert:  Alex J. replied 4 months ago.

Thank you. Were the dividends ever paid while the company was insolvent? Or while you knew it was insolvent? Also do you have any money to repay anything to the OR?

I have to go offline briefly but will be back by 1.30pm. Kind regards AJ

Customer: replied 4 months ago.
Does negative shareholder funds mean it was insolvent?Technically I do just about have the amount but is there a way to mitigate it somehow? For example, I had to take some money in order to survive, provide for the family. If it was taken as salary, would it be treated by the OR differently? I will be wiped out by this and want to provide for my children and begin another business, for which I need working capital and money to live on
Customer: replied 4 months ago.
My objective was to try and trade out of the difficulty, but clearly I failed, not least as feeling emotionally destroyed by my family break up. I don't know if that makes any difference, but it is the case
Expert:  Alex J. replied 4 months ago.

Thank you. The way you can mitigate this is two fold:

(i) Prove that the company was viable and you did not have reasonable grounds to suspect it might go insolvent when the drawings where made;

(ii) Challange any sums that were take out more than twelves months before the date of the liquidation.
In order to do this, you need the accounts, and you should write a report explaining why you are not liable to pay each payment - each time explaining that the company was trading and solvent when the dividends were drawn.

Have they just sent you a blank demand for £80k? When do you have to pay it by?

Customer: replied 4 months ago.
I have 2 letters from the solicitors telling me that the previous 3 years dividends were unlawful because of negative shareholder funds and they expect that 80k plus the directors loan paid back to the estate.I never maliciously took money out, it was to live and to provide for my family with the intention of trading out of the situation. That didn't work. My focus was completely destroyed as a result of feeling emotionally distraught about the deterioration of the family unit.HMRC lost patience and wound the company up. I can provide more detail but I need to get my 3 year old from nursery now...can we continue speaking once I return?They are requesting payment now.
Expert:  Alex J. replied 4 months ago.

Thank you. Negative shareholder equity is means that the liabilities are greater than company assets. That does not immediately mean the company was insolvent. When did the company contemplate insolvency? That is what they will have to prove - you will be able to negotiate to that point. If you were still paying dividends when the company had no prospect of trading its way out of trouble, then those you are liable to repay. Kind regards AJ