 Limited Liability 'Limited liability' is afforded to company directors to help maintain the entrepreneurial spirit of the small British business owner who is known as the backbone of British commerce and industry (I cannot think of another reason). Limited liability has been abused for many years, and will continue to be so for some time. The government is addressing the need for new legislation to ensure the entrepreneurial spirit is maintained: we hope, without protecting the company director who shows, and intends to have very little, if any, care for their fellow business owner. Personal assets are at risk if malpractice is proved against company director/s.
Directors of a company which claimed substantial returns could be made from investments in whisky due to a shortage in the run up to the Millennium were disqualified on 18 June 1999 in the High Court. Stephen Dunne and James Gourley, were disqualified for 13 years and 10 years respectively.
The company was wound up on the public interest grounds on 5 February 1997. It had carried on business as a single malt whisky investment company. Its estimated total deficiency was £139K.
The misconduct found by the court included:
1. Making representations to the general public which were untrue, or were reckless as to whether they were true or not.
2. Allowing the company to receive an undisclosed profit by charging a 200% mark up on the whisky sold to clients.
3. Allowing the company to trade with inadequate financial information.
4. Allowing the company to trade whilst taking unwarranted risks with creditors' money.
5. Receiving or allowing the company to pay excessive remuneration either by direct payments or by payments to connected companies/third parties.
6. Forging or allowing the forging of the company's bank mandate.
7. Mr Dunne acted as a director of the company whilst bankrupt and Mr Gourley allowed him to do so.
Personal Insolvency
Personal Insolvency ranges from a person with a loan agreement that they cannot pay: with a balance in excess of £750.00, to a sole trader with either trade or personal debts in excess of £750.00.
The personal assets of a sole trader are at risk if their business becomes insolvent. Their business and personal dealings are of the same entity. Personal insolvency does not have to end in bankruptcy. An Individual Voluntary Arrangement (see below) or an Administration Order can give you a level of protection against impatient creditors.
Individual Voluntary Arrangement (IVA)
An individual can put together a plan of action and payment for their creditors to vote upon. A 75% (in value*) majority is required. A payment plan will offer a 50 - 95% reduction in the amount you are owed. The alternative to a payment plan: is usually some payment for preferential creditors, with nothing for unsecured creditors.
* If the debtor has debts of £200,000.00, those creditors who vote for an individual voluntary arrangement must have at least £150,000.00 owed to them to be successful. One creditor owed £150,000.00 will out-vote any number of creditors who make up the other £50,000.00
If the 75% is not achieved, any of the creditors with a debt of at least £750.00 can apply for the bankruptcy of the individual. Also, any creditor can take court action for a county court judgment. If the individual voluntary arrangement gets the 75% and the individual does not maintain the arrangement, the supervisor of the arrangement can petition the court for a bankruptcy order, if they choose not to apply, the creditors can apply for bankruptcy or court action.
A bankruptcy order takes precedence over all other forms of debt recovery. All creditors have the right to be included in the list of creditors, and benefit from any payment arrangement.
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