The limited company laws are designed to keep business and personal finances clearly separate, principally to protect company directors in the event of insolvency.
However, in some cases, officers of the limited company may loan money to it during times of need, either in the form of cash, or to purchase crucial business assets.
But if the limited company then becomes insolvent, can a director, shareholder or employee get their money back?
Insolvencies Pay Creditors in Order of Priority
If you’ve loaned money to a company, whether you work for them or not, you are a creditor and will take your place amongst those waiting to be paid. If you’ve lent money to the company without any form of guarantee or security, this makes you what is called an ‘unsecured creditor’. (Employees owed wages are in a higher category known as ‘preferential creditors’).
Unsecured Creditors During Liquidation
Unsecured Creditors do have statutory rights to be kept informed of what is happening, but they fall lower in the payment hierarchy than ‘secured creditors’, which may be banks with a fixed charge. As an unsecured creditor you have the following rights:
Recent changes to the law mean that face-to-face creditors meetings do not happen unless 10% of creditors (by value or number) specifically request it. As an unsecured creditor you have a right to express your opinion here so make sure you use your vote if you wish to meet in person.
Appointing an Insolvency Practitioner (Liquidator)
Unsecured Creditors have a right to vote on the appointment of the liquidator, putting forward their own candidate if they feel the shareholders choice inappropriate.
Forming a Liquidation Committee
It is the right of an unsecured creditor (during either voluntary or compulsory liquidation) to form what is called a ‘liquidation committee.’ This is a group of between 3 and 5 members whose role is to oversee the liquidation, help agree the insolvency practitioner’s fee, and monitor the liquidator’s conduct during the process. It is the right of the committee to request meetings with the Insolvency Practitioner at any stage, or receive an update on the situation.
What if the Insolvent Company Has Goods that Belong to Me?
If you can legally prove that you are the rightful owner of goods in the possession of the insolvent company, you can make a claim via the appointed insolvency practitioner.
Can I Claim Interest on the Debt Owed to me by the Insolvent Company?
There are particular circumstances where unsecured creditors may claim interest on their debt. One instance is where this has been specified in the original agreement and where you may have proof of having issued an interest reminder of some kind.
Once the Liquidation is Complete, When do I get my Money?
As the lowest part of the debt hierarchy, it is common for unsecured creditors not to get 100% of their money back. If there is not enough left once the secured creditors have been paid, VAT registered creditors may be eligible for what is called ‘bad debt relief’.
Can I Appeal if the Liquidator Refuses to Pay a Claim?
Any creditor has the right to make an appeal should their claim not be paid out. If communication with the insolvency practitioner fails to yield the result you’re hoping for you have the right to ask for court adjudication within 21 days.