The Right of |Set Off

[Guest repo threat]

was a sole shareholder of a Ltd company. five days before it was petitioned for winding up, i received a formal demand to repay the company bank borrowings from the bank. I had 2 years earlier entered into a personal guarantee (i',m ok with that). On the date of liquidation, I had overdrawn £21,000 on my directors loan account. since the liquidation, i have personally discharged the bank borrowings to the tune of lets say £18,000. The bank have since confiurmed that they no longer have a debt outstanding and that they are not entitled to prove any longer as a creditor of the liquidated company.

 

So, I am a debtor of the company to the tune of £21,000 and the company is a debtor of me to the sum of £18,000. The liquidator says i must repay the £21,000 and collect whatever dividend is available as a creditor. I, on the other hand believe that i have the right of set off. granted i repaid the debt after the liquidation, however, the contingent liability was created 2 years previously by way of my entering into a personal guarantee and the actual liability crystallised five days before the petition. There has been no dividend announced to the creditors. I believe that i am only obliged to pay the net balance of account.

 

Who is in the right ?

[debtinfo]

So basically, you have made yourself and the bank a preferential creditor to make sure you dont have a personal liability to the bank, I can see where the liquidator is coming from, although i cant give you a definite answer

 

If you had repaid the directors loan to the company all of the creditors would have been paid prorata including the bank and so you would still have a liablty to the bank. The thing to consider here is that originaly there was not 1 direct chain of debts but that you had 2 distinct debts, 1 you have paid, 1 you have not

[Guest repo threat]

yes, but at the time of liquidation, i was seized of the bank debt, they had demanded i repay the same which i duly did.

[toddle2u]

On the facts presented here it would seem that you do not have a right of set off.. To have a right of set off you need to be able to prove that this is a business practice that has been used between you and the Limited Company previoulsy (even if it is your own Ltd Co.). In this case it would seem that this is not the case. Try and do a deal with the IP if you can. Offer him 25% of what is owed and tell him that's all you've got.

[Guest repo threat]

the simple fact is that the bank had a right of bankers set off, so if the loan account had been discharged by me before the liquidation, the bank overdraft and loan would have been satisfied and the remainin balance would be available to the remaiing creditors. In the event of an action by the liquidator, as a minimum, i would seek equitable set off.

 

If the liquidator commenced misfeasance proceedings, then my understanding is that the creditors are entitled to compensation, the compensation would be their loss as a result of the misfeasance, i.e. the difference between the overdrawn directors loan account and the bank indebtedness. I do accept that had i paid off a dirrerent creditor, then the bank set off would not be applicable and the loss calculation might arrive at a different figure. Misfeasance cannot be merely stated, it has to be proven and in such proceedings, the ajudicator has discretion to award compensation accordingly. It is not necessarily as straight forward as one might envisage.