Recruited into an insolvent company

[westmidsman]

Hi all

 

I have recently relocated to the South West to take up a position as the manager of a company. No relocation was offered so I have spent around £2,500 of my own money moving here as well as taken up a 6 month tenancy on a house. Both myself and my wife left permanent employment for a fresh start with this new job and have uprooted the kids etc. to do so. Now, the problem is it has taken a huge effort to even get them to open up the books for me (bearing in mind this is a company the directors want me to manage) and it seems apparent that there just isn't enough income or reserves to meet the expenditure. There are invoices coming out of the woodwork from all over the place and creditors chasing on a daily basis to get paid, some invoices have been outstanding for almost a year now. The company is a limited liability partnership (directors agree to contribute £1 if the company winds up etc.). My question is, can I go after the directors personally for compensation if it turns out they have recruited me into a company that is about to go bump?

[Emmzzi]

Fraid not - incumbent on you to check out the company viability before making a huge life changing decision.

[westmidsman]

And how would one do that exactly? The last accounts filed were 2012-2013.

 

I am an employee of a company, not a director or owner or anything like that.

[Emmzzi]

Sometimes you can't, and that risk of the unknown has to be factored into your decision making.

[westmidsman]

Hmmm, okay I'll wait for other replies lol. The directors surely must have known what was going on in their own company or they were extremely negligent in not knowing.

[Emmzzi]

Did you ASK them? And can you PROVE you asked them?

[westmidsman]

Did I ask them if they were insolvent? Yeah, that's how I start every job interview....

[Emmzzi]

Ok. Let's see if anyone else has a different view!

[steampowered]

Sorry to hear about what must be a really difficult situation. Unfortunately I am with Emmzzi on this. I don't think the Directors were under a legal obligation to provide full disclosure about the company's finances. I don't think you can go after them personally.

 

The exception would be if you can prove fraudulent misrepresentation or deceit by the Directors - but this would need to be a positively false statement rather than making a claim about something they didn't tell you.

[westmidsman]

Actually found this:

 

Wrongful trading

 

If a company finds itself in financial trouble and carries on trading to the detriment of its creditors (a practice known as wrongful trading), any director who should have concluded the "point of no return" before it had been reached, can be held personally liable for the debts if the company then goes into liquidation. Directors must therefore be aware of the company's financial status and ensure that someone competent monitors its solvency.

However, a director can be cleared of this liability if a court is satisfied that when the director realised that the company was not able to recover, he or she took reasonable steps to minimise potential losses to creditors.

Other factors that may help convince a court that you acted properly include making sure that:

the board was properly constituted

board meetings took place with detailed agendas of what was to be discussed

board meetings were properly minuted

proper management information was provided and records kept.

If a director is successfully sued for damages, he or she may claim a contribution from anyone else who is also found to be responsible. However, a court can lift this liability wholly or partially if it is satisfied that you acted honestly and reasonably and, on balance, ought fairly to be excused.

 

I have learnt since joining the company that the full board hasn't met for a long time but they have formed what they told me was an "express board". Sounded a bit odd at the time but it looks like they are withholding the true state of affairs from the rest of the directors. It's all just a big mess. I appreciate I'm not a creditor of the company (yet) but I just find it utterly immoral that they have brought me and my family down here (around 200 miles away) for a job that doesn't really exist. I guess as the little guy in this, I just get shafted. Excellent.

[steampowered]

Have a read of the legislation at http://www.legislation.gov.uk/ukpga/1986/45/section/214. Unfortunately you don't have standing to bring a wrongful trading claim. This kind of claim can only be brought by a liquidator. If the company went insolvent you could ask for a liquidator to be appointed and ask him to investigate but its not an ideal situation.

 

Creditors do have standing to bring this type of claim, http://www.legislation.gov.uk/ukpga/1986/45/section/212, but difficult unless you can prove that the directors have wrongfully taken money out of the company.

[smokejumper]

Is it possible as the new manager, that you can get the company back on it's feet, they probably took you on thinking you would do that.

[Sidewinder]

Is it possible as the new manager, that you can get the company back on it's feet, they probably took you on thinking you would do that.

 

Agreed. As a part of managing the business can you start to prioritise outstanding debts, negotiate with creditors and make an honest assessment of the company's financial position? Try asking for a frank discussion with the Directors and try to come up with a viable plan to take the business forward.

 

I agree with you that asking questions about the solvency or otherwise of the business at interview might put you on a hiding to nothing, but surely a consideration before relocating would have to be the long-term plans of the business and its current market position? I always check Duedil to get an idea of a company's trading position when I need to - even for no reason other than being nosy sometimes!

 

I can understand the worry and concern, but do not feel that you have anything at this stage from a legal perspective. Sure there might be a potential situation of the business trading whilst insolvent, but it wouldn't necessarily benefit you personally.

[westmidsman]

Is it possible as the new manager, that you can get the company back on it's feet, they probably took you on thinking you would do that.

 

As far as I can tell, we are beyond the point of no return. It's an odd business I work in as we have a set income with very limited potential to generate a commercial revenue. They have massively overspent on staffing from the looks of it. We work from a set business plan and so don't have a market position as such - we don't sell a product or service. Like I say....odd. It's quite a specialised field hence my relocation. These jobs are quite few and far between and they almost always result in relocation.

 

Another job has come up elsewhere. Looks like I might be applying for that one