Debt Collectors cashing in on False Hope

false hope for debt collectionIt has come to our attention that a Debt Collection Agency based in Tyne and Wear (the Agency) is approaching creditors of companies in liquidation to invest in a debt collection registration service at a fee with the hope that they can recover their debt by pinning liability on the directors.

Although legislation allows for such action, in practice among other things due to evidential burdens and costs, it is far from automatic.

Most certainly the registration fee for the service offered by the Agency will not cover the costs of recovering debts from directors of insolvent companies, and above all else in wrongful trading cases it is the duty of the Liquidator to bring such actions not the debt collector of the creditor.

Although Master Collections has collected debt from insolvent debtors where solicitors have failed to do so, for example, as a result of exercising Our Client’s right to sell the debtor’s goods, positive debt recovery from insolvent debtors is rare.

So it pays to get specialist expert advice because there is nothing worse than suffering loss as a result of poor advice,  likewise there is nothing worse than having your hopes built up where there is no hope at all.

Expert Legal Advice on debt collection from insolvent debtors

At Master Collections you will have access to expert legal advice including that of our panel insolvency barrister, Professor Mark-Watson Gandy who is a leading authority on debt collection from insolvent debtors. Here’s what he has to say on pinning liability on directors of insolvent companies.

“Section 214 of the Insolvency Act 1986 gives the liquidator the power to compel a director of a company to contribute where it finds the director knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid going into insolvent liquidation but carried on trading regardless, and the company eventually went into insolvent liquidation.

However, if the director satisfies the court he took every step with a view to minimising the potential loss to the company’s creditors that he ought to have taken, the director will not be liable.

While section 214 of the Insolvency Act 1986 is often threatened, claims are brought rarely, after high profile failures: Re Sherborne. In any event, a liquidator needs creditor permission before he can make an application.

Section 212 of the Insolvency Act 1986 gives the liquidator or creditor the power to compel a director guilty of misfeasance to repay, restore or account for the money or any part of it or contribute such sum to the company’s assets by way of compensation in respect of the misfeasance.

Misfeasance involves misapplication of company money for example payment of an unlawful dividend, retention or misapplication of company property for example a transfer of company property to the director at an undervalue and breach of duty of trust when dealing with company money for example payment of staff wages in cash to avoid tax.

While section 212 of the Insolvency Act 1986 is often threatened, claims are brought rarely by creditors because it is costly and the onus of proof is on the creditor to prove misfeasance which can often be a heavy burden to discharge.

Nevertheless any funds recovered by a creditor under section 212 of the Insolvency Act 1986 would be passed to the Company in liquidation for the liquidator to deal with and not the individual creditor who brought the action.”

When it comes to expert advice on debt collection from insolvent debtors, Master Collections is the solution.

Want to find out more?

Call award-winning credit professional and commercial lawyer Carlo Pegna on 01920 481467 to find out what Master Collections can do for your business.

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