The Business Support and Insolvency Team at Boyes Turner acted for the joint liquidators who made a successful application for their retrospective appointment as liquidators of a company.
The case
It is sometimes the case that a person who owes you money dies before they have repaid the same to you. In this article, we explore what happens to the debt and the options available to creditors who are faced with a deceased debtor.
What happens to debt after death?
The deceased’s liability to repay a debt does not cease upon his or her death. Instead, liability for the same transfers to the deceased’s estate, providing that their estate is not insolvent.
What happens to debt if the estate is insolvent
A winding up petition is a legal document that can be served by a company’s creditors when they are owed money by the company. If the debt amounts to £750 or more, then a creditor has the right to go to court and ask for a winding up petition to be issued, although courts view this remedy as something that should be reserved for when a company is genuinely believed to be insolvent, and not simply used as a means of debt collection.
The recent rise in company insolvencies has been driven by a high number of creditors’ voluntary liquidations (CVL). The outlook for the rest of 2023 is that there will be an even higher number of companies entering a formal insolvency process in almost every sector and industry.
A high proportion of these insolvencies are small businesses (SME’s), some of which had managed to keep going with the help of Government-led support packages and bounce back loans, but with rising interest rates and inflation, they are now struggling to repay loans and obtain financing.
If a company becomes insolvent, it is crucial that its directors comply with their legal duties. Failure to do so can result in personal liability for the company’s debts as well as legal action and disqualification from being a company director or being involved in a company in the future.
We look at exactly what a director’s duties on company insolvency are and some of the risks to be aware of in dealing with an insolvency.
What is insolvency?
On July 14, the U.S. Court of Appeals for the Ninth Circuit partially affirmed and partially reversed a district court’s dismissal of an FDCPA suit. The district court reviewed plaintiff’s claims under the FDCPA, which alleged that defendants violated the bankruptcy court’s order discharging his debt and knowingly filed a baseless debt collection lawsuit.
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The current difficult economy is causing continual financial problems for many businesses. Directors are warned that entering into written agreements to make payments when they know their company is unable to meet its debts may equate to deceit under the terms of the Statute of Frauds (Amendment) Act 1828.
This could result in personal liability for the director who has made an implied representation about his company’s ability to pay.
Case law
Not all residential tenancies will be in the name of an individual. Sometimes it will be a company looking to take out the tenancy in their own name. Generally, this will be for the use of the one of the directors and their family. Often these sorts of agreements are seen as beneficial to many landlords who are under the impression that the company will be prompt with payment and ultimately good for the money. Whilst this can certainly be the case, it does not always work out this way.
On 4th May 2021 the government introduced some new legislation, which seeks to help households cope with debt, entitled The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England & Wales) Regulations 2020.
The Regulations apply to debtors who reside or are domiciled in England and Wales, and largely to personal debts. Some business debts are eligible but not if they relate solely to the business and the debtor is VAT registered, or if the debtor is in partnership with someone else.