Void Dispositions after a winding up petition can be costly for directors

Void Dispositions taking place after a winding up petition is presented can be very costly for directors

Why should I be concerned about void dispositions that take place after a winding up petition is presented and why would it be costly for me as a company director?  When a winding up petition is presented to the courts, the law stipulates that any disposition of assets after this will be automatically void.  Those dispositions can be recouped for the benefit of creditors.  Surely if I am not the recipient all will be ok – i.e. if you are the company director?  You would be very wrong.

When a winding up petition is presented, a company will not know about it for anywhere from several days to a couple of weeks.  This is a problem for many, but especially for company directors.  The law states that if a winding up order is granted after a winding up petition is presented, a disposition of assets (payment out of company funds, receipt of funds into an overdrawn bank account, sale of assets, etc) is automatically void

This means the recipient should return the assets to the company.  In addition the director can be liable for disposing of the assets, it can even see them being charged with criminal offences.  Of course once a petition is presented to the court by a creditor, a director may know not about it until it reaches them, but the law gives no defence or automatic mitigation for this.

Of course some directors may panic when they receive a petition and move money, some may even decide to go on the offensive and actively dispose of assets, not knowing the consequences – there is a cautionary tale below.

Most people can only really do this until the bank account is frozen, which happens when the winding up petition is advertised.  At that point no more funds can be accessed unless a validation order is obtained from the court (contact us if this is you and you need to obtain one).

What can a director do to protect themselves against void dispositions?

When someone threatens to issue a winding up petition, for example HMRC winding up petition, seek immediate advice.  It is unlikely a creditor is making an empty threat and therefore you will be on notice that a winding up petition is likely to be just around the corner.  HMRC debt collection teams do not threaten winding up petitions without the intention to follow through.  If you receive a 7 day letter from HMRC, in just over 7 days the HMRC winding up petition process will have been started.  You are now on notice that void dispositions are are quite possibly taking place.

If you receive a winding up petition, (it may sound obvious) but seek proper advice from a Licensed Insolvency Practitioner.  There are a number of things Lucas Johnson can do to help you if you receive a winding up petition to stop the petition being a threat and/or stop you being guilty of making void dispositions.

In the vast majority of cases petitions are presented because a company cannot pay its debts.  Most are HMRC winding up petitions.  Not being able to pay debts means a company director has a significant number of additional responsibilities to be aware of and watch out for (too many to name here) – void dispositions is merely one of them.

If you have received or been threatened with a winding up petition, contact us for immediate advice on 0330 900 2000

So how serious can it get if I make void dispositions?

A former director of a claims farmer has been imprisoned after removing funds while the company was on the brink of collapse. Christopher Bullough was jailed for 21 months after pleading guilty to one count of fraudulently removing funds and another of failing to provide company books and records to the liquidator.

The 46-year-old from Bury was sole director of personal injury claims handler Direct Assist Ltd, which was incorporated in 2007 and had offices in Bury and Bolton.

But the loss of a key client, which had been the main source of business, sent the company spiralling into financial trouble, which resulted in a petition lodged at court to wind-up the business in September 2014 in relation to a £658,000 unpaid tax bill.

According to a statement from the Insolvency Service, following the petition to wind-up the company, a ‘substantial’ amount of money was removed from the company’s accounts.

The company bank account was frozen to stop any more funds being removed, as well as preventing creditors losing out further, and after Direct Assist formally entered into compulsory liquidation in March 2015, an investigation was launched by the Insolvency Service.

Investigators initially could not find any evidence of company records from July 2013, but they were able to establish Bullough had fraudulently removed almost £51,000 between September and December 2014.

Around £28,000 went to family members, £3,600 worth of cash was removed from the company’s bank account and £18,500 was spent on Direct Assist’s credit card. Darren Bullough made a removal just one day after the winding-up petition was presented to the courts.

Sitting in Bolton Crown Court this week, Judge Stead also made a disqualification order for seven years, preventing him becoming involved in the promotion, formation or management of a company, without permission of the court.

Following sentencing, John Fitzsimmons, chief investigator for the Insolvency Service, said: ‘Darren Bullough was well-known as someone who led an extravagant lifestyle, spending money on expensive property and fast cars. But he recklessly removed funds from his business knowing that Direct Assist was in financial difficulty.

‘We welcome the court’s substantial sentence and their recognition of the severity of Darren Bullough’s offences as not only was this money not his to do with as he pleased but by removing the funds, he denied payment that was rightfully owed to the company’s creditors.’

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