Client being sued - advice required...

dantray Registered Posts: 72 ? ? ?

I require some advice for a client i am meeting this evening, currently being sued.

Client is a ltd company building firm, who operates on a subcontract basis for contractors, and also engages his own subbies.

One of his own subcontractors has had an accident at work and is suing him for a considerable sum (£70k). My client is of the opinion that liability falls with the main contractor and this is being thrashed out between their solicitors.

Anyway, leaving the legal stuff to the professionals...

The £70k being sought would render my clients business bankrupt. Already the legal fees are mounting up and his opinion is that he will 'just fold the business' to avoid all of this.

Is this correct?

Is he able to wind up his company and set a new one up to continue to trade under a different entity and effectively wash his hands of the whole thing?

I would have thought there would be some kind of clause in the CA to prevent this from happening. Can the claimant object to the winding up? Would he count as a potential creditor of the company and therefore need to be contacted to approve the winding up?

if anyone has experience or knowledge of this scenario I would be grateful of your advice.



  • JodieR
    JodieR Registered Posts: 1,002
    Firstly does your client not have insurance for this sort of thing?

    If not then I think it could go one of 2 ways...

    There is a term though which I think is called the 'veil of corporation' or something to that affect, which I think means that if the actions of the controller of the business were directly to blame for the accident, then he could be personally liable for the compensation payment. I'm not sure about exactly what the conditions are for this to apply, it may not be relevant in this case.

    If he's not personally liable then he can apply for voluntary liquidation of the company. All of the assets would be seized and sold to pay the creditors, of which the subcontractor who's sueing him would be entitled to his share of the proceeds. The director of the company would be banned from being a director of any company for a period of time. When companies 'phoenix' it's usually the wife who's the director of the new company.
    If he has personally guaranteed any assets for other loans the company may have then he could end up loosing those and having to declare himself bankrupt too.

  • dantray
    dantray Registered Posts: 72 ? ? ?
    hi jodie.

    thanks for your help. the accident happened a number of years ago before he was my client and he did not have adequate insurance at the time, although has done since.

    in terms of creditors there is not much, two HP agreements for vans and HMRC liabilities as and when. no purchases on credit, no other loans or overdrafts, etc.
  • groundy
    groundy Registered Posts: 495

    Sorry to disagree but the director would not necessarily be banned from being a director and I know plenty of phoenix company with the same director. However, if there were numerous phoenix's then there is a risk of a ban for a director and yes some people do use their wife's as directors to get round it.

    I would say they need legal / insolvency advice with regards to winding up the company. I think it is outside the accountants realm to work out if they would be personally liable.
  • LynWest
    LynWest Registered Posts: 122 ? ? ?
    I agree with groundy, they wouldn't necessarily get banned from being a director. I also think that any insolvency advice is beyond our remit. I had a client that went down that route and I gladly passed on giving him any legal or insolvency advice, pointing him in the direction of the experts
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