Director Liable for Company Debt?

by Readers Question

17:52 PM, 21st May 2014
About 4 years ago

Director Liable for Company Debt?

Make Text Bigger
Director Liable for Company Debt?

I rented my property to a Limited Company based on my knowing the director.

Over the period of the tenancy the Director closed and opened a few companies but still paid some rent from which ever company he chooses. The company was a provider to the Local Authority, so they get young people from Local authority (16+) and get paid by the local authority and obviously pay my rent from the proceed.

However the director has left me with a rent debt of over £8,000 and closed all the companies. I will like to pursue the director directly, because I believe he has used the funds for his own personal uses and therefore guilty of misfeasance, Fraudulent Trading and wrongfully trading.

I will like to find out how to go after the director.

Many thanks

Poroliabilty



Comments

Mark Smith (Barrister-At-Law)

18:39 PM, 21st May 2014
About 4 years ago

If you rent to a company it is the company that owes the rent, not the director.

Were there any personal guarantees?
How was this debt accrued without anyone noticing?

Having said that, if the director was running the company intending to prejudice creditors then this could amount to fraudulent trading, and he would be personally liable. I cannot assess this from the information available here, but would be happy to look at the matter in more detail

Adam Hosker

20:07 PM, 21st May 2014
About 4 years ago

A LTD Company, is one of "Limited Liability". Put simply a company is a different Person under law.

which is why I often say to Landlords to obtain a Personal Guarantee from Letting Agents whom hold rent for a long period - the same goes for renting to companies.

Personal Guarantee is the savior against "limited liability".

As for your circumstances; no. You wont be able to hold the director to account!

There is an exception that is commonly called "Veil of Incorporation" - using the veil of corporate is when someone blatantly uses it as a cloak for fraud or improper conduct. Thus it became necessary for the Courts to break through or lift the corporate veil and look at the persons behind the company who are the real beneficiaries of the corporate fiction. THIS IS VERY HARD to get a court to draw aside the veil.

John Wagstaffe, Solicitor, Property Litigator

9:36 AM, 22nd May 2014
About 4 years ago

There are a number of possible explanations of what has happened here. The following seems to me to be likely, and it would result in personal liability for the director:

You let the property to a company. But it appears the company was liquidated, and you knew about it. The company could not remain in possession of the property post-liquidation, but possession was not delivered up to you. Someone remained in possession. Who was that? It appears to have been the director. What therefore is the status of him and the old lease?

You accepted rent from the director, albeit he paid it through various of his other companies. And you allowed him to remain in occupation. It therefore seems likely that there was an implied surrender of the company's lease, which you tacitly accepted, or it was abandoned, and you then tacitly granted a new lease to the director. If that is the case then the director would be personally liable for the rent arrears.

The fact that the director paid the rent through various companies is a complicating factor, but that speaks more about his financial mis-management of those companies rather than his relationship with you. It is unlikely that each time he paid rent from another company, you can be deemed to have accepted a surrender of the lease from the former company and granted a new one to the next company. That would, by the sound of it, have had to have happened every month. The only consistent entity with whom you had dealings after the lease to the first company was the director. He therefore seems most likely to have been your tenant.

Jeremy Edwards

11:36 AM, 22nd May 2014
About 4 years ago

All the comments from the experts above are true and it is likely that on the facts you might win as it does sound dodgy, BUT it will cost you much more than £8,000 to collect it, assuming he has the money in the first place. Is he personally wealthy? £100,000+ in realisable assets?

I suspect that commercially, you would be better off writing it off to experience as the legal costs and wear and tear on yourself will be huge.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Proposal to make BTL a time limited offer - Feedback request

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More