Press release: January 2007

Bad debts are a fact of life for many businesses; intensely irritating, but nevertheless unavoidable from time to time, regardless of protective measures put in place.

Peter Byatt, the head of the LB Group´s insolvency and recovery team at Chelmsford and who has 30 years experience of this field, says that the vast majority of debtors intend their suppliers and other business associates no harm.

Yet there are instances, he explains, where directors have, through their own negligence or incompetence, had "knowledge of insolvency" and their continued business activity then amounts to "intent to defraud creditors".

The LB Group, in an initiative headed by Peter, has recently worked on behalf of a client to obtain a court order making a director personally liable for all the debts of his limited company. He was successful in recovering funds on three counts, enabling creditors to be paid in full.

The debtor had owned the business as a sole trader for 10 years, but had been making significant losses for the last three.

He had elected to transfer the business into a limited company at a time when liabilities exceeded assets on his balance sheet. At the point of being liquidated, the majority of the company´s creditors had been unpaid for nine months.

"Proving an intention to defraud is, even in these circumstances, notoriously difficult," explained Peter. "However, the balance of probabilities won the day. The director has not helped himself by preferring the bank to other creditors when paying off an overdraft, which he had guaranteed prior to liquidation.

"Nor had he paid attention to his overdrawn current account against dividends, which were deemed illegal given that the company wasn´t profitable," he added.

Whilst this tale has a happy ending, it highlights, according to Peter, the need for vigilance. "Given support from creditors, or by using a conditional fee arrangement, backed by insurance cover, liquidators can achieve success in bringing defaulting directors to heel."