Enforcement against Limited Companies: Know Who You Are Contracting With!
Why do some business owners decide to set up a limited company? There are a plethora of reasons but those that concern us litigators are:
- A limited company is a separate and distinct legal entity to its directors/shareholders. This means that if you contract with a company, you can only sue the company and not the individuals behind it (there of course a few very specific exceptions to this rule but they have a high threshold and are not easy to argue).
- A limited company is a private company whose shareholders are legally responsible for its debts only to the extent of the amount of capital they have invested. For example, a builder sets up a limited company with a £1 share capital and does not invest any further capital. The company then goes insolvent. The builder will only lose the £1 invested.
This can leave customers and consumers in a very difficult predicament when it comes to the enforcement of any judgment against the limited company.
It is important to understand that it is not just because you obtain a Judgment Order from the court that you will be able to physically recover the sum owed to you plus interests and costs. If the company in question has no money or assets to speak of there will be little that you can do even if, for example, the sole director/shareholder behind the company is relatively well-off and owns an expensive house (providing there has not been any fraud).
Customers/consumers must therefore take as much care as possible before making any kind of significant purchase. It is highly recommended that individuals check the company on the Companies House Beta Service before committing, look out for the following:
- How many years has the company been trading for? If it is only a few years there is a greater risk as the company is not established.
- Check the company’s accounts. Do they have enough to cover their debts? Are they making a profit or a loss?
- If the company in question has assets such as properties, do they have a lot of charges over those assets? The more charges, the greater the risk.
- Check to see if the directors of the companies have been directors of numerous other companies which have now been dissolved.
- Is the company up to date with its filings and has there ever been a striking off petition placed on the file by Companies House?
Contact our dispute resolution lawyers in Brighton & Hove, Uckfield, Sevenoaks and Ashford
If you would like to discuss your case or speak about a potential dispute you may have with a limited company, please get in touch with Hannah Balameh e. firstname.lastname@example.org or t. 01273 239797.