Former colleague keeping money from settlement of a company...

lalabama

Hi all,

I invested money with two friends in a business. Unfortunately the business failed and we all lost significantly, with me losing the lion's share.
As a matter of fact when I made the investment with them they had both agreed that in the event that the company failed, they would both pay me back. One of them is able to get good money from his employment, so I went ahead on that basis.

When the company ceased trading there were still some outstanding debts from creditors, as well as £10,000 which the company was due in VAT rebates.
The VAT rebates came back and went into my former colleagues' bank account. Since then he has kept the money claiming that he needs it to pay off the creditors, although we have this legal advice saying that as none of the directors is personally liable for any debt, and the company ceased trading, we are not required to pay.
He says he wants to maintain good relationships with the creditors because he works in the same industry.

The thing is that he isn't telling the truth and is using all kinds of excuses. I don't believe that he even used the money for anything to do with the company. He now claims that the money has gone. He received it in February. But in any case, how can I prove that the agreement between the three of us was that the money should go to me to try to offset the dramatic financial losses I made with the company.

Unfortunately none of the agreements were made on paper.
Fortunately the channels of communication between us three are still open, although the one with the money is solely laying the blame on the third director (to say that he screwed up the money when the company ceased trading).

I have arranged to meet the three of them. Really I want somehow to come up with a legal agreement but I know how difficult/ impossible that is in practice.

Can anyone think of any options that I might have?

Thanks,

lalabama

ILW

A lot depends on what basis you invested in the company.
Was it a loan to the company?
Was it a loan to one of the directors?
Did you own a share in the company?
Were you a director of the company?

If none of this was put in writting you are on very sticky ground regarding ever seeing any money back.

What proof have you got that you ever paid any money in?

Good luck but I feel you may have to rely on your friends goodwill.

Also as a director you could be liable to the creditors if it is found that you did not run the company in a fit and proper manner.

lalabama

The three of us were directors.
We all invested money in the company and we could all demonstrate that through bank statements etc. Most importantly none of us would deny that.
I invested more than the others.

Now that the company received money back from VAT, we'd previously all agreed that I should have this. But now one director is keeping it and changing his story.

I know I was stupid to trust that this much
They were good friends, I really never could have imagined it would go wrong like this. Now I know.

lalabama

lalabama

PS we were all directors but we had also said that if the company didn't work out, the other two would pay me back the money that I'd invested. But that's been forgotten now again by the same director who's keeping the VAT money. The VAT money is a different matter... mainly as I feel I may have some chance of getting this back, I feel like the other money is lost.

cte1111

The VAT refund belongs to the company, and should be used to repay the company's creditors. You need to see the books, and see whether the company has made any profit, once all the suppliers and other people who are owed money by the company are paid. If the amounts outstanding to the suppliers is more than the VAT refund, then you will be unable to draw any money from the company.

You may have a personal agreement with the other directors, but unless you have an actual loan agreement between yourself and the company, then you will be unlikely to see your investment back.

TheGrant

Wee problem here. You don't believe he is paying the debts.

You must find out, you should legally know this stuff as a director of the company. See your accountant now.

ILW

TheGrant wrote: »

Wee problem here. You don't believe he is paying the debts.

You must find out, you should legally know this stuff as a director of the company. See your accountant now.

As said before, you have responsibilities as a director. Any unpaid creditors could come after you personally and for example take your house. You do need to see the books.

Steel_2

lalabama wrote: »

PS we were all directors but we had also said that if the company didn't work out, the other two would pay me back the money that I'd invested. But that's been forgotten now again by the same director who's keeping the VAT money. The VAT money is a different matter... mainly as I feel I may have some chance of getting this back, I feel like the other money is lost.

It wasn't clear whether you have ceased trading and not liquidated, or ceased trading and liquidated. Either way:


The VAT money is NOT his to give to you. It is an asset of the company, liquidated or not, and will be used to pay creditors. The creditors have rights under UK Law. If you cannot prove with paperwork you are a creditor, you probably won't see any of it unless there is a surplus of assets. I'm afraid 'loss' is the other side of the investment coin. However, the VAT payment shouldn't go into a Director's bank account - it goes into the company or liquidators bank account. You need to clarify which account the money has gone into.

Giving company assets - in this case large VAT payments to another Director or friend - is classed as removing assets out of the business in the form of preferential payments and is not legal.. All three of you could be held responsible for ALL of the company debts if proved you behaved in an unfit manner, including those to HMRC. You could also face a ban on being a Director for a specified number of years.

If you have liquidated:why are any of you still conducting company business rather than the liquidator?

Once you liquidate, as Directors of a failed business none of you will be allowed to do anything with company business...it will no longer be "yours". Part of the deal of liquidation is you abdicate responsibility to a liquidator to ensure the creditors are looked after. Directors are not deemed fit to do so in an unbiased manner when a company has/is going through the process of liquidation. As you are proving right now by wanting the VAT money belonging to the company which legally belongs to creditors with valid provable claims.

lalabama

Thanks so much. Although this isn't the best news to hear, you may well be saving me from more grief in the long run. Many thanks.

lalabama

Money_Grabber13579

ILW wrote: »

As said before, you have responsibilities as a director. Any unpaid creditors could come after you personally and for example take your house. You do need to see the books.

Absolute rubbish. This is a company so the directors are not personally liable for any losses unless there was fraud involved. So they cannot take your house, unless it was also owned by the business, or put up for security for a loan.

Money_Grabber13579

And by the way, the money should never have gone into his bank account. It should have been placed in the business bank account, out in the open for all the directors to see. From what I can gather from your side of the story, what they have done is commit fraud.