Worried about being liable for employers debts

surreygirls

I can’t find the answer to this on any other forums so thought one of you wise ones may be able to help me. I am employed by a company as “managing director” but only by title. I have no shares or ownership. The plan was for me to have equity at some stage but it hasn’t happened. The company is in trouble and potentially may not survive although I am doing all I can to work a way for it to and am still working in the business. The owner has however said that if we continue to struggle I won’t be paid at the end of the month and may have to resign. There will be contracts (signed by me on behalf of the company) and debts whether the business continues or not, with, or without me. I also have expenses owed to me for things I have paid for using my credit card but for business purposes amounting to circa 4k.

My questions are; what am I liable for? Anything? I have an employment contract and am paid through PAYE like any other employee. I have a month notice period so I’m thinking not but I am worried as it is my name on the signatory for most of our contracts (suppliers/ rent etc.)

Also; regards my pay – are they within their rights not to pay me if the money isn’t there? In what order should things be paid if only some of the money is there? For example, last month all our bills were paid along with the other staff but I wasn't paid...

What if the company goes insolvent? Do they have to pay me (and the other employees… I am worried about them too)!.

Any advice?

surreygirls

Oh, to add to complications, I paid in an amount of £5000 a couple of months ago to tide us over through clients being late on payments. We agreed verbally that this would be paid back when the clients paid but as the business is still struggling this isn't on the horizon anytime soon.

I feel so stupid for not getting a writen agreement for the 5k.

Malthusian

If it is a limited liability company (which is very likely) you are only liable for what you put into the business as share capital, not a penny more. Which in your case is apparently zero. So you do not need to worry about being chased for its debts. (You should easily be able to check that the company is a limited liability company with Companies House.)

The only scenario in which you could be personally liable for the company's debts would be if it was not a company but a partnership, without limited liability, and you'd somehow been roped into becoming a partner. This is extremely unlikely.

If the business goes into administration, the queue for any money left in the business is as follows:

The insolvency administrator's fees
Any creditors with debts secured on the business' assets
Preferential creditors - which is you, in respect of any salary you are owed, but only in respect of the four months leading up to the insolvency, and capped at £800
Unsecured creditors - which is you, in respect of the £5,000 you loaned the business, the money the business owes you for the things you bought on your credit card, and anything else they owe you.
Lastly, the shareholders.

If there is not enough money left to pay your preferential rights in terms of outstanding salary, you can make a claim from the National Insurance Fund.

I wouldn't beat yourself up about not getting a written agreement re the £5,000. If the business is going to collapse, I am afraid it is probably gone anyway. (If however there is enough money in the pot to pay unsecured creditors, you would have to make sure that you had enough evidence to make your claim - a verbal contract is still a contract.)

Don't put a penny more into the business. Don't resign either. Why should you? If nothing else you will lose your (albeit limited) preferential rights.

surreygirls

Thank you. This is all very useful information that I couldn't get anywhere else! I really appreciate it. So I have more rights being here than if I resigned do you mean?

The company seems to always teeter on a small amount in asset (1k at the moment) but at the moment the one and only shareholder is taking out a high proportion of the takings of the business each month, certainly more than I am paid as the person running it. I imagine that is fairly usual in times when the company is doing well but to your knowledge are they able to do this where wages and expenses are being held from an employee do to low production? Should they pay employees before taking money?

Mojisola

surreygirls wrote: »

The owner has however said that if we continue to struggle I won’t be paid at the end of the month and may have to resign.

I also have expenses owed to me for things I have paid for using my credit card but for business purposes amounting to circa 4k.

last month all our bills were paid along with the other staff but I wasn't paid...

surreygirls wrote: »

I paid in an amount of £5000 a couple of months ago to tide us over through clients being late on payments.

surreygirls wrote: »

The company seems to always teeter on a small amount in asset (1k at the moment) but at the moment the one and only shareholder is taking out a high proportion of the takings of the business each month, certainly more than I am paid as the person running it.

So the company owes you £9000 and likely two months' salary and the owner is still taking money out for him/herself?

Basically, you are putting your money into your boss's pocket.

You will probably not see any of that money back.

bod1467

How long have you worked there?
How long has the business been in existence?
Does the owner have any previous failed businesses?

(From my limited knowledge, this sounds like a business which is going to crash and then phoenix, so the owner is taking out whatever assets he/she can before that happens).

surreygirls

bod1467 wrote: »

How long have you worked there?
How long has the business been in existence?
Does the owner have any previous failed businesses?

(From my limited knowledge, this sounds like a business which is going to crash and then phoenix, so the owner is taking out whatever assets he/she can before that happens).

-I've been here two years - since the first day it was incorporated. I was hired to set it up.
-The guy has many failed busiensses and many succesful businesses. This business has been set up in his wife's name as a Ltd. company. She has no other businesses.

Now this is being pointed out to me I think you may be right. I have come to be close with the owner and the family and didn't want it to be true but looking at the cashflow (although he says he beleives we can make the business work) he is withdrawing large sums of money whilst I am not getting anything.

I need to get the money I'm owed (wages and expenses as a minimum - I may have to wave goodbay to the 5k) don't I.

surreygirls

I think I thought it was fair as up until I put the 5k in and stopped being paid it was all his money in the business. But of course, it would be, he is the shareholder! I am the labour. All 60 hours a week of it for the past 2 years with only a few days holiday.

antrobus

surreygirls wrote: »

...My questions are; what am I liable for? Anything? I have an employment contract and am paid through PAYE like any other employee. I have a month notice period so I’m thinking not but I am worried as it is my name on the signatory for most of our contracts (suppliers/ rent etc.) ...

If I was you, I'd seek legal advice. As the managing director of this company you have legal responsibilities. Never mind trading while insolvent, you say that the "only shareholder is taking out a high proportion of the takings of the business each month" and yet the company appears to be tetering on the edge of insolvency. As MD you should be saying no.

I think there is a very real danger of you being held personally liable for the company's debts. Seek professional advice.

Malthusian

surreygirls wrote: »

The company seems to always teeter on a small amount in asset (1k at the moment) but at the moment the one and only shareholder is taking out a high proportion of the takings of the business each month, certainly more than I am paid as the person running it. I imagine that is fairly usual in times when the company is doing well but to your knowledge are they able to do this where wages and expenses are being held from an employee do to low production? Should they pay employees before taking money?

If he is taking the money out as dividends then the dividends must be taken from post-tax profits. If there isn't enough money to pay your salary then there certainly isn't any post-tax profit, and the dividend is illegal. Legally, he must pay it back to the company.

If he is taking it out as salary then he is still guilty of wrongful trading - that is, not making every step possible to reduce losses to creditors when the business goes insolvent.

Antrobus is right, if you are the managing director, you should be doing everything you can to stop this.

TBagpuss

I agree that you should take some advice, and also clarify your role and responsibilities as MD.

In elation to your £5,000 , did you lend it to the company or to your boss? If I were you, I would try to get some record of it now - e-mail your boss and ask "Can you let me know when I can expect to receive the £5,000 I lent you on [date] back, please? We agreed that this was a short term loan and I do need to have it back , in full, no later than [date]"

If he responds and doesn't dispute that the debt is is owerd then at least you have a record of it, and ifi it was lent to him personally rather than tp the company then you may be able t osue him for it even io the company goes bust.

You say you are managing directr - are you registered as a director at companies house, or is it simply a job title? That would make a difference to your level of responsibility.

if you are a company director then it may be in your interests to resign as such, now.

If the comapny is ttrading while insolvent then the directors / owners lose most of the protections of limited liability and may be personally liable for any debts.