Good afternoon. I have read some of your Q&A section with interest, and I wonder if you would be able to answer my question regarding a debt owed to my small business?
A sub-contractor limited company with whom I was instructed to place orders by my client – a national household name Plc – has gone into liquidation. I did not carry out a credit check on them; as they were appointed by such a well-reputed company I thought that the client would have carried out checks before placing their suppliers – who have no choice but to follow the client’s instructions – at the mercy of their sub-contractors.
I did however, take the precaution of having my terms & conditions signed by a director of the sub-contracting company. The section regarding payment states that payment will be made within 30 days from invoice date. The signed declaration states “I declare for and on behalf of (‘Company’ Limited) that I have read and understand these terms and conditions and that (‘Company’ Limited) will abide by them”. He signed it “(His name) Director.” I have checked with the liquidator and he is indeed a director of this company. Further, I have managed to obtain his home address for service of documents.
My question is, what is the likelihood of success were I to sue him personally in the small claims court? I issued proceedings on-line a few weeks ago before the company went into liquidation naming this person as a joint defendant. I can now apply for judgement, and I have the option of changing the service address from that of the company’s commercial premises to that of his home address. Can I hold him personally liable for the debt based on his signature to ‘abide’ by my terms of payment ‘for and on behalf of’ the company?
I would very much appreciate your advice.
Alasdair Taylor's Answer
It has been many years since I was professionally involved in litigation in the English courts, and I cannot comment on the procedural points you (impliedly) raise.
As regards the principles, I think there are two different issues here. First, are you entitled to a court judgment against the director personally in respect of the debt owed by the company? Second, are there any other causes of action which might ground a claim against the director for compensation?
The answer the first question is almost certainly “no”. The director executed the T&Cs “for and on behalf of” the company. This form of words clearly indicates that he was acting as an agent of the company, and not in personal capacity. Accordingly, the contractual debt would have been owed to your business by the company, not by the director.
Two potential ways of bringing a claim directly against a director are: (i) under a personal guarantee; and (ii) for wrongful trading.
If the director had given a personal guarantee, then you may have been able to claim for the contractual debt under that guarantee. However, nothing in your question suggests that a personal guarantee was given.
Where a company becomes insolvent, it is sometimes possible to make a claim against a director on the grounds of “wrongful trading”. Here’s a brief guide from Pitmans on the subject: http://www.pitmans.com/directors-toolkit/home/restructuring-insolvency/can-i-be-personally-liable-if-my-company-trades-whilst-it-is-insolvent/. Depending upon the facts, you might want to consider investigating whether there are any grounds for a wrongful trading claim.
Please treat these comments above with caution. I don’t know all the facts and haven’t reviewed the documents. If the amount at stake is significant, you should certainly take advice from a litigation solicitor about your options.