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The problems start when your mousetrap business starts earning money | 457 comments | Create New Account
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The problems start when your mousetrap business starts earning money
Authored by: Anonymous on Monday, June 10 2013 @ 06:45 AM EDT
You keep mentioning that the UK courts can tear the veil. They can, but it doesn't happen very often.

I've experienced, as a creditor, a number of insolvencies where I believe the companies in liquidation were trading insolvently. Unless the administrative receiver (liquidator) bothers to apply to the court, the court is unlikely to lift the veil. As with Cahn in the SCO case, trustees/liquidators work to their own rules. If the liquidator cannot show beyond reasonable doubt that the company directors were committing fraud or trading insolvently then it is likely that nothing will be done.

I know of one insolvency where I saw the company's management accounts for the 12 months before the receiver was called in and was told by the accountant that, at the start of the last 12 months, the directors knew that the company would fold "unless we were going to have a year better than the previous 2 years put together". I spoke to the liquidator and he said that, despite having seen the management accounts, his view was that the directors had taken a long term view and believed the company could be turned around and that was all he needed.

In another case, a company went insolvent and the liquidator sold the company back to the directors for £1. The new company went insolvent less than 2 years later. The next liquidator again sold the company back to the same directors for £1. Several years later the company was insolvent again.

I have also experienced, as a close observer of another company, that insolvency practitioners are a tricky bunch and will collude with the company directors to "turn around" a company that is insolvent using a CVA - similar to Chapter 11. The insolvency was in the order of £2.5m or so. The CVA was to pay back 25% of the old debt and payments were to be made each quarter for the next 2 (i think) years. The first payment was made, but the next 2 were missed and eventually only 8% was repaid before the company was liquidated. The killer is that £2m of the debt was owed to a full, profitable subsidiary of the company in CVA. The liquidator wouldn't listen to the other creditors because they amount owed to them was dwarfed by the subsidiary.

If a UK shell company were to sue for patent infringement, fail and declare insolvency, I would have no confidence that an application to lift the veil would be made by the liquidator. I think the directors would be saying "we thought our patent was good" and the liquidator would accept it.

As an aside, I had one condescending, idiot solicitor who told me that I couldn't withhold services because of unpaid debts because, "I've had debts with you before and you haven't withheld services before. That's estoppel and you probably don't even know what that is." I said I did (which was thanks to Groklaw) and I'm now going to charge interest on the debt. He paid the debt and the interest. Then I stopped trading with him. 6 months later his company was insolvent.

j

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