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liability for employers debts :((22 Posts)
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 in the business. The owner has however said that if we continue to struggle I won’t be paid 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.
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 things.
Also; regards my pay – are they within their rights not to pay me if the money isn’t there? What if the company goes insolvent? Do they have to pay me (and the other employees… I am worried about them too.
I don't know the answer to your questions but bumping for you. That sounds scary, maybe you need some legal advice?
This link should help you find advice regarding employees' rights if the company is insolvent: www.gov.uk/your-rights-if-your-employer-is-insolvent/overview
It's very unlikely you will be liable in any way. You're only MD in title, not one of the directors registered at Companies House. In any event, the debts of the company are separate from those of the directors/shareholders (the "limited" part of a company referring to limited liability). In some cases, the individual directors/shareholders can become liable but that is rare and usually only when there is evidence of wrongful or fraudulent trading.
Hope this helps.
If it's a limited company then the company is its own legal person and you're not personally responsible for its debts - that's the idea of limited liability in companies. When you've signed on behalf of the company you're doing so on behalf of the company not on behalf of you personally.
I'm afraid I don't know much about your second question though but I'd have thought if there's no money then there's no money to pay you sadly ... If the company is being wound up I think employees would be first in line to get unpaid wages out of the insolvency process
It's not ready to go insolvent or be wound up as there are assets but only about 1k so the owner could either save the company or pull the plug depending on their will if that makes sense.
So it sounds like whilst I'm not liable for anything I probably won't get paid if it comes to that. But if the company keeps going with assets I'll need to be paid?
So you're a director? Therefore it's a limited company. Unless there's been dishonestly or gross mismanagement you would have no liability.
If the company continues trading then, yes, you will be continued to be paid as per your contract. I've just re-read your OP and noticed that the owner had mentioned you needing to resign if the business continues to struggle. Just bear in mind that by resigning, you would forgo any redundancy payments that you might have been entitled if made redundant. Might be worth checking your contract. Good luck - hope it all works out.
Yes if the company keeps going, they are required to pay you. If you worked and they didn't pay you, it would be a breach of your contract of employment.
If the owner decides to 'pull the plug' and you haven't been paid, you would become a creditor of the company. You would then need to make a claim with whoever is winding up the company.
Thanks, makes sense.
It is a LTD company but I am not a director (shareholder) only by title
It doesn't make any difference what your job title is. If you are an employee, you have employment rights. One of those rights is the right to be paid.
It's bizarre to have the title if you're not a director. I'm struggling to understand why it's your title. But if you're not a director then you have no liability.
Are you registered as a director with Companies House?
Op I'm a lawyer specialising in insolvency. StreetSpirit is right in that, while the chances of you being liable are relatively slim, there is a risk that you may be liable for some debts. It does not matter whether you were registered as a director at companies house or not. Please, please talk to a specialist insolvency lawyer NOW and/or encourage the business owner to speak to an insolvency practitioner.
You can be what is known as a shadow director or de facto director (regardless of registration at companies house or not and regardless of whether you are call "director" in your job title or not.
This is really important. I strongly recommend that you get some proper advice as soon as possible.
Thanks thisisme. He won't get advice... He is a very experienced business man and will know exactly what is happening and why.
But yes I will. I will also look in to this de facto director but no I was never registered at companies house.
It's common to be called director as job title (Managing Director, Finance Director etc) without actually being a director of the company (ie registered as such with Companies House in England).
It's the owners (ie the shareholders) who bear the financial liability if the company fails anyway, not the directors (even the "Companies House" ones). Sometimes the company directors are also shareholders but it's the ownership of the company's shares that makes them liable, not their position as director. In England.
Types of company
Limited by shares
Most limited companies are ‘limited by shares’. This means that the shareholders’ responsibilities for the company’s financial liabilities are limited to the value of shares that they own but haven’t paid for.
Company directors aren’t personally responsible for debts the business can’t pay if it goes wrong, as long as they haven’t broken the law.
^^ That's from this link at gov.uk www.gov.uk/business-legal-structures/limited-company
Directors have other legal responsibilities for running a company, which you can also find at gov.uk, but as you've confirmed it is a Limited company, it's not true that you would be responsible for the compay's liabilities unless you are a shareholder.
trevor I'm sorry but that's not the whole story.
Op glad to hear you will take some advice.
What are the exceptions to that rule SewSlapdash?
Genuine question - not being arsey - I would like to know!
PS also yes OP should take advice! I definitely wouldn't set myself up as an expert whose advice the OP should follow unquestioningly!
Gov.uk is normally a very helpful starting point, though.
In the circumstances of wrongful and/or fraudulent trading referred to above. Also in cases where the directors acted unlawfully or without authority - misfeasance, which covers a wide range of acts but basically means the directors not acting in accordance with their statutory and common law duties to act in the best interests of the company or, where insolvency is a possibility, the creditors. Then there are questions of unlawful dividends, which are dividends paid out when there aren't profits/cash available to enable the dividends to be paid.
So it's really not straightforward and that gov.uk is, unfortunately, a bit misleading. I
Whether or not there would be actual liability for a director would depend on the facts of each company.
Check the Company on Companies House website. If you are not a Director who is?
As an employee you will be entitled to notice and redundancy but only if you don't resign. The notice you get depends on how long you have been employed or your contract - whichever is the greater.
Being a director or not is nothing to do with being a shareholder or not. A director doesn't have to be a shareholder, a shareholder doesn't have to be a director. Two completely different things.
Even someone who is not legally a director can be held liable as a "shadow-director" if they act as a director and give the impression they're a director to people dealing with them, i.e. sign a contract as Fred Smith, Managing Director, or have "managing director" on their business cards etc.
BUT, a director can only be personally liable if they do something wrong, i.e. negligence, fraudulent, etc. If, eg, a "director" signs a contract knowing that the company can't pay, then that director may well end up personally liable if they are sued successfully by the injured third party.
If the OP has acted honestly and correctly in all his dealings then he has nothing to worry about.
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