Freelancer advice for unpaid invoice claim

[freelancer]

Hi all,

I have submitted a claim for a partially unpaid invoice (amount in excess of £1000) but my claim is being defended and I am unsure whether to proceed further. The situation is somewhat complicated and I will try to explain as well as possible.

Nearly a year ago I completed some freelance work for a client (referred to hereafter as Company A) and duly invoiced them for it. There was no particular contract drawn up but many emails identify the agreement for project and price, which was billed based on number of days worked. After I invoiced, I was not paid on time but I followed up with an email and was assured that the matter was being looked into. Later, still unpaid, I emailed back and forth several more times chasing the payment and was alternately ignored and assured that payment was on its way. Some weeks later, I discovered that 'Company A' was going into liquidation (by visiting their web page and discovering that it had changed to another company (Company B). I emailed to request an explanation of what was happening and also payment of my invoice and an agreement was made that I would not be listed as a creditor for the 'Company A' but would now be paid through the 'Company B' if I agreed to invoice them instead, which I did.

After I sent out the adapted invoice, I received 2 payments from the 'Company B' which together were about 40% of the total owed. Since then, I've made multiple agreements with 'Company B' for installment dates to complete the payment but was repeatedly given assurances that were not met. Several weeks later I finally got a debt collection agency involved to do the chasing of the payment on my behalf, which reached the same conclusion that the debt would not in fact be paid. I then sent out a Letter before Action and later filed my claim.

My question is, do I have any grounds to continue to pursue this claim on the basis that the liability seems to be admitted by 'Company B' having paid the first 2 installments, though the work was completed for 'Company A' which has since liquidated (leaving many creditors unpaid). The defense by 'Company B' is that they cannot show preferential treatment to any creditor by now paying me as was previously agreed. I can understand the difficulties of this situation but I'm unclear as to where I stand legally. The payment is a consequential sum for me and I am reluctant to give up on it at this point though of course if there is no hope of payment then I must abandon it.

I'm very grateful for any advice that can be given here and happy to clarify any points as necessary.

Thank you,

Kind regards,

Freelancer

[R0b]

Re: Freelancer advice for unpaid invoice claim

Preferential creditors only apply to the company in liquidation. If Company B is not in liquidation, I can see no issue on the face of it.

Just out of curiosity did you invoice Company B a smaller sum than Company A?

There is nothing wrong with a third party agreeing to pay the liabilities of the debtor. It sounds in a roundabout way that the claim against Company A has been assigned in consideration of payment to Company B and that is perfectly legal. You have supplied them an invoice, they have paid it off partially and therefore are liable for the remainder of the outstanding invoice. Because of the agreement between yourself and Company B to pay the invoice, I would say that Company A has been discharged of their duties to pay and the obligation now rests with Company B.

The defence of preferential treatment is irrelevant to some extent because Company A has not made any payment to you, it has been Company B. I cannot see any preferential treatment by Company A on that basis.

Do you have the defence from Company B? Have they instructed solicitors on this matter or defending it themselves?

If you can upload the defence with personal information removed it would be better to understand their position. You can email it to Kati@legalbeagles.info, I'll tag her so she's aware @Kati

[freelancer]

Re: Freelancer advice for unpaid invoice claim

Thank you! That is all very helpful stuff.
I invoiced Company B the full original amount and no payment whatsoever was made by Company A, but I agreed that Company B would pay in installments in order to facilitate the payment, of which two payments were then made.
I will email the redacted defence to Kati as you suggest. Thanks a lot!

[Kati]

Re: Freelancer advice for unpaid invoice claim

Got it
Tagging [MENTION=71570]R0b[/MENTION] xx

Just to clarify, some references are made in the attached pdf to a domain name and this is because in my original claim I also mentioned that the work I had completed for Company A was being used as a case study on the website of Company B, as I believed it might strengthen my claim that Company B can be seen to be owing for my invoice.

I have been unsure as to how to proceed (or whether to proceed) with my claim in light of the defence. Any light you can shed would be much appreciated.

[freelancer]

Re: Freelancer advice for unpaid invoice claim

Hi R0b and Kati,

I just wanted to check in whether anything in that Defence leads you to think that I should not continue with my claim? Unfortunately I had to redact quite a bit of wording where various names are mentioned (Company A, Company B and the director's name), which might make it harder to decipher but essentially I think the bit regarding the website and domain name can be ignored as it was just something I mentioned to show that Company B was not unconnected to the work I have invoiced for, i.e. that project has been used as a case study for Company B but it may not be very relevant.

I guess the main part of the dispute is that the previous payment I have received from Company B is being claimed as a gesture of good will that has now been withdrawn as they believe that creditors of Company A may sue them over preferential treatment if I am paid. It is fairly frustrating because this is a claim that has only been made very recently and I've had nearly a year of chasing this payment and being continually assured that I will be paid, dates set and then ignored (I have emails to show this).

Also, I did accept on trust their offer to pay me from Company B and allow myself to be removed from Company A's list of creditors which I would not have done if I had thought I would not be paid. Though I would not anyway have been paid by Company A as there was no money left in the company, at least I could have attended the meeting in case there was anything to add. I would really rather press for payment but only if it is fairly certain that I have a strong case because otherwise I don't want to spend any more time and money on following up. Do you have any further thoughts having seen the Defence?

Thank you,

Kind Regards,

Freelancer

[Kati]

Re: Freelancer advice for unpaid invoice claim

tagging [MENTION=71570]R0b[/MENTION] xx

[R0b]

Re: Freelancer advice for unpaid invoice claim

Sorry, I'll take a look at this first thing in the morning

[des8]

Re: Freelancer advice for unpaid invoice claim

I note the defence does not specify which part of the insolvency act applies!
Like R0b I don't see that as a problem.

On the other hand I also don't see that you have a claim against Company B.
The debtor has gone into liquidation, and the purchaser of the assets agreed to pay the debt.
Having paid some of it,he declines to pay the rest.
You have no contract with Co B and in effect owed you nothing.
They made a gift of some monies, but a promise of a future gift (the payment of the balance) is unenforceable in UK law

The only loophole I can see, is that perhaps by agreeing to not be included on the list of creditors there was consideration.
This could possibly mean there was an enforceable contract between you and Co B, but I think it is very flimsy

Looking forward to hearing from [R0b[/mention}
[MENTION=71570]R0b[/MENTION]

[R0b]

Re: Freelancer advice for unpaid invoice claim

[MENTION=39710]des8[/MENTION] [MENTION=88795]freelancer[/MENTION], here's my view of it all:

1. The agreement was varied orally to make Company B a guarantor of Company A's debts
Variation of contracts can be oral or written as the same as contracts themselves. There must also be some form of consideration and in this case, that consideration happened when they made the first instalment of the debt. There is a valid variation and Company B agreed to perform the obligations of Company A and now becomes liable for the debt. It is will established that part payment of debt does not extinguish the debt and Company B remains liable for the rest of it. So the situation looks a bit like this:

Obilgor = Company A
Guarantor = Company B
Beneficiary = Freelancer


2. Company B's defence that its payment amounts to a preference putting Freelancer in a better position than other creditors
Their argument relies on s.239 of the Insolvency Act 1986 however as far as I am aware, only a liquidator or administrator can bring proceedings under this section, not a creditor or some other party. In the case of creditors not connected to the company, liquidators have 6 months from the time of the transaction to bring proceedings to void the payment. The key thing to note here is that the payments are made by the insolvent (or possibly an assignment of property owned by the insolvent) which are made to creditors, sureties (those who pay on behalf of the insolvent) and guarantors (like directors).

I am not aware of any case law in which a liquidator has successfully voided a payment made by a third party to a creditor when the company becomes insolvent. If this were the case, then parent company guarantees would no longer be allowed in law! The key distinction is that transactions made by the insolvent, payments or otherwise to a creditor is voidable or otherwise if it came out of any assets owned by Company A or its bank account. Ultimately, a beneficiary can choose to enforce the debt against the insolvent or the guarantor or both and the fact the Company A is insolvent does not affect the rights against Company B.


3. You might have a little problem
Now if you wish to argue that there has been a guarantee, there are some formalities. Under the Statute of Frauds Act 1677 it is a requirement that guarantees are in writing and signed by the guarantor. However, in recent years the Court of Appeal has held that a series of emails which amends an agreement amounted to an enforceable guarantee. They held that there was an intention to be bound by the emails. The case is Gold Ocean Group v Salgaocar Mining 2012.

The potential downfall I see is whether or not Company A agreed to it and the relationship between Company A and Company B - are they part of the same group of companies or one is a parent company or something else?

4. Conclusion
If you can follow the points above, then it seems you have an arguable case to say that Company B owe the remaining debt. They cannot rely on s.239 of the IA 1986 because that option can only be brought by the liquidator. Even still, you have mentioned that this all came about about a year ago which goes over the 6 month period in which the liquidator can bring proceedings, so the transaction is not void.

Finally, you have also said that there was an exchange of emails which could come within the remit of an enforceable guarantee. The question is whether Company A had agreed to all of this and if both companies are within the same group you could argue that even thought nothing might have been said by Company A, given the nature of the relationship that was not necessary.

Its a bit of a difficult situation and its also a bit complex, but you have to weight up the risk and costs involved in this.

[des8]

Re: Freelancer advice for unpaid invoice claim

re 1) doesn't the consideration have to be on both sides to make a variation. A one sided concession is not a variation unless by deed?
2) agreed
3)The defendant is already arguing payment was by way of "a gesture of goodwill". Freelancer's first post also implies that Co B were picking up the tab after the event rather than as guarantor. IMO very slim chance of getting that to stick!

[R0b]

Re: Freelancer advice for unpaid invoice claim

1. Freelancer agrees not to enforce rights against Co. A if Co. B pays instead - thats sufficient consideration from both sides, it does not need to be in the form of money and they both suffer a detriment.

3. That is one argument I agree, but as I read the original post (subject to the contents of the emails) Co. B says they will cover the payments if he agrees not to be a creditor against Co. A and that does not sound like a gesture of goodwill but more akin to a guarantee in that Co. B agrees to discharge Co. A's obligations by paying the amount (over instalments?). You can call it picking up the tab or something else but gestures of goodwill are not legally binding for a start and from the facts, there seems to be an intention from Co. B to perform the obligations of Co. A and pay Freelancer.

As I say, its complex and its whoever has the greater argument on the day but on the face of it, there certainly seems to be strong evidence that Co. B is liable for the full amount and not Co. A. Obviously I have no time to delve into the finer details or whether the claim is a no go as I am basing it around the current facts. It sounds like Co. B doesn't have a solicitor based on their defence but thats not to say they wont have one on the day.

Even if you look at it from another perspective and that its not a guarantee, both parties are simply amending the terms of the agreement to say that it is Co. B who pays the bill and not Co. A. Either way, it becomes a tri-partite agreement.

[freelancer]

Re: Freelancer advice for unpaid invoice claim

Thanks [MENTION=71570]R0b[/MENTION]

To clarify, Company A and Company B are unconnected companies, though they share the same active director who is the person that made the agreement with me to pay me from Company B. Here is a recent email from him that summarises his position - it seems that it is the liquidator that he has taken advice from here:

"I wanted to respond to the below and telephone conversations in writing, after having consulted with the liquidator for (Company A) regarding my legal position and what I can/can’t do pursuant to the insolvency Act. I had explained to him that as a gesture of goodwill we requested a new invoice be created for (Company B) for the balance of the debt owed by (Company A) for work undertaken for (Company A)l in 2015.


For the record (Company B) is a competely separate company to (Company A).


As you are aware the liquidation was approved at a meeting of creditors on the 6th of May 2016. The balance of debt was not included in this however it should have been as a true picture of creditors for (Company A).


I am therefore in a difficult position in that if I make a payment before the liquidation process is complete I will knowingly be favouring a creditor of (Company A) and breaking the law. This leaves me with little option than waiting until the liquidation process is complete before moving towards a resolution."

And here is an extract from a previous email in which we made the agreement:
"...This has unfortunately led us to go down a route of an orderly closure of (Company A). myself and then two key partners have started a new agency (Company B) picking up new contracts and fulfilling any outstanding client work for (Company A). In no way are we looking to fold your invoice into the closure. I would ask that you reissue your invoice to (Company B) and we will have this cleared by the end of Feb."


And also this one:
"Apologies for not getting back to you sooner, (Company A) has been liquidated. Your invoice wasn’t included in the liquidation so I can deal with this for you through (Company B), if it was there would be no chance of recovering this as there is no money in (Company A).
As promised I will endeavour to pay the remainder down from (Company B) as soon as I can in the next month or so."

This is probably the most explicit written evidence that I have for our agreement.
With regards to the portion of payment already made, the first installment was in February this year and the second on March 15th, so I suppose that the 6 months has not expired yet on that second installment.

It does seem as though they have not yet consulted a solicitor on their Defence, just the liquidator for legal advice, but as you say does not mean that they would not have one for court.

Thanks!

[R0b]

Re: Freelancer advice for unpaid invoice claim

Thanks @R0b

To clarify, Company A and Company B are unconnected companies, though they share the same active director who is the person that made the agreement with me to pay me from Company B. Here is a recent email from him that summarises his position - it seems that it is the liquidator that he has taken advice from here:

"I wanted to respond to the below and telephone conversations in writing, after having consulted with the liquidator for (Company A) regarding my legal position and what I can/can’t do pursuant to the insolvency Act. I had explained to him that as a gesture of goodwill we requested a new invoice be created for (Company B) for the balance of the debt owed by (Company A) for work undertaken for (Company A)l in 2015.


For the record (Company B) is a competely separate company to (Company A).


As you are aware the liquidation was approved at a meeting of creditors on the 6th of May 2016. The balance of debt was not included in this however it should have been as a true picture of creditors for (Company A).


I am therefore in a difficult position in that if I make a payment before the liquidation process is complete I will knowingly be favouring a creditor of (Company A) and breaking the law. This leaves me with little option than waiting until the liquidation process is complete before moving towards a resolution."

And here is an extract from a previous email in which we made the agreement:
"...This has unfortunately led us to go down a route of an orderly closure of (Company A). myself and then two key partners have started a new agency (Company B) picking up new contracts and fulfilling any outstanding client work for (Company A). In no way are we looking to fold your invoice into the closure. I would ask that you reissue your invoice to (Company B) and we will have this cleared by the end of Feb."


And also this one:
"Apologies for not getting back to you sooner, (Company A) has been liquidated. Your invoice wasn’t included in the liquidation so I can deal with this for you through (Company B), if it was there would be no chance of recovering this as there is no money in (Company A).
As promised I will endeavour to pay the remainder down from (Company B) as soon as I can in the next month or so."

This is probably the most explicit written evidence that I have for our agreement.
With regards to the portion of payment already made, the first installment was in February this year and the second on March 15th, so I suppose that the 6 months has not expired yet on that second installment.

It does seem as though they have not yet consulted a solicitor on their Defence, just the liquidator for legal advice, but as you say does not mean that they would not have one for court.

Thanks!

Sorry for the delay, another argument you could make is that the agreement has been novated from Company A to Company B. If its the same director then you could say there is sufficient evidence to show that the director had authority to do this and that is essentially what this is. So you have two arguments here which could give rise to the fatc that Company B should owe you the remaining balance