Personal liability of a company director?!

[Hopefull1]

Hi all, I would appreciate any help/advice on my small claim court proceedings so far. I am a litigant in person and I am finding the process is getting increasingly difficult.*

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I worked for a business where the director breached my contract by not allowing me to see particular clients and did not pay me for two months.
I immediately terminated my contract due to these multiple breaches and requested for payment of outstanding money.
I later discovered that the business operated under a new limited company for which I was unaware of whilst I was working there and that assets had been transferred over to this new limited company. The director is now operating this new limited company - which is exactly the same business!*
I went through the normal pre action protocol before having to issue an online money claim (small claims court) due to the director promising that payment would be made and then going back on his word and stating the old company is what owes me the money.
I decided in my money claim to list the original company and the individual director as defendants as I felt there was wrong doing on the part of the director for transferring assets to a new company whist I was still working for the original company, benefiting from my work where no contract was assigned to, and where breaches of contract had been committed. I have also discovered that the old company has not paid several suppliers of the old company.
The director has defended saying he isn't liable for my payment.
The case is to proceed to a hearing, however following delivery of my witness statements on time as per court order, the defendant requested and extension of the court to provided his evidence.*
I have since been met with a letter from a solicitor of the defendant stating my claim has no legal basis in that I cannot hold the defendant personally liable as a company director and my claim will fail. Case law of Said v Butt (1920) and*Salomon v A Salomon & Co Ltd have been stated in the letter and defendant's witness statements reiterating about separate legal entities of company and director.*The solicitor has also stated they will ask for costs to be awarded for unreasonable behaviour if I am to continue to court without removing the director as an individual as I am being vexatious and my case has no merit.

I feel I have been doing the right thing up to this point however this letter and presentation of case law makes me feel like it will be virtually impossible for me to obtain justice. How to you think I should proceed now?

Thank you for any support you can offer.

Hope everyone is keeping safe.


















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[R0b]

Hello,

Whilst I understand your predicament, English law does not afford a right to a claim for compensation and whilst you might have thought you were doing the right thing, the company director's solicitor appears to be right.

Your employer is the limited company and not the director personally however much the director might also be the owner of the company and therefore any action for breach of contract you might have will be against that limited company, not the director. The whole purpose of setting up a limited company is that the company has its own personal liability and separate that liability from the shareholders. This is known as the 'corporate veil'.

The case of Salomon v Salomon referred to by the solicitor is the leading case on this subject and has stood the test of time. The courts will not 'pierce the corporate veil' and hold the director/shareholder responsible except in very, very limited circumstances. One of those reasons where the courts will pierce the veil is if the company has been deliberately set up as a sham. Note, that non-payment of wages or suppliers on its own is not going to be sufficient to argue that the company was set up for that purpose unless there is (really strong) evidence to suggest otherwise.

Unfortunately, it is really difficult to get your money back in these kinds of situations but if the company has gone into liquidation then the liquidator could take direct action against the director for personal liability and in some circumstances, take the director to court and ask a judge to consider banning the director from running or managing a company for so many years.

It's costly to go down that route and its not clear if the company has now dissolved or if it is still active on companies house but either way, you need to weigh up whether you want to continue pursuing the director and risk costs, is discontinue that part of the claim and proceed with the claim against the company.

[des8]

Viewing the transfer of business from one company to another I wonder if there are possible claims against the old company for redundancy or the new company for automatic TUPE

Tagging Ula for assistance/clarification

[R0b]

Viewing the transfer of business from one company to another I wonder if there are possible claims against the old company for redundancy or the new company for automatic TUPE

Tagging Ula for assistance/clarification

A novel argument there Des, not sure it would apply here as the OP suggests the assets have only been transferred rather than the business. There would have to be a transfer of a contract of services for TUPE to apply and I'm not so sure that an almost identical business being set up that provides the same service as the earlier business, is the same as a transfer of a contract of services albeit I'm no TUPE expert so interested in hearing Ula's thoughts.

[des8]

Nor am I sure... but there is also possibility of unfair constructive dismissal??
It just seems so wrong I thought Ula might have some pointers

[ULA]

Hi, I think my starting point is by way of a couple of questions:

1. How long were you employed by the business?
2. When did you leave the business?
3. Since wages had not been paid to you did you consider making an application to the employment tribunal for unlawful deduction of wages? If so why did you decide not to proceed with a claim on this basis?*

Responses to these questions would be really helpful.

rob and des8* I am pondering and scratching my brain on the TUPE point so not ignoring it

[Hopefull1]

Hello all, really appreciate your input here.

Rob, it was a complete transfer of business, contract of services as well as assets. The trading name stayed the same, and the new company name was exactly the same as the trading name bizarrely. From companies house I discovered that this new company was formed at the same time as the original company (ie has been dormant alongside the old company).

ULA, some answers for you that may help:*

1. How long were you employed by the business? Approximately 7.5 months

2. *When did you leave the business? October 7th 2019

3. Since wages had not been paid to you did you consider making an application to the employment tribunal for unlawful deduction of wages? If so why did you decide not to proceed with a claim on this basis?

So technically I am classed as self-employed (do self assessments/tax returns etc) as I am a dental associate (although a lot of our contracts treat us like employees). This is the reason I didn’t pursue this route as I assumed it would be outright rejected.


Thank you everyone

[Hopefull1]

Hi all, would be most grateful for any further advice. Do you think I should co-operate with a drop hands offer from the solicitor and additionally ask for a settlement offer from the individual on behalf of the new limited company?* I would really don't want to have unreasonable costs awarded against me as I feel I have been reasonable throughout this. Thank you

[ULA]

Based on the fact that you are classed as self-employed, then I am not sure I can provide much further advice here as how best to proceed.

I am going to hand back to rob and des8*

[des8]

In view of the further information that has emerged, IMO you should remove the director from the claimants.

Whether or not it is even worthwhile pursuing the company is doubtful as it would appear to have been stripped of its assets. If you win you will probably have difficulty enforcing the judgement.

It may be that the assets were transferred from one company to the other illegally.
Directors must act in the best interests of their company at all times, and transferring assets at no cost is not in the best interest of the original company.
To transfer assets*with the intention of defeating creditors is both criminal - which could lead to prosecution - and a breach of the director's duties - which could lead to action by a liquidator.

That is the theory, but in practice unless there is a very substantial amount at stake nothing will be done.


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[R0b]

I agree with Des, you are running the risk of an adverse costs order if you pursue the director personally because of the high bar you have to overcome and I just don't think from the facts that is satisfied.

Also want to point out that just because another similar business was set up to do the same job does not automatically mean that there was a transfer of services too and the onus would be on you to prove that is the case. However, based on your recent comments I don't think we need to get in to that too much.

It's not clear whether the company is still active or dissolved, but Des is right that the liquidator would have the power to apply to the court to suspend/ban a director if they have acted improperly. The problem is that it is expensive and not worthwhile in a lot of cases.

[Hopefull1]

Thank you all - your advice is much appreciated.

The original company is still active on Companies House only because I objected to its voluntary strike off. This was unfortunately done in January 2020 when proceedings were underway - myself and no other creditor was informed of this.

Are the chances of an adverse cost order against me in the small claims court likely if I leave the director on the claim for the hearing?