If you have paid money in advance or put down a deposit for goods and later find you can no longer contact the seller because the telephone is disconnected, or when you have gone back to the shop to complain you find the premises closed and locked, you may be dealing with a company which has ceased trading because it is insolvent; that is, it has no money to carry on business. The Insolvency Act 1986 lays down the legal framework for all such insolvencies and there are two separate types you may have to deal with:
Not every insolvent trader is made bankrupt or goes into liquidation. There are different stages to the process and other legal arrangements can be made. Some companies may also cease to trade without being insolvent. However, when it does happen, you may lose your money or not get work finished or goods delivered. The situation is likely to be uncertain for quite a long time. If you have paid for goods or services or have a claim for faulty goods, or if you have supplied goods or services to the company, you will be called an 'unsecured creditor' and come at the end of the line for payment. This means you will only get something back if there is money left after all the expenses of winding up the company have been met and certain creditors such as government departments, called 'preferential creditors', have been paid. When you first find out that the company is not trading, you may have very few facts. You will need to write to the trader, at the business address and the registered address if it is different (you may be able to find this using the search function at Companies House website) even if the premises are empty, to notify them of your claim and exactly what you believe you are entitled to. Keep a copy. Ask around locally for information and if you find out who the trader's solicitor or accountant is, contact them too as they may be able to tell you what is happening.
There is likely to be a delay before anything happens but there should be a notice in the press, locally if it is a local trader and in the London Gazette, giving information about the current situation together with details about a creditors' meeting. All creditors can go, and you should go if you can. At the meeting an in-solvency practitioner or administrative receiver may be appointed.
A receiver does not wind up the company but is appointed to collect money owed to the company or to raise money from the company to pay the creditors. A receiver may trade in the company's name, sell assets, sell the company or make other arrangements. If these fail to save the company a liquidator is appointed who is a licensed insolvency practitioner.
The insolvency practitioner takes over full responsibility for winding up the company, selling assets, dealing with claims and making all other arrangements. A consumer who is owed money or has any claim must write to the liquidator. Your claim is against the limited company not against the individual directors, so you will get no money if the company has no assets.
If the trader is a sole trader and is to be made bankrupt or has entered into an individual voluntary agreement (IVA), the official receiver or insolvency practitioner will deal with it. They act as the trustee and deal with everything to do with the bankruptcy or IVA. You should write to the official receiver (or insolvency practitioner) to make your claim and to get information or raise any other issues about the trader's business practices. You will not normally be able to take legal action for any money you are owed, and if the person has no assets you will not be paid. However, in both cases, practical, helpful advice may be given to try to help you.
Points to note: