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Some of you may be aware that fairly recently a small children's book publisher went into liquidation. For those of you unlucky enough to have had dealings with them you must be bitterly wondering if a situation where you find yourself being owed royalties by a now defunct company could have been avoided. Sadly when a company goes down there is very little you can do. You will be put at the end of a long list of creditors who will most likely include the tax man and the bank, so you stand very little chance of even recovering any monies that are due to you. This is because a limited company is just that. The shareholders are liable only up to the amount of their shareholding and in most situations the directors are not liable to creditors.
You should receive a letter from the accountants who have stepped in to run the company while it is being wound up. This will give details of the creditors meeting and about the current status of the company. Depending on the type of winding up, they will be called liquidators or administrative receivers. It is their job to try and sort out debts, sell assets and most importantly report what has happened to the government overseer who is called the Official Receiver and the DTI.
There is nothing to stop you attending creditors meetings and if you are able to get to them, without too much cost and inconvenience, I suggest you attend for a number of reasons. Firstly, you are making your voice heard and you may end up slightly higher up the queue for sums owed to you. Secondly and possibly more importantly is that you are able to effectively have your day in court and make the directors feel as uncomfortable as possible whilst you stand up, ask questions and rail against their incompetence.
The liquidator or administrative receiver can ask a director to contribute to the company if he or she has traded wrongfully or fraudulently. So if you do not attend the meeting, write to the liquidator or administrative receiver to explain what happened to you and if you feel that debts were unnecessarily run up. Send a copy of the letter to the DTI. It is not a guaranteed solution but your letter may tip the balance, and what have you got to lose. It may do wonders for your blood pressure.
You can also write to the DTI if you feel there has been genuine incompetence, mis-management and abuse of the director's position and the company's limited liability. This is because the DTI can take proceedings to disqualify a director from running companies In the future if It considers a director to be unfit to run a company. These proceedings are becoming more and more common as the government is under pressure to tackle the rogue directors.
Be aware that no one wants an hysterical diatribe and you do not want to be landed with a claim for defamation so be clear, be truthful and do not exaggerate.
What can you do to prevent a situation arising where you enter into the contract with a limited company only to discover that limited company goes into liquidation. If you are having negotiations and discussions with an individual or a company find out exactly who you will be contracting with. You may have all your negotiations and agreement with a particular person but they will sign on the dotted line as "About To Do a Runner Limited". If you enter into a contract with a limited company, you cannot then hook liability on to an individual unless you have entered into a personal written contract or guarantee from that individual. You could try in the course of negotiating any written contract insist on a clause which states ‘If you are representing a limited company you agree by your entering into this contract, to guarantee payments of any sums by that company'. This means you could go directly against the individual concerned.
What about the rights in the illustration you prepared for the company. Who owns them, is it you or the company or the Official Receiver. There Is no easy answer to that. A device you could use to get round it is to ensure that there is a clause in any contract that no rights have been granted until full payment is made. The AOl standard contract has a clause to this effect. This is only really effective where there is a one or two stage payment. It is not practical where there is an income stream of royalties which may be paid over a number of years. However, if it was a single sum due which has not been paid and the contract has that clause, you can be confident that the rights in your work are not tied up in a defunct company. This is because they were not granted in the first place.
If you are approached by another company stating that it has taken over the agreement of the defunct company, look very carefully at your original agreement. The chances are that the defunct company cannot pass the rights on. Write and say so to the new company. If you are in doubt seek advice from the AOI. If you do want to contract with the new company try and insist that they can only have the rights if they pay you all money owed there and then. Do not fall into the same trap again. So try and renegotiate the contract to place additional safety nets.
If you are adamant that you want nothing to do with the new company you are probably kissing goodbye to the chance of ever seeing any money, but you may have escaped with your rights intact. If the new Company has the same directors write to the DTI as this is exactly the sort of thing they want to crack down on.
If you are thinking of entering into a contract with a company that you do not already know of, do not be frightened of making enquiries of them. You could contact Companies House in London or Cardiff and arrange a company search. This will give information about the age of the company, details of the directors and the shareholding structure. Ask the person with whom you are negotiating to put you in touch with other illustrators or people in similar position to yourself. If they are reluctant to do so you should ask yourself why.
In conclusion you can probably guess that there is very little you can do against an organisation which has the armour plate of limited liability. A little preparation could go a long way but once the house has come down make sure you are more than just an angry voice.
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