Insolvent Client? The risk to your company. The Insolvency Act 1986, section 127

General understanding is that the main risk of a client going into liquidation is that they won’t have paid all monies that they owe to you.

However, legislation exists to preserve the assets of a company which is subject to compulsory winding up proceedings.  This means that, even when you have raised an invoice for goods or services that have been provided in good faith, if that client has been served with a compulsory winding up notice prior to paying your invoice, the payment will be considered as void, and repayment will be sought by the Liquidator. This situation is particularly prevalent in the labour outsourcing sector.  

The Insolvency Act 1986, section 127 

After a compulsory winding up order  has been served, Section 127 of the Insolvency Act 1986 makes any payments made out of a company’s bank account as being void. This is to avoid the directors disposing of the company’s assets to the prejudice of its creditors.  The company assets should be divided equally between creditors (subject to the amount of debt) and so, liquidators will look to recoup any funds paid out after the issue of a compulsory winding up petition. 

Where all parties are keen to avoid legal costs there may be scope to negotiate with the liquidators for payment of a reduced amount based on individual circumstances.  Aspire has been successful in achieving positive outcomes for clients who have inadvertently received a void payment.  Consideration should be given to enhancing due diligence processes to ensure that robust checks are made on all clients.   

To discuss the scope for settlement negotiations if you have been served with a Notice under section 127, or to discuss the due diligence checks that you can perform on your clients and suppliers, contact Aspire on enquire@aspirepartnership.co.uk or call Alan Nolan on 07979 541405 or Karen Weston on 07775 441561