Getting caught up in someone else's bankruptcy

[big soft moose]

There's a lesson in both these stories about lending serious money to "freinds" - it would be harsh to say that its "dont ! " but certainly if you do get everything legally certified in writing just like you would if you were lending to someone you didn't know

even the best freind in the world may choose to put his own security above yours if the brown stuff hits the fan ( and with reasonable cause - after all if most of us had to choose between making the wife and kids homeless and dropping a mate in the dung what would we do ? )

and if you don't feel you can do that then don't lend more than you can afford to loose.

 

[BigShot]

Ste - while I find it annoying that an individual is treated in the same way as a big credit company (let's face it, you losing a few grand is a FAR bigger deal than them losing a few) and am inclined to suggest you try to sort out the best possible deal for yourself because, again, this money means far more to you than some big, faceless company... in some ways it's good to know one way or the other what's going on.

I assume you've discussed this with the woman you spoke to, but does that law apply to individuals in the same way as financial companies? It strikes me a really very weird if it does, but it's worth investigating if not already.

 

[big soft moose]

I assume you've discussed this with the woman you spoke to, but does that law apply to individuals in the same way as financial companies? It strikes me a really very weird if it does, but it's worth investigating if not already.

I suspect the issue is that it looks (to the creditors and their agents) like the money is being "stashed" with Ste , (which is fairly common practice in "tactical bankruptcy" ) particularly if he cant easily demonstrate that the loan took place - this would not be an issue for a big credit company as they could easily demonstrate why the money was paid to them

 

[Karl]

Ste - PM sent.

Karl

 

[BigShot]

BSM - I can understand that - but if he does have the records (not a credit agreement of course, but in the form of reciepts, stubs and statements) would that not be in his favour?

I dunno - we're back into guesswork here though - I expect he's discussed this with the firm he spoke to.

It still seems dead wrong to me though.

 

[RogerS]

So if I follow the advice of the insolvency person, there I am running a business, say, and at any time up to two years from an invoice being paid, if the firm I supplied goes bankrupt then the bankruptcy boys can come along and ask for the money back? Surely not.

 

[Karl]

BSM - I can understand that - but if he does have the records (not a credit agreement of course, but in the form of reciepts, stubs and statements) would that not be in his favour?

I dunno - we're back into guesswork here though - I expect he's discussed this with the firm he spoke to.

It still seems dead wrong to me though.

BS - try looking at it from the other side.

If you were a creditor of somebody who went bankrupt, and it transpired that in the period immediately prior to bankruptcy one particular creditor who was a close friend/relation of the bankrupt was repaid £10k, would you not be furious that they had been repaid (preferred?) instead of you?

Cheers

Karl

 

[RogerS]

Ste, have you come across this site?

http://www.insolvency.gov.uk/guidancele ... ides.htm#1

Annex lists companies that might be able to help or at least give you advice - foc for many of them.

 

[Karl]

So if I follow the advice of the insolvency person, there I am running a business, say, and at any time up to two years from an invoice being paid, if the firm I supplied goes bankrupt then the bankruptcy boys can come along and ask for the money back? Surely not.

Roger - that would fall into payments in the "ordinary course of business". If all suppliers were being paid, it is not an issue.

The legislation refers to an intention to prefer a particular creditor to the detriment of others.

Cheers

Karl

 

[bugbear]

So if I follow the advice of the insolvency person, there I am running a business, say, and at any time up to two years from an invoice being paid, if the firm I supplied goes bankrupt then the bankruptcy boys can come along and ask for the money back? Surely not.

Roger - that would fall into payments in the "ordinary course of business". If all suppliers were being paid, it is not an issue.

The legislation refers to an intention to prefer a particular creditor to the detriment of others.

Cheers

Karl

Yes - presumably the intention of the legislation is to spread the pain fairly (or at least legally) amongst all the creditors.

That there is some pain is down to the guy who went bankrupt.

It's certainly NOT the fault of ANY of the creditors.

BugBear

 

[RogerS]

Thanks Karl.

 

[BigShot]

Karl - I can absolutely see what the point is, but there are a couple of points.

Firstly, there's a world of difference between a payment missed to a huge company that includes missed payments in its business model, and a missed payment to an individual. On that ground alone I find it a bit barking.

Second is another point entirely. From the OP it sounds like the defaulter in this took out a loan to pay the OP back... made a few payments and then defaulted. That's really not the same as owing money to the OP, the creditor and paying it back preferentially.


Bugbear I think you've hit upon the crux of my objection to this. It seems the pain of the bankruptcy is (in terms of creditors here, the mess for the defaulter doesn't bear thinking about) being spread anything but fairly. Legally, maybe, equally, maybe, but fair it most certainly is not - and I think that's wrong.


If there's one thing that this thread has done, apart from getting Ste to take some positive action on this, it is making it abundantly clear just how bad an idea lending money can be. If you can't afford to never see a single penny of it back again; don't lend it at all, that really has to be the lesson to take home from this. Even though at the moment it seems money is going to be lost, I'm glad this thread was posted as a stark reminder of what can happen.

 

[big soft moose]

Personally i'd have thought that the payment was in the usual course of business but then i'm not an insolvency practictioner so what do i know

If there's one thing that this thread has done, apart from getting Ste to take some positive action on this, it is making it abundantly clear just how bad an idea lending money can be. If you can't afford to never see a single penny of it back again; don't lend it at all, that really has to be the lesson to take home from this. Even though at the moment it seems money is going to be lost, I'm glad this thread was posted as a stark reminder of what can happen.

too right - look at the banking crisis - that was basically caused by bad debt and those are huge institutions

 

[Jake]

I don't know much about this area, as with too many other areas of the law.

The main thing to remember is that insolvency practitioners are very very pragmatic people - there are few scruples about pursuing legal avenues, but little desire to do so unless the costs of doing so are going to pay off for the other creditors in the longer run. Otherwise, they are pissing in the wind.

Do you have obvious assets that would prevent you from 'playing dead'?

I would urgently get to researching the proof that the money was lent to the bankrupt, as that is potentially going to be very important - if the creditors think that the payments toyou were the bankrupt spiriting assets away, rather than repaying a debt, then they may well be inclined to pursue as a point of principle, rather than on a purely cost-benefit decision.

From a quick glance at the legislation, the key is going to be in the intention of the debtor when he paid you - the insolvency practitioner has to show that the intention (or part of it) was to ensure that you would do better than you would in an insolvency - so the debtor has to have in mind when paying you back that he is going to go bust in the end.

I don't know how much you are in for, but you are going to either have to do a lot of work yourself or incur a bunch of fees for professional advice, so that's a very relevant factor, I'm afraid.

 

[jlawrence]

I'm reading this thread with great interest.
A few years back I 'lent' 10K to a company which I was contracting for - even though they owed me 20K in unpaid invoices - I new it was a risk but if it paid off then the company 'could' have made a considerable profit. In the end I lost out to the tune of around 30K - swmbo hasn't let me forget about it even though it was over 5 years back. Hey hum, I took a risk and lost.
Nothing like the OP's problem I know, but like him I had no paper work (ie contract) to show I'd lent that money - stupid of me I know - so when the company went to the wall I had zero chance of getting even a penny back.

Interestingly, the OP says that the debtor took out a loan in order to pay him back - was it a loan or did he load a credit card ?
If it was a loan then the 'loaner' should have carried out their due diligence in order to ensure the finacial state of the borrower - in which case it could probably be argued that the risk of immenent bankrupcy "shouldn't" have existed.

Be interesting to see how this develops.

 

[matt]

Not read the whole thread so this may have already been suggested but, before spending on a solicitor, why not sound out Citizens Advice Bureau?

 

[Losos]

I agree that you should seek proper advice. But can someone explain to me how on earth this can be legal? Where is the sense in taking money from someone because the person who paid it is in debt? It's infuriating!! :evil: :evil:

I don't understand this either.

2007 A lends money to B
2009 (July) B pays money back to A
2009 (November) B goes into voluntary liquidation (Or what ever the legal terminology is)

How can anyone have a retrospective claim on A :?:

All I can say is do NOT reply to that letter until you've had some good professional advice. I don't envy you.

 

[RogerS]

I agree that you should seek proper advice. But can someone explain to me how on earth this can be legal? Where is the sense in taking money from someone because the person who paid it is in debt? It's infuriating!! :evil: :evil:

I don't understand this either.

2007 A lends money to B
2009 (July) B pays money back to A
2009 (November) B goes into voluntary liquidation (Or what ever the legal terminology is)

How can anyone have a retrospective claim on A :?:

All I can say is do NOT reply to that letter until you've had some good professional advice. I don't envy you.

I agree but it could be argued perhaps that the reason B went into bankruptcy was because of taking out the loan to pay off A. But as you say I don't envy Ste.

 

[Mike.C]

I agree that you should seek proper advice. But can someone explain to me how on earth this can be legal? Where is the sense in taking money from someone because the person who paid it is in debt? It's infuriating!! :evil: :evil:

I don't understand this either.

2007 A lends money to B
2009 (July) B pays money back to A
2009 (November) B goes into voluntary liquidation (Or what ever the legal terminology is)

How can anyone have a retrospective claim on A :?:

All I can say is do NOT reply to that letter until you've had some good professional advice. I don't envy you.

I agree but it could be argued perhaps that the reason B went into bankruptcy was because of taking out the loan to pay off A. But as you say I don't envy Ste.

Even if that was the case, and I am not for one moment saying it was, then tough dung. If "B" had paid the other creditors, who presumably are companies, and left the little man in the street "A" without payment, do you think that anyone would be asking these companies to pay the money back so that "A" can be paid?? I do not bleed1ng think so, as usual Joe Public would be left at the bottom of the ladder fighting for any scrap's that maybe left, which is usually nil.

If this is what happened then good bleeding going "B". "A" was a good enough friend to lend you the money, and you were good enough to make sure you paid him back before you went under =D> =D> =D> =D> =D> =D>

But what really happened is "A" lent "B" the money a bit at a time over a couple of years, and if he has proof in the form of bank statements or such like that he lent him all the money or at least the major part of it, then IMHO he can show he helped a friend and the friend returned the money. That should be the end of it.

Maybe I am a fool and would cut my nose off to spite my face, but if as Ste states this was all above board, I would fight this tooth and nail, and would never pay the money back, just so that it can be given to a company/companies that can afford to lose it.

Cheers

Mike

 

[RogerS]

I take your point, Mike, but I think the thread has become a bit clouded in starting to talk about 'companies'.

On reading the first post, I don't see any reference to person B owing money to companies in a B2B relationship. I read it as a private indvidual maybe owing money to credit card companies, maybe the taxman, maybe the mortgage company etc.

So although person B might have had to declare themselves bankrupt in any event in the not too distant future, the fact that they took out a loan to pay off Ste (whilst extremely laudable and an honourable thing to do) could be perceived by the other creditors as trying to hide assets - daft though it sounds.