If you have sent money in advance for mail order goods and later find the telephone disconnected or, if you have put down a deposit in the shop, or gone back to complain about faulty goods or services only to find the premises closed and locked, you may be dealing with a company which has ceased trading because it is insolvent - i.e. it has no money to carry on business.

The Insolvency Act 1986 lays down the legal framework for all such insolvencies. The Insolvency Service at the Department of Trade & Industry (DTI), The Official Receiver, and licensed Insolvency Practitioners (usually qualified accountants) administer the law.

There are two separate categories of insolvent businesses with which you may have to deal:

 

1. Companies that may go into liquidation/receivership/administration.
2. Individuals running a business as a sole trader, who may become bankrupt.

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.

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'. You come at the end of the line for payment, if there is any money left after all the expenses of winding up the company have been met and certain creditors, called 'preferential creditors', have been paid.

When you first find out that the company is not trading, you may have very few facts. You need to write a short letter to the trader, delivered to the business address, and the registered address if it is different and you know it, even if the premises are empty, to notify them of your claim and exactly to what you believe you are entitled. Keep a copy. Ask around locally for information and if you find out who is the solicitor or accountant for the trader, write and/or telephone them too, as they may be keeping details of claims.

• It is not always easy to find out whether insolvency proceedings have been started. You can ask the local Official Receiver's office, check the local press and the London Gazette for notices, and ask the County Court if proceedings have been started.
• The vital information you need is whether the official receiver is dealing with the matter or an insolvency practitioner, and their name and address so you can write to make a claim.
• Records of company liquidations are held at Companies House, Crown Way, Cardiff, CF14 3UX; telephone: 0870 3333636.
• The list of disqualified Directors is also held there.
• Records of individual insolvencies are held by the Individual Insolvency Register, 5th Floor, West Wing, 45-46 Stephenson Street, Birmingham. B2 4UP. They can be faxed on 0121 698 4406. They do not accept telephone searches.
• You can also search the register in person at the local official Receiver's Office.
• A leaflet about the register and other leaflets about the insolvency service are also available from the local Official Receiver's office.

1. COMPANIES

Either one big creditor will appoint an Administrative Receiver, or the company will decide to wind up and appoint an Insolvency Practitioner. In either case, 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 and informing creditors about a creditors' meeting. All creditors can go to these meetings, and you should go if you can. 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 measures fail to save the company (or if a creditor successfully petitions for the compulsory winding up of the company), a Liquidator is appointed who is a licensed insolvency practitioner.

Liquidation

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.

2. SOLE TRADERS

Bankruptcy

If the trader is a sole trader and is to be made bankrupt, the Official Receiver will deal with it (although an insolvency practitioner may be appointed at some stage). They act as the 'trustee in bankruptcy' and deal with everything to do with the bankruptcy. You 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 arrangements to resolve the problems may be able to be made by the Insolvency Practitioner or the Official Receiver, if there is a chance to do so and money available.

POINTS TO NOTE:

• The Insolvency Practitioner must invite all creditors to the creditors' meeting, and eventually report to them, but has no duty to act as a general advisor to them.
• The Insolvency Practitioner may sell the assets (anything of value) of the company to another company, or perhaps to a group of employees who can form a new company and go on to trade without taking responsibility for the debts and liabilities of the previous business.
• A Director can form a new company under a different name and continue trading without taking responsibility for the liabilities of the old one.
• Consumers have no special protection in insolvency law.
• Wrongful Trading - The Insolvency Practitioner must report to the DTI if he/she believes there is evidence of "wrongful trading" by the Directors. This is a technical term in the Insolvency Act. Directors may be sued by the Department of Trade and Industry, and may be disqualified for a set number of years. This is not likely to help individual consumers to get their money.
• In some cases, a Liquidator can take action against the Directors for misconduct and make them repay money into the company for distribution to creditors.
• Ascertained goods - sometimes a company may shut down when your goods are in the workshop or are about to be delivered. If your goods can be specifically identified - 'ascertained' - you should be able to claim them back. You should inform the Insolvency Practitioner and anyone else who may have any claim on the goods straight away.

Some protection for your money

1. For goods or services costing more than £100, pay by credit card.

2. Never pay in advance for anything, if possible.

3. Consider a company which offers an insurance backed guarantee, but check on credentials.

4. For money-with-order ads in the press, find out if a M.O.P.S. scheme is in operation. Look for the logo on the advertisement or check with the advertiser.