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Illegal dividends.

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I had my own business for 4 years and I just took cash out of the company account and paid into a personal account, now I know these are classed as illegal dividends.. Ouch... But here's the rub, the company went into Cvl and I'm now being chased by the liquidator for the illegal dividends.. 

The IP has all the paper  invoices from my suppliers but here's the rub I used the cash to pay my suppliers. The IP says I need proof I paid cash but I didn't have any credit with my suppliers and paid as I went along. I have a digital record of my suppliers, time, date, goods bought and all signed paid. I'm 100% they will tally with the paper invoices. So basically I've taken the money out of the company account into my personal account then paid for the goods for to keep the company running... How do I stand...? I have evidence and I haven't told them. Why won't they check my suppliers invoices which are all paid..

Any thoughts on where I stand.. 

Regards 

Replies (28)

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RLI
By lionofludesch
06th Nov 2019 18:48

They're not illegal, they're unlawful.

Illegal means you've committed an offence.*

Unlawful means the dividends never happened.*

That's why you're being chased for the debt. The money you took was never yours.

Common mistake - most people get away with it by paying their creditors. Unfortunately, you overlooked that.

* Bit of an oversimplification here, but you get the idea.

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Replying to lionofludesch:
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By Nickwood1
06th Nov 2019 19:43

But the IP is saying they were 'illegal dividends'.

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Replying to Nickwood1:
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By JoF
06th Nov 2019 21:16

You can correct them now then.

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By Accountant A
06th Nov 2019 18:51

Nickwood1 wrote:

Any thoughts on where I stand.. 

I think you are up s**t creek and may have personal liability for your company's debts. You should speak to a lawyer and personal insolvency specialist as a matter of urgency. Others may be able to suggest if you may have committed specific offences (false accounting?).

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Replying to Accountant A:
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By Nickwood1
06th Nov 2019 19:42

OK I go to county Court with a counter claim, if I lose I could possibly maybe say that I had no idea how accounts work and could've plucked the figures of the top of my head and the Ip's figures are wrong , then what?

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Replying to Nickwood1:
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By JoF
06th Nov 2019 21:18

Ignorance of the law is no defence though.

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By David Heaton
06th Nov 2019 19:04

As the director of the business, you were responsible for ensuring compliance with the company law on making distributions only out of profits available for the purpose. You are prima facie liable to repay the unlawful dividends, as you were directly involved and knew what you were doing.

When you used the money to pay company creditors, the payment should have been credited to your director's current account, so you will have become a creditor of the company. You are a creditor along with all the others.

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Replying to David Heaton:
RLI
By lionofludesch
06th Nov 2019 19:13

David Heaton wrote:

When you used the money to pay company creditors, the payment should have been credited to your director's current account, so you will have become a creditor of the company. You are a creditor along with all the others.

The problem, of course, is proving it, as the OP doesn't appear to have kept decent records. Why put yourself at risk by taking the money and paying creditors with it ? Why not pay the creditors out of the company's account ?

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Replying to David Heaton:
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By Nickwood1
06th Nov 2019 19:37

If I'm a creditor can I counter claim?

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Replying to Nickwood1:
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By David Heaton
07th Nov 2019 11:09

Counterclaim in what way? The company owes you money, so you are owed a debt in the insolvency, just like other unsecured creditors. But as suggested by others, what can you prove?

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By JDBENJAMIN
06th Nov 2019 19:58

Speak to a solicitor. This is not the place to fish for free advice. You should have done proper accounting before, which would have put you in a stronger position.

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Replying to JDBENJAMIN:
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By Nickwood1
06th Nov 2019 20:03

Thank you soooo much for your input...

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Replying to JDBENJAMIN:
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By Nickwood1
06th Nov 2019 20:04

Thank you soooo much for your input... Are you an accountant for mothercare?

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Replying to Nickwood1:
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By Matrix
06th Nov 2019 20:51

Why are you being so rude?

If you have paid off all the creditors with the money you took out the company then there wouldn’t be any creditors left so you must have still taken too much.

Everyone has been really helpful even though you obviously have no respect for our profession.

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Replying to Nickwood1:
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By JoF
06th Nov 2019 21:20

Very rude, despite the good advice given.

You deserve all you get.

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Replying to Nickwood1:
RLI
By lionofludesch
06th Nov 2019 22:13

Nickwood1 wrote:

Thank you soooo much for your input... Are you an accountant for mothercare?

Why don't you tell us what you want us to say ? Then we can say it and make you happy.

Once again we have a fool who doesn't like the advice he's been given.

Bottom line is you're in the wrong place. You need a lawyer, not an accountant.

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Replying to Nickwood1:
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By adamsmith72
06th Nov 2019 22:46

try www.cupidstunt.co.uk for free legal advice

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Replying to Nickwood1:
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By JDBENJAMIN
07th Nov 2019 17:05

I've no idea what that's supposed to mean. You're the one who has gone bust, so I think you have more in common with Mothercare than I do.

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Replying to JDBENJAMIN:
By JCresswellTax
08th Nov 2019 10:04

Absolutely brilliant reply. Howling! :)

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By johnhemming
07th Nov 2019 06:58

In fact looking at this question it is an ideal example of why these sorts of questions require professional advice and are not questions to be asked on a forum.

The problem asking questions on any forum is that there are details that are important that will not be in the question. Anyone giving useful advice needs to know those details.

You do need one to one advice from an accountant/lawyer or both. You probably would be best with an accountant who understands the legal aspects.

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Lisa Thomas
By Insolvency Practitioner
07th Nov 2019 10:03

I havent read all the replies so apologies if repeating something that's already been said.

How much are we talking about here?

You need to instruct a Solicitor that specialises in corporate insolvency asap. I can recommend one if you DM me.

The issue you have is that you need the statements from the creditors but have lost the authority to get them now that the IP is in control, so will have to rely on the Liquidator to get them.

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By bernard michael
07th Nov 2019 10:13

Clarification from the OP needed
How was the money extracted by you shown in your accounts?
Were the accounts prepared by an accountant.? if so what do they say about the "dividends". You must ask them because what they have done will reflect the attitude of the IP

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Replying to bernard michael:
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By bernard michael
08th Nov 2019 09:38

bernard michael wrote:

Clarification from the OP needed
How was the money extracted by you shown in your accounts?
Were the accounts prepared by an accountant.? if so what do they say about the "dividends". You must ask them because what they have done will reflect the attitude of the IP


I'm intrigued
As the answer to the above may give a clue for further advice why won't you answer the points raised ??
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By Justin Bryant
07th Nov 2019 11:09

If the money was paid indirectly by the company via your personal bank account to pay the company's creditors then I can't see that is an unlawful dividend (or a salary/bonus). A court would look at the substance of the payment (a bit like how they distinguish a lease and licence), not the form and in substance (assuming there is supporting evidence) this was a payment by the company to its creditors (which would rebut the presumption that it's a salary). So you should resist any claim to repay the money as an unlawful dividend under CA 2006 etc. on that basis.

The IP seems to agree with that view as he wants proof as you say.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
07th Nov 2019 11:24

I agree. The question simply says that amounts were drawn out. A dividend can be unlawful only if it is a dividend. In absence of any documentation to the effect, all that you have is an advance to a participator. That advance/debt ought then to have been reduced/eliminated by offset of payment to creditors.

The difficulty, it would seem, is establishing proof/evidence of what actually happened.

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Replying to Wilson Philips:
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By Tax Dragon
07th Nov 2019 17:40

The OP says "I have evidence and I haven't told them".

Sounds like he's not helping his own case. Why he's in this forum rather than the reception area of an accountant or solicitor is... oh, is another instance of the OP not helping himself.

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Replying to Tax Dragon:
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By Nickwood1
07th Nov 2019 18:26

Re:the evidence all I have is an excel file of the suppliers names, invoice numbers ,dates and goods bought and paid. The IP has all the original invoices all showing paid, I didn't have any creditors. When the IP said she wanted proof I asked her to check the invoices which are all packed in monthly bundles. I've mentioned the excel file and still she wants proof. Every suppliers invoice I made a copy in excel .

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Replying to Nickwood1:
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By Matrix
07th Nov 2019 19:30

If you don’t have any creditors then I assume the IP is trying to recover the money you took out instead of paying HMRC?

Or did you pay them from your personal funds too?

Please can you remind us why the company is going through the insolvency - who hasn’t been paid? Thanks

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