Monday, 30 June 2008

Don't sign your life away

Debt collection agencies have fresh powers to take action against directors for their company’s unpaid bills. That's the warning from Chris Detheridge, from our Commercial Team, who said it was no longer safe to assume that a director was immune from being personally liable.

He highlighted a Court of Appeal case last year which found that directors can be held personally responsible for a debt, if it can be proved they entered into a contract knowing the company could not pay its way.

“This case makes it clear that it’s very dangerous for you to sign something, whether it's a lease or a contract, when you either don’t believe that the company can honour its obligations or you don’t actually know.

“As a director, if you allow this to take place, or even if you turn a blind eye to it, you can become personally liable for the company’s debts.”

He said debt collection agencies were on particularly strong ground if the company’s paperwork was lacking. “You must ensure that the company’s full details appear on all letters, cheques, order forms, website and in any electronic communication.

“If this doesn’t happen, then the directors can become personally liable for any contracts. That’s the dangerous side – but the flipside is that if one of your debtors hasn’t played it by the book, their case is weakened too.”

Chris said debt collection agencies now had the law on their side in an increasing number of instances.

“Always make sure you exercise caution whenever you enter into an obligation on behalf of the company, and don’t lay it on too thick in order to clinch the deal. If you get it wrong, its impact on you, personally, could be serious, and very costly.”