Contractors issued warning after Robin Hood case
The protection of a limited company has long been one of the major factors in many contractors’ decision to trade in such a manner, but a case this week has shown that there is no substitute for expert advice when it comes to managing your company’s finances.
The aptly-named Robin Hood Centre, trading not from the forest, but from Nottingham nonetheless, was a theme park which traded at a loss for twelve years before accepting their insolvency in 2009. Their liquidators went to court as they believed that the directors had continued to trade for years after they were aware, or at least should have been aware, that the business was failing, therefore increasing the level of loss to which their creditors would be exposed. The case focussed particularly on a bill for VAT which the directors had known about since 2006, but which they had failed to confirm with HM Revenue and Customs until 2007. The directors also ignored an increase in rental costs for their site which they had known about, yet failed to take into account when forecasting and planning for their future cash-flow.
Traditionally, even in cases where it would appear that company directors have acted irresponsibly, it has been difficult for creditors to bring a successful case for wrongful trading. Where directors claim to have taken ‘every step’ to minimise losses, it can be costly and pointless for creditors to pursue a case against them and prove that they had not done so after all.
However, this case may have brought about a change to the way that prosecutions of this nature are heard, as the High Court have stated that the liquidators shouldn’t have to prove that the directors have not taken every step possible, but that the onus should be on directors to prove that they have.
As far as the way this news will affect contractors, the shift in the way courts are likely to hear such cases will not be a concern to most, who will never face insolvency, but it does serve as a reminder that expert financial advice from those who know how best to handle such situations is always best.
For more details on how you can organise your finances to limit your risk, then our guide to the advantages and disadvantages of a limited company could help you to understand the issues, as could our guide to limited companies. We also have a number of free contractors’ guides which have plenty of information designed to help you to understand more about working for yourself.
For details of how our friendly team could help you to ensure that your business is a success, call us today on 01442 275789 or email email@example.com.