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How do we get our money back from a tradesman who's gone bankrupt?

Barristers Michael Salter and Chris Bryden advise on the problem of a decorating firm doing work for the practice which owes the practice money and has apparently gone out of business

Barristers Michael Salter and Chris Bryden advise on the problem of a decorating firm doing work for the practice which owes the practice money and has apparently gone out of business

THE SITUATION

I am in dispute with a decorating firm, who I employed to re-decorate my waiting area. They agreed to do so and I have paid a deposit of £500, but I cannot contact them using their telephone number. I have been informed that the company has gone bust. Where do I stand?

THE ADVICE

Unfortunately such disputes are relatively commonplace, particularly in an economy suffering a downturn.

It appears in circumstances such as these that any work agreed upon or contracted for is unlikely to be undertaken.

The prime consideration therefore will be to attempt to recover the deposit monies paid before the work even began.

Whether this sum will be recoverable will depend on a number of factors, all of which are likely to be practical rather than legal issues.

In terms of the law, so long as the Practice can demonstrate that money was paid over, it will in principle be able to recover it, either by way of a claim for breach of contract or based on so-called "restitutionary" principles – money has been paid over and as the work has not been done it should be restored to the payer.

However the two questions which any business has to ask itself in such circumstances are, firstly, who the claim should be brought against; and secondly, whether bringing such a claim is cost-effective.

The first of these questions is likely to be the most troublesome.

Legal hurdles

Where a contract has been made with a person, whether as an individual, or under a trading name, a claim can be brought against them, so long as they can be identified.

The legal hurdle will be proving the contract, and that a deposit has been paid.

Just because a person ceases to continue to trade as a decorator does not mean that they cannot be pursued for the debt.

The most likely problem in this sort of scenario is that the person simply cannot be traced; it may also be that there are evidential difficulties (for example no receipt for the monies paid over).

However where a contract is made with a limited company, the position is more complicated.

It is the company not the directors who would be pursued, as the company has its own legal personality.

If the company has been wound up or dissolved, a claim cannot usually be brought against it, and instead the Practice would have to "prove" the debt in insolvency proceedings.

It may be that the time In such circumstances the debt is unlikely to be recoverable, as insolvency by its nature means that a company is unable to pay its debts.

Therefore at best only a percentage of the money would be recovered; it is more than possible that nothing at all could be regained.

It is possible to check the status of a limited liability company via Companies House, and an on-line search facility known as WebCheck can detail whether a company is still trading or has been wound up, dissolved or struck off the register.

The second question is often likely to be determinative.

A claim for £500 will be heard in the Small Claims court and there is a strong possibility that any costs expended will not be recoverable if the Practice is successful.

Pursuing a person through the courts is time-consuming and expensive, and a cost-benefit exercise should always be conducted before issuing proceedings.

In these circumstances the best advice is not legal but prosaic – make sure that contractors have good references; do not hand over (much) money at the start, and make sure that there is a written quotation and contract.

In the event of a dispute, particularly where the sum is great or work has been done inadequately, a solicitor's objective advice can often be extremely helpful.

Michael Salter and Chris Bryden are barristers at 2 Gray's Inn Square Chambers: www.2gis.co.uk Michael Salter is also able to accept instructions directly from readrs of Pulse. Please visit www.michaelsalter.net for guidance on how to instruct him. Legal points are provided for discussion only and are given without obligation. For specific legal advice consult your solicitor or contact Michael Salter via his website

Legal

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