Defending Liquidator Claims
- Challenge the evidence from day one
- Over 30 years defending directors
- Get claims withdrawn, reduced or settled
A letter from a liquidator is rarely the end of the story. It is an allegation, not a judgment, and the sums demanded are often inflated or built on incomplete records. But ignore it and an aggressive claim can quickly put your assets and reputation at risk.
Our specialist insolvency solicitors have deep experience defending liquidator claims, from overdrawn loan accounts to wrongful trading. We move fast to challenge the evidence, protect your position and negotiate the claim down or away entirely.
To speak with our liquidator claims defence team, simply call 020 7467 3980 today.
What claims do liquidators bring against directors?
Once appointed, a liquidator must investigate the company’s affairs and recover money for creditors. That investigation reaches back through years of transactions. If anything looks recoverable, a claim usually follows.
These are the claims we defend most often.
1. Overdrawn Director Loan Accounts
2. Misfeasance Claims
Misfeasance is a claim that you misapplied company money or breached your duties as a director (section 212 Insolvency Act 1986). It is a summary procedure rather than a standalone offence, which means the liquidator uses it as a fast route to recover losses flowing from almost any breach. The court can order repayment with interest or compensation in whatever sum it thinks just.
3. Wrongful Trading
4. Unlawful Dividends
5. Fraudulent Trading
6. Transactions at Undervalue
7. Preference Payments
8. Transactions Defrauding Creditors
This claim unwinds deals made at an undervalue with the purpose of putting assets beyond creditors’ reach (section 423 Insolvency Act 1986). Unlike the other claims here, there is no fixed lookback period. Transactions from many years earlier can still be challenged.
Payments made after a winding up petition is presented can also be voided under section 127 of the Insolvency Act, a separate claim we regularly defend.
Several of these are known collectively as antecedent transactions, claims that reverse transactions made before the company insolvency began.
What happens when a liquidator claim starts?
1. Investigation and information demands
2. Letter before action
3. Assignment to a litigation funder
Liquidators can sell claims to specialist insolvency litigation funders, who pursue you in their own name. Funders are commercial buyers seeking a return, which often makes them more willing to settle pragmatically, but also more persistent than a liquidator with limited funds.
4. Court proceedings
5. Judgment and enforcement
How we protect directors against liquidator claims
Challenging the claim itself
- Disputing the insolvency date. Most claims depend on proving exactly when the company became insolvent. Push that date later and the recoverable losses shrink or disappear.
- Evidencing legitimate remuneration. Withdrawals branded as an overdrawn loan account are often defensible as salary, expenses or properly declared dividends once the records are rebuilt.
- Proving consideration was given. A transaction is not at an undervalue if the company received genuine value. We gather the valuations and evidence to prove it did.
- The every reasonable step defence. Directors who took proper advice and acted to minimise creditor losses have a complete statutory defence to wrongful trading (section 214(3) Insolvency Act 1986).
- Seeking relief from the court. Where you acted honestly and reasonably, the court has power to relieve you from liability wholly or in part (section 1157 Companies Act 2006).
Challenging the claim's economics
- Limitation arguments. Claims brought too late are struck out entirely.
- Attacking costs and ATE premiums. Liquidators load claims with legal costs and insurance premiums. We challenge sums that are disproportionate to the underlying claim.
- Early settlement leverage. A credible defence served early forces the claimant to reassess their prospects, which is when the best settlements are reached.
What are the time limits for liquidator claims?
Most liquidator claims must be brought within 6 years, though some carry 12 year limits and others depend on a lookback period instead.
Two clocks matter, and directors often confuse them.
- The lookback period defines which past transactions a liquidator can challenge.
- The limitation period defines how long they have to issue the claim.
| Claim type | Lookback period | Time limit to bring the claim |
|---|---|---|
| Overdrawn loan account | None | 6 years from when repayment fell due |
| Misfeasance (s212) | None | 6 years from the date of the breach |
| Wrongful trading (s214) | None | 6 years from the start of liquidation |
| Fraudulent trading (s213) | None | 6 years from the start of liquidation |
| Transaction at undervalue (s238) | 2 years before insolvency | Up to 12 years, or 6 where only money is claimed |
| Preference payments (s239) | 6 months, or 2 years for connected parties | Up to 12 years, or 6 where only money is claimed |
| Transactions defrauding creditors (s423) | None | Up to 12 years, or 6 where only money is claimed |
Reasons why directors choose Summit Law
When a liquidator threatens your personal assets, you need a team that understands insolvency law and litigation in equal measure.
- A proven record of success, helping liquidator claims to be withdrawn, struck out or settled at a fraction of the sum demanded.
- Insolvency and litigation under one roof, led by Managing Partner and Head of Insolvency Jeremy Boyle, so your case never gets referred out when it turns contentious.
- Over 30 years defending directors, so we know which allegations collapse under scrutiny and which need a negotiated exit.
- An honest assessment of your exposure, so you know exactly where you stand from day one.
Defend liquidator claims - FAQs
Yes, a liquidator can sue a director personally to recover money for the company’s creditors. Common claims include overdrawn loan accounts, misfeasance, wrongful trading and unlawful dividends. Liquidators can also sell claims to litigation funders, who then pursue directors in their own name. A successful claim can be enforced against personal assets, including the director’s home.
A misfeasance claim alleges that a director misapplied company money or committed a breach of fiduciary duty, brought under section 212 of the Insolvency Act 1986. It is a summary procedure, giving liquidators a fast route to recover losses from almost any breach. The court can order repayment with interest or compensation in whatever sum it considers just. Typical allegations include unexplained withdrawals and payments made to connected parties.
When a company enters liquidation, the director loses control of the company and their powers pass to the liquidator. Directors must cooperate with the liquidator’s investigation, hand over records and explain past transactions. Most directors face no personal consequences. However, where the investigation uncovers wrongdoing, directors can face personal claims, disqualification proceedings or both. Employment and salary also end unless the liquidator agrees otherwise.
An overdrawn director’s loan account becomes a debt the liquidator will demand you repay in full. Withdrawals that were not salary or lawful dividends sit on the loan account, and the burden falls on the director to evidence they were legitimate. Where records were poorly kept, many demands are inflated. Rebuilt accounts regularly show the true balance is far lower than the sum claimed.
Wrongful trading, under section 214 of the Insolvency Act 1986, is continuing to trade after you knew, or ought to have concluded, that insolvent liquidation was unavoidable. Directors found liable must contribute personally to the company’s losses from that point. There is a complete defence for directors who took every reasonable step to minimise losses to creditors, such as acting on professional advice.
Wrongful trading requires poor judgment, while fraudulent trading requires actual dishonesty. Wrongful trading (section 214) is trading past the point insolvency became unavoidable. Fraudulent trading (section 213) is running the business with intent to defraud creditors, and it carries potential criminal liability alongside civil claims.
A transaction at an undervalue is a sale or gift of company assets for significantly less than their true worth, challengeable under section 238 of the Insolvency Act 1986. The liquidator can unwind transactions from the two years before insolvency, provided the company was insolvent at the time. Insolvency is presumed where the deal involved a connected party, such as a director or family member.
Antecedent transactions are deals made before a company entered insolvency that a liquidator can challenge and reverse. They include transactions at an undervalue, preference payments, transactions defrauding creditors and invalid floating charges. Each has its own lookback period, ranging from six months for preferences to no limit for transactions defrauding creditors. Their purpose is to restore assets that should have been available to creditors.
Most liquidator claims must be brought within six years, though some carry limits of up to twelve. Loan account, misfeasance and wrongful trading claims generally run from liquidation or when repayment fell due. Fraud and deliberate concealment can extend these periods. Limitation is separate from the lookback period, which defines how far back a liquidator can reach to challenge transactions.
Contact our director defence solicitors today
A liquidator claim is not a foregone conclusion. With the right defence team acting early, your exposure can be assessed and the claim challenged before it gains momentum.
For immediate advice on defending a liquidator claim, call our insolvency team today on 020 7467 3980.
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