Recruitment Agency Liquidation
There’s a minefield to negotiate when a recruitment agency liquidation occurs.
This article was sent to us by someone who has experienced it all. They also gave us the site details where this advice and more resides. We longer have the contact details, but if the person contacts us we will happily add their site URL to this article.
Recruitment agency liquidation is a growing and major threat to all contract computer consultants. If the agency goes bust, you will not get paid. Also, you will have a legal minefield to get through to begin working for the client again.
Recruitment Agency Liquidation … legal minefield… what?…, where?…, how?
When it happens it will happen quickly. Even if you keep a tight invoicing ship and check payments are within contract terms every time, you will have lost money. Any invoices that were unpaid at the time of the recruitment agency liquidation will remain unpaid.
But it‘s worse than that!
Now a Creditor
You now become a creditor of the company in liquidation. The liquidator is called in either at the request of the directors (voluntary liquidation) or at the request of the official receiver (compulsory liquidation).
In either case, the legal responsibility of the liquidator is to realise the company‘s assets for the benefit of the creditors.
“Great, I am a creditor, let the liquidator sell the agents assets and I’ll get my money in the end”.
Oh boy, did you realise that the certainty of income you unwittingly traded for risk by using an agent is even riskier than you thought. You are officially an unsecured creditor and come at the bottom of the pile in a recruitment company liquidation. The pile is:
1. Expenses of the winding up (The total amount can be substantial)
2. Preferential creditors (employees salaries and VAT)
3. Creditors with floating charges (banks and factors)
4. Ordinary unsecured creditors (including the inland revenue after 15th September 2003)
5. Members (shareholders and directors)
The liquidators own fees come first, then any VAT owed, then creditors with floating charges like banks and then you. There won’t be any money left for you, take it from me, there will be nothing after the others have carved it all up amongst themselves.
Perhaps the one crumb of comfort is that you rank above the directors of the recruitment agency that got you in this pickle in the first place, but from down near the bottom the pile looks pretty top heavy.
But wait, it doesn’t end there and it doesn’t get any better. Remember that the liquidator has an obligation to realise the assets of the company, and pretty much the only assets that an agency has is its client contracts, with all those restrictive terms. The liquidator looks at these and thinks “these contracts are worth money. How do we realise this value for the creditors”.
Value of Contracts
They can raise money under these contracts in two ways:
By ensuring that all time that you worked for up until the date of liquidation is the property of the agency. It doesn’t really matter whether you submitted time sheets or invoices or not, they consider it to be an asset of the company.
It will be up to you to prove that payment for the work you did isn’t the property of the agency.
By enforcing the anti-solicitation clauses of the contracts and realising the value specified under those clauses
Well, here’s the rub, option 1 means that you will lose even more money than you originally thought, and option 2 means that you won’t have a job. All because some two bit agency hasn’t been able to run its business at a profit in a tight market.
If this happens, what practical steps should I take to protect myself?.
Act Quickly to Avoid the Minefield
Keep a keen eye on your invoicing and payments. If you smell a rat, act quickly to keep your losses to a minimum.
Ensure that your contract with the agency is broken as soon as possible. Do this in writing immediately, if they have failed to pay you under the agreed terms, declare them in material breach of the contract which should get you out of your contract immediately.
Keep your client fully informed. They will be generally sympathetic and want you to get paid for work that they need to complete.
By continuing to provide your services to the client, you are fulfilling the insolvent agents obligations and any money that you generate will go straight to the creditors and not to you. This action isn’t as harsh as it sounds. By stopping work and making sure that your client uses this event to declare the agent in material breach of their contract, you ensure that there is no contractual comeback in the future.
Take legal advice to ensure that you have no obligations even after insolvency.
Remember to remind your lawyer that the agent is in material breach of the contract so other clauses should not have any weight. Lawyers use up time and money at an alarming rate, so use them wisely to answer questions that you have.
Find out how your client will approach the liquidation of the agent. They may be proactive and help you out, or they may sit tight and wait for the process to complete which may be a year or two later.
It is in your interest to find out!
Make contact with the liquidator as soon as possible. Register your debt with them and ensure that they have your correct name and address for future correspondence.
Recruitment Agency Liquidation Minefield Summary
1. Be a hard nosed business person
2. Act quickly and aggressively if you are not paid on the agreed terms. They would not hesitate to do the same to you if the boot was on the other foot.
3. You have a direct interest in negotiating a contract on favourable terms. Do not simply look at “the bottom line”.
4. Keep a wary eye on your agency. When everything is working properly, it is proper for the agent to make a commission of some sort to recover their costs. When things go wrong, it will be too late for you to go back and you will be the one that is out of pocket.
If you do these you can avoid the minefield when an agency goes under.
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