Dormant company owes me money

In early 2012 I signed up for a franchise/licence. I paid a one-off fee, plus small ongoing monthly payments. Part of the agreement is that the franchisor pays for the first £1500 of stock for my business.

I have a signed, written contract stating this. The contract is with a limited company of which the franchisor is sole director. The company is listed as dormant on companies house website. The monthly payments are made to a bank account in the limited company’s name.

As the franchisor was away on holiday when I started running sales we agreed I would pay for stock and claim the money back. I have an email record of this conversation. Eight weeks ago I sent copies of supplier’s invoices to him and requested a refund.

Until this point the relationship had been amicable and he has not disputed this debt. However, he still has not paid, has not given any good reason for non-payment and is avoiding me. I’ve come to the conclusion he has no intention of paying if he can get away with it. I’m obviously not going to continue doing business with someone dishonest so I just want to salvage what I can at this stage.

Two weeks ago I made things more formal by raising my own invoice for £1500 with payment terms of 7 days. It is my intention to use late payment legislation, small claims court and/or debt collector to chase payment.

I now realize this is not going to be straightforward as a dormant company is unlikely to have any funds and I can’t pursue the franchisor directly.

Much appreciated if anyone can give me any advice on how to proceed from here. What are the chances of getting paid and/or preventing him from doing this to others?

Hello David

Thanks for your reply.

The agreement was in writing. I have good paper and email records of what was promised and all financial transactions.

I was told there were other franchisees around the country and I spoke to two long-running ones before I signed up. As they are star franchisees and have been running for some time I doubt they’ve had this problem. I haven’t had any further contact with other franchisees as I was told there were none local to me.

This is a small business which has been operating since 2010. It’s not a member of the BFA. I believed I was joining something early which would be developed and improved. I still believe in the business idea and would have continued paying the monthly fee if he hadn’t pulled this stunt!

Companies House told me that if I have reason to believe a limited company has not filed accounts correctly I can make a formal complaint and they will then ask the directors to file updated accounts. That would force the company to become active (or it could go into liquidation?). I would then be able to chase for payment of my invoice in the normal way.

As it’s the best option I’ve come across I’ve started preparing the paperwork and intend to put in a complaint later this week. Has anyone complained to companies house before? How did it go and how long did it take?

Hi Louise,

That certainly sounds like a tricky situation... As you have correctly identified the issue with a dormant company is that they usually do not hold any assets to satisfy any claim against them.

Our question would be, given that the agreement was entered into in 2012 with the understanding that the first £1500 in stock would be supplied by the franchisor, why are you only now seeking to enforce this part of the agreement?

Have you ever raised this with the franchisor in the past? If so what reason (if any) was given for their failure to adhere to the agreement?

Hello Safe Collections

If I can find a way round this dormancy issue I may be able to give you some business!

There are no time limits in the contract. I entered into the agreement in early 2012 in order to reserve my local territory. Due to other commitments I did not start trading until 2013.

I’ve phoned and emailed the franchisor a number of times about this payment. He is polite, makes reasonably credible excuses (eg, away from home, too busy this week, etc), promises to look into it, then does nothing and has now stopped responding to communication. He has given no reason for failure to adhere to the agreement and has even confirmed that he owes it!

I have been polite and patient and made generous allowances for his excuses - it’s been two months since I first requested the refund. I think its now obvious he has no intention of paying so a different strategy is called for.

Any suggestions how best to proceed with this?

Hi Louise,

Sorry for the delay.

As to how to proceed, you would pursue the balance much the same as you would pursue any other overdue invoice.

You can get some good advice on the site here:

payontime.co.uk/credit-management-advice

The problem is that the company is extremely unlikely to have any assets if it is dormant/non trading. The fact that no offer to provide the stock as originally promised has been made would also suggest that the company doesn't hold any stock itself.

In this instance, your best bet is probably to get the judgment against the dormant company and then apply for an order to obtain information against the director. As this will give you an opportunity to ask pertinent questions prior to taking any enforcement action.

We would strongly urge you to minimise any outlay in costs pursuing this case, as it may well be you simply end up exacerbating your loss.

Good luck!