A five-generation family business in the UK has won an £8.8 million ($A16.8 million) lawsuit against the British government after an errant letter ‘s’ led to the business being mistakenly named as having collapsed.
Cardiff engineering firm Taylor & Sons Ltd was wrongly recorded by the UK Government’s Companies House as having been wound up in 2009, when in fact it was an unrelated company, Taylor & Son Ltd, that had gone into administration, reports The Telegraph.
With Taylor & Sons this week winning a legal battle to prove the typo led to its own collapse, the lawsuit highlights the reputational cost of insolvency to a business.
Companies House took three days to correct the mistake in February 2009, but lawyers for Taylor & Sons argued the false information had already been sold to credit reference agencies in that time.
“We lost all our credibility as all our suppliers thought we were in liquidation. It was like a snowball effect,” Philip Davison-Sebry, former managing director and co-owner of Taylor & Sons told The Telegraph.
Davison-Sebry said it took just three weeks for all of Taylor & Sons’ 3000 suppliers to terminate orders and withdraw credit facilities. The company collapsed into administration two months after the mistake was made.
The 124-year-old business had been built by five generations and had employed over 250 people before it went into administration.
The High Court ruled on Tuesday in favour of Taylor & Sons, finding Companies House was legally responsible for the loss of business and ultimate collapse. The exact amount of damages is yet to be determined but Davison-Sebry’s lawyers have told media outlets they estimate it will be in the vicinity of £8.8 million.
Insolvency expert and liquidator at Dissolve, Cliff Sanderson, told SmartCompany while he had never heard of anything similar happening in Australia, he believes the reputational cost to a company of going into administration can be huge.
“Insolvency certainly has a stigma attached to it,” says Sanderson.
Sanderson says there are certain safeguards in place within Australian law, such as the personal liability of administrators, to make sure businesses are not fully exposed during the insolvency process.
“Also most business people are somewhat familiar with insolvency law, and so while it’s not a death knell, its certainly not a good thing,” he adds.
Sanderson says the effect of insolvency can be worse depending on the industry the business was in. For example, those within the construction sector could expect subcontractors to leave within just days of a collapse.
But Sanderson says if the Australian Securities and Investments Commission ever mistakenly listed an Australian company as being insolvent, he believes it would be less likely to have the same chain reaction as this unfortunate case.
“Anything can go wrong in an administration, but I think it’s surprising the domino effect has happened quite so irrevocably here,” he says.