Who owes what whan an agency goes bust?

[expat]

The question is about agencies going bankrupt, or otherwise not paying. For illustration, let us say that you invoice 10,000.00 in a month and the agency should take 15% = 1500.00 and pay you 8500.00.

I believe that the following statement 1 is true; but is statement 2 also true?

1. normally the client owes the agency 10k and the agency owes you 8.5k: just because the agency don't pay you, doesn't mean that the client can pay you direct, because they will still owe the agency 10k.

2. HOWEVER, if the client does pay you 8.5k direct, the agency can sue the client for its loss: but isn't it true that the agency's actualloss is only 1.5K?

This would be on the principle that an aggrieved party can normally only sue for the actual loss.

Or is the agency's actual loss = 10k? So they can sue the client for 10k, you can sue the agency for 8.5k, they will win and you will lose.

What if the client pay you 10k and you pay the agency 1.5K? Are they allowed to say that they must get all of the 10k, and then they will maybe pay you back the 8.5K? I fear that I know the answer....

[Beefy198]

I would have thought that they would have to sue for the agreed amount, i.e. £10,000

But then I'm not a lawyer....

Of course, if you're opted in (probably wise in these times) they'd have to pay you anyway for work done, so in that case most of the above doesn't matter

[expat]

I would have thought that they would have to sue for the agreed amount, i.e. £10,000

But then I'm not a lawyer....

Of course, if you're opted in (probably wise in these times) they'd have to pay you anyway for work done, so in that case most of the above doesn't matter

Yeah, but my point is that the agency's actual loss might be taken as only the 1.5k that they are really supposed to keep, and not include the 8.5k that they are not supposed to keep.

AIUI this is an established principle: that you can only sue for what you really lost. E.g. by comparison, if you have 6 months left to run on a contract, with a 1-month notice period, and then you are canned today and marched out the door, you can only sue for 1 month's money at most, although you feel that you lost 6, because they could have just given you notice. So your real loss (that you can sue for) was only 1 month.

Similarly, the agency's real loss was only its commission. No?

[deckster]

I don't agree at all. There is no real connection between the client paying the agency, and the agency paying your. They are, legally speaking, entirely separate transactions.

So what really happens is that you invoice the agency for your £8,500 - you are then a creditor to the agency for that £8500. In turn the agency invoices the client £10,000; the client is now a debtor to the agency for that £10,000.

If the agency then goes bankrupt, the administrators will recover that £10,000 from the client as a debt owed to the agency. Whether or not the client has since paid you £8,500 or whatever is entirely irrelevant, and any client that did that would effectively be paying twice for your time as they are legally bound to pay the agency for your time.

If the agency was not bankrupt but instead wanted to recover the debt from the client then I'm at all sure that they could sue. IANAL but I believe the proper recourse is to seek a county court judgement against the client, and this would be for the full £10,000 owed. Again whether or not the client has paid you separately is entirely irrelevant.

Remember: you have no contract with the client. The client does not pay you. You have a contract with the agency, and the agency pays you.

[BlasterBates]

Basically they sue you for 10000 but you sue them for 8500, so then a judge decides. The difference will only come if you settle or from a court decision.

[deckster]

Basically they sue you for 10000 but you sue them for 8500, so then a judge decides. The difference will only come if you settle or from a court decision.

Er, no. No, no, and no again.

1) Nobody 'sues' anyone
2) You will certainly not be asked to pay your agency £10,000
3) A judge doesn't decide anything. If you apply for a CCJ then the court can force the agency to pay, but this can't happen if the agency is already in administration.

The courts have very little to do with this. The administrators will get as much money from the debtors (ie the client) and then distribute to the creditors (ie you) in strict order. As unsecured creditors we are at the bottom of the list and so the chances of seeing anything are generally slim.

Where are people getting these ideas of suing from? It just doesn't work that way.

[expat]

Er, no. No, no, and no again.

1) Nobody 'sues' anyone
2) You will certainly not be asked to pay your agency £10,000
3) A judge doesn't decide anything. If you apply for a CCJ then the court can force the agency to pay, but this can't happen if the agency is already in administration.

The courts have very little to do with this. The administrators will get as much money from the debtors (ie the client) and then distribute to the creditors (ie you) in strict order. As unsecured creditors we are at the bottom of the list and so the chances of seeing anything are generally slim.

Where are people getting these ideas of suing from? It just doesn't work that way.

I don't know how it works, that's why I was asking. My question was indeed prompted by a phrase (not by a specific misconception about how things work) from a different sphere, to the effect that you could only claim (sorry I said "sue") for an actual loss. My point in the question is that (at least in the normal course of business) the agency only stands to make 1.5k from this example month's invoice, so my question was, if someone brings it about that the agency doesn't get paid that invoice, isn't it true that their actual loss is only 1.5k, so might it not be that in this exact cisrcumstance, they could only claim 1.5k.

I suppose it is not now normal business: the agency's administrator claims the 10k, and you claim the 8.5k: trouble is, they succeed and you fail.

This does tempt me to look at a contract with separate payments client-me and client-agency. I suppose that agencies would refuse to do that, not on the grounds that I come last in the pecking order, but rather that "it just doesn't work that way".

[VectraMan]

The agency owes you £8.5K, where it comes from is none of your business. Having said that there is the thing you can do (is it a garnishee order? I forget) where you can have a debtors income directed straight to you.

But if they're in administration, then all bets are off and there's little you can do other than talk to the administrators. If they really are going bust, then just because the administrators manage to get the £10K doesn't mean it will be in any way assigned to you because it relates to your contract. Chances are an agency going bust will have a big overdraft, and other debts too, and you'll be at the end of a long list.

There's a problem with your seperate payments idea: payment terms. You'd probably be stuck with the same long payment terms that the agent has with the client.

[expat]

...
There's a problem with your seperate payments idea: payment terms. You'd probably be stuck with the same long payment terms that the agent has with the client.

I can live with long payment terms. I don't want to live with not being paid at all, and I would have REAL trouble with doing the work and having the client pay for my work, but none of that come to me.

[VectraMan]

I can live with long payment terms. I don't want to live with not being paid at all, and I would have REAL trouble with doing the work and having the client pay for my work, but none of that come to me.

Maybe, but I'm paid weekly and on Friday if I invoice by Tuesday. So my maximum exposure is 2 weeks before I realise something is up. Long payment terms and you'll be even more screwed if the client goes bust.