Media
Questions > Corporate
1.
I was a director of a limited liability company
which recently went into liquidation. I am considering setting
up a new business and being the sole director. Is this possible
or I am barred from doing so?
Response:
|
The
liquidator of the company will be required to make
a submission to the Director Disqualification Unit
of the Department of Trade & Industry regarding
the conduct of individuals who have been directors
or shadow directors of the company in the three years
prior to date of liquidation. If the DTI consider
there has been misconduct, they can take proceedings
such that an individual is disqualified for up to
15 years from being a director of a limited liability
company. It would not prohibit an individual from
acting on a sole trader basis.
Meantime,
there is nothing stopping you from incorporating a
new company and being a registered director thereof.
Clearly, if a disqualification order is made against
you then the company will require to seek an alternative
officer. |
2.
I am a director of a company which has recently
been subject to insolvency proceedings. Does this
mean that I will automatically be made bankrupt?
| Response: |
No, but you may be responsible for any
company debts for which you provided a personal guarantee.
Personal guarantees are often provided in respect of
bank borrowings and finance arrangements for vehicles
or large items of plant and machinery. |
3.
I am the financial director of a local company
and I am contemplating ceasing to trade because of the increasing
overheads and decreasing margins. One of my principal concerns
is my staff, some of whom have been with me for in excess
of ten years. The company can't afford redundancy payments,
will the government assist?
Response:
|
If
you are formally insolvent, the insolvency practitioner
will provide the relevant forms to the employees in
order that they may claim unpaid entitlements from
the Redundancy Payments Office of the Department of
Trade & Industry, Edinburgh. Claims can be submitted
for the following:
- Unpaid
wages or salary up to 8 weeks.
- Statutory
payments for time off work; or suspension on medical
or maternity grounds.
- Holiday
pay to a total of 6 weeks.
- Payment
in lieu of notice.
There
is an upper limit on the amount paid by the Redundancy
Payments Office, which is currently £280 per
week. |
Q If my company is liquidated, do I need to attend the meeting
of creditors? I would prefer to avoid the meeting if I can.
A If the company is liquidated through court, either as
a result of a petition by the board or a creditor, there
is no statutory obligation to attend the meeting. Sometimes
a director wishes to attend in order to provide the company’s
reasons for the liquidation, but that is relatively unusual.
If the board wishes, they can opt for a process known as
“creditors voluntary liquidation” which avoids
a petition to court but means that one serving director
must attend and act as chairman of the meeting of creditors.
There are various reasons why a creditors voluntary liquidation
might be selected as the method of liquidating the company
but, from a director’s viewpoint, attendance at the
meeting of creditors can be a significant factor.
Q It is most embarrassing that I am forced to place my company
into liquidation because it is insolvent. Do I have to advertise
the fact in the public notice section of a newspaper and,
if so, can I change the name of my company beforehand in
order to preserve anonymity?
A The Insolvency Act 1986 and supporting legislation means
that, unless special dispensation is provided by court (most
unlikely), the notice of liquidation must be advertised
at least once in a newspaper circulating in the principal
area of business. Thus, for example, you cannot advertise
in say, The Herald or Yorkshire Post if your main business
activity is in Aberdeen because the majority of suppliers
and customers who deal with your company will not become
aware of the situation. Even if you change the name of the
company to something unrecognisable, the trading name by
which the company is known must be included in the public
notice for the reasons noted above. Further, the name of
the principal director organising the liquidation process
also appears in the notice. The liquidation of your company
will not be a secret to anyone who reads that particular
issue of the newspaper.
Q My company is struggling financially but I believe that
if I was able to use the assets and trade connections without
the accumulated debts, I could trade profitably. If I decide
to liquidate my company, can I buy the assets from the liquidator?
A In principle, yes. In most cases, the liquidator can sell
all of the assets to you at fair value almost immediately
following his appointment as long as approval is granted
to him for such action: normally by an application to court.
This option might be favoured by the liquidator where assets
might diminish in value very quickly e.g. if customers’
needs are not being met and they could go elsewhere very
easily. The liquidator would have to be satisfied that your
offer is the best that can be achieved in the circumstances
and if he has doubts, he may wait until he has had an opportunity
of advertising for offers. In such case, the liquidator
may decide to continue the company’s trading activities
in order to preserve the value in the assets. You cannot
use the company’s money to buy the assets and hence,
will have to ensure that you have sufficient resources to
acquire the assets and pay for them fairly quickly. If your
offer is sufficiently attractive, there is no reason why
the assets cannot be sold to you. A frank and open discussion
should be entered into with the liquidator as soon as possible.
Q Stupidly I ignored legal documents that were received
and the next thing I knew was that a provisional liquidator
arrived in my reception saying that he is now in control.
Further, he said that he represents only one creditor and
if that creditor is paid together with expenses, he will
go away. Is my company in liquidation or not, and why is
the liquidator not acting for all creditors?
A Despite the fact that courts tend to frown upon the use
of provisional liquidation as a debt collection exercise,
it has become a tactic of last resort when a creditor wishes
to recover a debt. Assuming that the liquidation petition
has been prepared correctly, the provisional liquidator
has full power to assume control of your business e.g. trade,
dismiss employees or close it. That said, if the creditor
who appointed the provisional liquidator has a relatively
small debt and you can pay this from funds outwith the company,
the petitioning creditor is able to withdraw the provisional
liquidator and return the company to your control. Clearly,
if you are able to pay the debt, the sooner you act the
better before the provisional liquidator takes action you
might not welcome. If the creditor’s debt is so large
that you cannot pay it from a third party source, it may
be that the provisional liquidator will continue in office,
subject to there being sufficient assets to fund a formal
liquidation process, and ask the court to appoint him interim
liquidator such that a meeting of creditors can be convened.
An urgent and realistic assessment is required of the business,
profits/cashflow, and ability to raise sufficient monies
to settle the petitioning creditor’s claim together
with related expenses.
Q Our finance director is an idiot. He allowed what I consider
to be a successful company to be liquidated because he did
not pay various bills. I was sacked by the liquidator yesterday.
Two weeks ago I took delivery of a company car, a new BMW,
in order to undertake my sales director duties. I do not
wish to lose the car because various extras have been fitted
and it is perfect for me. What should I do?
A Much will depend upon how the BMW was acquired by the
company. If it was bought for cash it will be a company
asset and available for sale by the liquidator to the highest
bidder. If you wish to buy the car using your own resources
and can offer a sufficiently attractive price, you may be
able to purchase it. If the company leased the BMW, the
leasing arrangement will cease upon liquidation and the
car returned to the finance company. It is unlikely that
you will be able to assume the leasing obligation because
it will be a corporate lease in terms of VAT implications
etc. If the BMW was acquired under a hire purchase arrangement,
the finance company will seek recovery of the BMW but if
you approach the finance company quickly, they may be willing
to transfer the finance agreement into your name. The liquidator’s
agreement will be required but if the outstanding finance
exceeds the value of the car, such agreement is unlikely
to be withheld. The first course of action is to speak with
the liquidator in order to determine the basis of ownership
of the car and then consider how to proceed.
Q I suspect that my company will be liquidated by a creditor
sooner rather than later. I think that I should use the
cash resources remaining to pay local suppliers, many of
whom are my friends. Do you agree?
A No. Causing a company to prefer one creditor over another
is a breach of one’s duties as a director and could,
in an extreme situation, result in the director responsible
for making the payments becoming personally liable to repay
the monies to the company. A preference can be invalidated
by a liquidator and such preference will be deemed to be
any payment which puts one creditor, or a group of creditors,
in a better position than would otherwise have been the
case if the preference had not occurred. Further, if creditors
find the company is paying some suppliers to the detriment
of others, they may be likely to press for liquidation more
quickly in order to protect their interests and then bring
your actions to the attention of a liquidator as soon as
he is appointed.
Q I have been trading as an LLP for two years. The business
has not prospered and is insolvent. Do I need to appoint
a liquidator or a trustee?
A The formal insolvency of an LLP is dealt with under the
provisions of the Insolvency Act 1986 and hence, it is a
liquidator that you require to appoint.
Q A company in which I have a minority shareholding has
been liquidated. I was never appointed as a director but
used to attend board meetings and provide advice on financial
matters. Should I be concerned?
A Possibly. Although you may not have been shown as a director
in the statutory accounts you may well be deemed to be a
shadow director i.e. a person in accordance with whose instructions
the company was accustomed to act. If the liquidator believes
that you were responsible, in whole or in part, for the
demise of the company, you may be subject to disqualification
proceedings.
You may find yourself personally liable for certain debts
as a result of the wrongful trading provisions of the Insolvency
Act 1986. Briefly, this part of the insolvency legislation
imposes personal liability on directors if they allow a
company to continue to trade when they knew, or ought to
have known (with the benefit of hindsight), that the company
could not avoid insolvent liquidation. Professional advice
is strongly encouraged.
Q I lend money to companies when they have been refused
by their bank. I lent a company £50,000 last year
on the understanding that the annual interest rate would
be 40% together with a capital uplift of £50,000 12
months later. After the money had been lent but before anything
could be repaid, the company was liquidated. The liquidator
has advised that my claim against the company has been refused.
Why?
A Refusal may be because the liquidator considers that your
loan is an extortionate transaction and is using section
244 of the Insolvency Act 1986 to reject your claim. If
he wishes, the liquidator can apply for a court order to
invalidate your claim completely, or recalculate it on the
basis of the terms that a mainstream bank might have applied.
Discussion with the liquidator may well clarify matters
and allow a practical resolution to be achieved.
Q I think that my company is insolvent. We are struggling
to pay suppliers and the most recent balance sheet shows
net liabilities. What are my key responsibilities?
A Your principal responsibility is to act in the best interests
of the company and all stakeholder groups i.e. employees,
creditors and customs. You should ensure that the company
does not continue to incur additional liabilities when there
is no reasonable prospect of avoiding insolvency and, more
particularly, paying for the supplies received. This also
means that the company may not wish to accept deposits from
customers.
Specialist advice is required if, for example, you have
genuine belief that there is a reasonable chance of saving
your company e.g. negotiating new finance arrangements and
working with your creditors. The earlier you take action
the better.
Such obligations apply even if you are a part-time or non-executive
director.
Return to Top
