Liquidation

Liquidation is effectively the last step in the life of a company. That does not mean that the core business cannot be salvaged and sold on. In fact many companies that have “gone into liquidation” have already sold the core business on.

Sometimes that core business is sold to parties directly linked to the directors or shareholders’ of the failed company.

The Liquidator is appointed by the Court, creditors or shareholders of a company to represent the interest of the creditors and shareholders in realising and distributing the assets of the company when it has ceased to trade.

Independent of the company in liquidation, the liquidator will investigate the conduct of the officers of the company and ensure that payments to creditors are made in accordance with the provisions of the Companies Act 1993.

Where assets of the company have been sold for “undervalue” (less than their real worth) the liquidator can investigate and upset the transaction for the benefit of the wider body of creditors.

If a phoenix company (the same business operating under another name) has been setup to defeat the interests of creditors the Liquidator can also upset that transaction for the wider benefit of creditors.

The Companies Act gives Liquidators wide powers to investigate not only the financial transactions’ of a business but also the activities of the persons who promoted and operated the company.

In particular a Liquidator can compel any person who has knowledge of the affairs of the company to meet with him and answer questions under oath about what happened to the company, its assets, liabilities and operation. A person who has been summoned to appear before a Liquidator must answer the questions that he or she is asked even if they incriminate the person being examined.

Another power of the Liquidator concerns what are known as “voidable preferences”. The Liquidator has the ability to require creditors of the company to repay to the company in liquidation money they have received in settlement of their accounts with the company where the payment was not in the ordinary course of business and the company was insolvent. This money is then available for redistribution back among the wider creditor pool.

As many of the rights for recovery are time specific it is critical that where a company is not paying its debts that a Liquidator is appointed sooner rather than later. The longer the company is left the more chance that the asset values will be eroded and the opportunities for recovery severely diminished.