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Fishing for creatures in ponds that you do not even know exist

By January 23, 2010May 12th, 2022No Comments

A liquidator enters his or her office as a stranger, having had no prior knowledge of the company’s affairs to which they are chosen by creditors to liquidate. Indeed a liquidator is prohibited by professional regulation(s) from having had prior engagement for the most part with such a company. It is rare that a liquidator would ever have previously acted for such a company and in the vast majority of instances he or she will never have previously even heard of the same.

Consequently a liquidator will need to conduct an investigation to discover the full extent of such a company’s affairs and the circumstances resulting in its demise; so that creditors can have the same relayed to them with the reasons for their losses. Best practice regulations require a liquidator to do just that in each and every case; to investigate the company’s affairs for creditors.

Yet the challenges that lie ahead for this person known as “the liquidator” are not to be underestimated even with statutory powers to aide their administration. Irate creditors may want to bear the same in mind.

In respect of irate creditors, I state the obvious here to simply reinforce the point that I have yet to meet a happy creditor. I do not expect to meet one and it seems to me to be far more likely than not, that as hard as I might even care to try, it is unlikely to happen.

So why is it that the challenges for the liquidator could arguably be considered to be so great? Well for all the apparent draconian powers available to the liquidator to compel people’s cooperation and to obtain information, he or she is nevertheless tamed by the control of the courts, who quite rightly and properly in my view place a duty upon any liquidator to be “reasonable” at all times.

There is a careful balancing act for the liquidator to maintain, between what is a reasonable request for information sought on the one hand and one which is deemed to be unduly prejudicial to the recipient of such a request on the other. This balancing act applies to all parties from whom the liquidator may seek information.

What is the relevance of this balance act? Well, it is perhaps not unknown sometimes for the liquidator’s task to be hampered by what maybe considered uncooperative former directors whose retention of company records might be considered less than satisfactory. An absence of company records certainly will do nothing to assist a liquidator’s investigations.

There are however fortunately other parties to whom a liquidator may and often could approach for information. Such parties may not always necessarily be entirely forthcoming in complying with the liquidator’s requests for assistance and information.

Ironic it might be considered, that such parties may have acted historically for the company and exchanged information freely with its former directors. Indeed it might even be the case that whilst the fees were rolling in, there may never have been any suggestion of the company being unable to obtain information about itself from those acting as its agents or on its behalf. Yet when such a relationship is at an end due to liquidation, sometimes such parties might not always be entirely forthcoming in providing information to the liquidator. Indeed when owed money such parties may even have entitlement in some instances to claim a lien over documents.

Such difficulties for a liquidator might take the form of a suggestion that the liquidator is conducting a fishing expedition for no real purpose.

I wonder how it is that a liquidator seeking to conduct an unbiased, independent and impartial review of a company’s affairs, dealings and property, could anticipate being able to undertake such an exercise without putting his or her fishing rod into the pond to see what creatures (if any) might be attracted to the bait and discovered.

A liquidator will always it seems to me, not have the freedom to obtain information so as to place the company in a better position than it was already at prior to the liquidator entering office. However, notwithstanding the same, can there be any reasonable basis for the refusal for example of those who have acted for a company in its later years of life, from being required to produce to the liquidator all information and documentation in their possession that they hold that relates to the company?

Creditors may often have to accept that they will not recover their money. However, is it fair to creditors when a liquidator encounters resistance to the provision of information, thereby giving rise to the possibility that the liquidator’s ability to easily and speedily unravel the extent of the company’s affairs and reasons for its demise might be prejudiced? Is a so-called fishing expedition not part of such an investigatory process to which a liquidator is obliged to entertain?

Elliot Green

Licensed Insolvency Practitioner & Chartered Accountant. We Know Insolvency Inside Out.