What Is The Purpose Of Appointing A Liquidator To Investigate?
A purpose of appointing a Liquidator to investigate is to look forensically in detail at matters of concern to creditors.
It is to reduce the potential prospect of ending up in a situation where a creditor is unfairly frustrated by having a series of claims against various connected companies that all go into Liquidation when serious misconduct is suspected.
A creditor could face the prospect of Directors moving assets around and resettling them in new legal entities to defeat the creditors. Such conduct is egregious but it does arise and there are options available to creditors.
It is not unknown for Directors of companies that go into Liquidation to have not always acted in accordance with their fiduciary duties. With suitable investigations by a Liquidator, it is possible to discover claims against Directors running companies going into insolvent Liquidation. However, that does not mean the quantum will always justify litigation and it does not mean a claim arises in every case. It is axiomatic that the investigation has to come before the discovery of any claim.
The potential advantage in getting an investigative Liquidator to review matters is that a Director who has breached their duty to the company can potentially be personally liable for the damage and losses they cause.
The test for a Director is a high one. It is not unknown for Directors to fail to live up to the standards of conduct that the Companies Act 2006 expects. And when a company is insolvent there is a shift to having to act in the interests of creditors which outflank being focused on the interests first and foremost of the shareholders. This can create a conflict that Directors may sometimes find difficult to manage. Breaches of duty can sprout accordingly from the transactions they may have caused the company to enter into. Accordingly, the following causes of action can arise from transactions entered into that become the focus of insolvency litigation arising from the Insolvency Act 1986 and companies legislation:
Transactions At Undervalue (Section 238)
Preference (Section 239)
Misfeasance (Section 212)
There are other claims that may arise which can often be more difficult to run such as:
Transactions Defrauding Creditors (Section 423)
Wrongful Trading (Section 214)
The late Gabriel Moss QC referred to what has happened to it in his article “No compensation for wrongful trading – where did it all go wrong?”:
It is a disgrace to our jurisprudence that, on the basis of a series of first instance cases, a director can get away with wrongful trading as long as the net deficiency to creditors does not increase.
Sections 238, 239 and 212 appear somewhat simpler potentially to plead and Section 212 tends to be a claim that can sometimes sweep up many common forms of Director misconduct and can bypass limitation disadvantages of other claims.
You will see a selection of our reported legal cases on the Success Stories page of our website. Most of these reported cases were addressed after an investigation and then into insolvency litigation as a result.
Are you a creditor of a company or individual?
If you are a creditor of an insolvent company or a bankruptcy, Oliver Elliot can help you. We Know Insolvency Inside Out.
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