Liquidator Obligations to creditors

[GEKKO27]

A company I was employed by went into voluntary liquidation and appointed an Insolvency Practitioner to handle the subsequent winding up. With it being a members voluntary liquidation the company directors get to choose the liquidator who inturn choose the solicitors to handle valuations of assets etc.

We were notified that an offer made by the previous director on behalf of an associate company had been accepted for the sale of office, test equipment, plant and machinery, work in progress, 2 motor vehicles and intellectual property (including trademark and trading name) for £7.5k

Not only is this amazingly low but the liquidator allowed him credit on the deal and so far has only recieved £2.1k which was used to pay off the outstanding finance on one of the vehicles!

There are 8 ex employees on the creditor list which should be prefered creditors, 3 of which are the director, wife and son so we can't be sure whether they have been paid but the other 5 certainly haven't.

The previous director is trading again doing the same thing with the same company name.

My question is are there any obligations to the creditors for the liquidator?

Is this just unethical or is it illegal?

 

[seanstevens]

If in doubt speak to the Insolvency Practitioners Association

 

[oldeagleeye]

I don't think that your experience is anything unusual. As a former mortage and finance broker I remortgaged a lot of these guys on a non-status basis and I remember one case of a haulage company where the guy 'disabled' half a dozen almost new Scania lorries worth about £250,000 I think. The liquidater he appointed sold them back to him or rather his wife as scrap for about £10K.

The thing with insolvancy practitioners that are appointed by the company going bust is that they know that no-one else wants to take the job so they can really do what they like with the main objective of earning their fee. Their is a loyalty element there them which in reality is detrimental to credtors.

Can you do anything about it. In theory yes but only at the initial creditors meeting when you can object to the liquidator appointed and propose yourself. The trouble is that there will then be a vote and the most important creditors including HMRC will oppose you and vote for the professional as they know thet he or she will clear up all the paperwork properly

I rather fear then OP that all that's left for you and the other ex-employees is the governments own redundancy scheme for employees of companies that fold.

Robert

 

[GEKKO27]

Thanks Robert, but to be honest none of us are really that bothered about the money; we wrote that off more or less straight away and several of us have started sucessful businesses since.

It's the principle behind a professional body providing the means for an inherrently dishonest man to ditch £250k, debts accrued through greed and bad management, to carry on as if nothing happened.

Sure he wasn't truthful with asset disclosure etc: I'd expect that from a liar. But the liquidator accepted an account given in the directors report that was contradictory to the historical financial information in the same document. I can appreciate the liquidator protecting their own fee but I hoped there to be a legal framework for them to operate whilst doing so and looking at the SIP's from the sorce Sean suggested there is.

Thanks again Robert

Tony

 

[Spongebob]

Welcome to the world of Insolvency Practitioners.

It's a complete stitch-up. IPs rely for their new business on referrals from accountants. Accountants will generally only recommend to their insolvent clients IPs who take a 'relaxed' view of their statutory responsibilities.

Therefore it is in an IP's long term interests to bend over backwards in helping the director of an insolvent company to buy the assets and start up again, while adhering to the letter of the law, if not the spirit. So long as his fee is covered by the sale price no IP gives a flying fook about the losses incurred by creditors.

I suspect that in the OP's case, the IP wanted £7.5k as his fee for liquidating the company. How much did he sell the assets for?

Insolvency Practitioners = Pond Life

 

[GEKKO27]

Morning Spongebob,

the liquidator would have us believe that she accepted an offer of £7.5K in good faith but so far has only managed to recover £2010 from the director, which she used to pay off the outstanding finance on one of the vehicles; and a further £110 which went to buy the company name.

So bargains gallore with this particular liquidator:
Lot 1

1x Merc Vito 130 van, 1 x Transit Connect TDI Hi-cab van, 1 x Fluke Thermal Image camera, 2 x Fluke 1653 elec test kits, 1 x Fluke Power quality analyser, 4 x Bosch 24V SDS drill set, a boat-load of hand tools, 2 Ifor Williams trailers, 1 ATV (£7k on its own), 2 generators, 1 x site hut, 3 sony vaio notebooks, 1 x HP laptop, 3 x Dell PCs, 1 x AO plotter, several desks, chairs, lazer printers etc, 1 x Mitsibushi Animal and company name.

Yours for £2010!

no need to pay now sir either.

That doesn't include all the stuff he never told her about but with a liquidator like this he may have well have come clean about it all; she'd have still flogged it to him some magic beans.

She charged 30hrs at £145/hr to get that deal for the creditors, £4k to arrange the meetings, legal and advertising etc puts another £10k on. Do you think if I were to offer her a tenner more she'd drop the barsteward in it?

Tony

 

[JGOffshore]

This is far from uncommon. It is not possible to appoint someone as a liquidator unless they are licensed as an insolvency practitioner. However it is possible at the initial creditors meeting to appoint a different licensed practitioner.

On the basis of he who pays the piper etc you can expect a practitioner appointed by the directors to take care of the directors. The directors will have paid an initial fee to the liquidator, probably around £3,000 and from that point on all the liquidator will be worried about is ensuring that they get sufficient cash from the sale of assets to cover their fees. If they don't then the directors pick up the bill. Liquidators should be seeking to get as much as they can for the creditors, but in practice that seldom happens.

If the creditors vote for a different liquidator then the creditors would be responsible for paying the new liquidators fees rather than the directors and may be asked to pay a substantial sum up front. So not always a good idea. However, there is one option open to the creditors and that is to propose and pass a resolution to set up a committee of creditors to oversee the work of the director-appointed liquidator. They hate this and will try to stop it and unfortunately some creditors like HMRC don't support such resolutions.

A number of years ago I was advising some creditors about a rather nasty case and they managed to force through a committee. At the end of the process the committee reported the liquidator to his regulatory body and as this was not the only complaint they received after an investigation his licence was revoked. Now you know why liquidators (and there are decent ones) don't like committees.

On a slightly different tack, liquidators have the power to report directors who have not managed their companies correctly and seek to make them, the directors, personally responsible for the debts of the company. That is happening with increasing regularity but I've never heard of a liquidator paid by the directors ever reporting them!

 

[GEKKO27]

Thanks James,

Does that mean that if we wanted to report to the regulatory body we would have had to form a committee at the initial creditors meeting or can we report them anyway?


It's all very well working to secure your fee and taking care of the directors but don't you even have to pretend to be doing the right thing? Is it common to accept an offer for assets on credit? The offer of £7.5k was low but he only paid £2010 of that; this is not a borderline under-valuation, it's not even close to realistic.

 

[oldeagleeye]

OP. I am afraid that you have to be realistic aboout tghese vaulations. That themal image camera for example is really worth a lot of money but at an ordinary household auction I doubt it would even get a £1 bid so it would probably go in a box with old ploroids and bric-brac and possibly make that £1 coin.

Likewise vans that cost good money to store are without warranty go dirt cheap. Your extremely lucky then to get 5p -10p in the £1 on any forced sale value of seconhand kit. This probably why the liquidator is allowing the other guy time to pay because as far as he is concerned he has got a good deal.

Incidentally as far as values go. I just took some carier bags into my local charity shop. They had a 28in + JCV flat screen televison in there in silver absoluterly like new and on a stand that alone cost over £150. 2 years ago the whole lot would have cost over £1,000.

It wasn't plasma or thin however and didn't have HD. On Sale @ £35 quid.

Suggest you put this all behind you OP because the only one getting sleepless nights is you.

Rob

 

Richest friend is a liquidator,stories to make your hair stand up.

Lawyers seem quite nice in comparison.

If you really want to be liquidated try KPMG.

Earl

 

[GEKKO27]

It was £35 because there's now a space saving alternative and house space is valuable; if no flat screens existed you probably wouldn't find it in a charity shop, but as there are there is no longer a market for it at all.

As for cheap vans- you get what you pay for unless yr in voluntary liquidation, in any other circumstance you wouldn't have got a fifth of what he got for £7.5k never mind the £2k.

The liquidation didn't happen because the man was broke, it happened to avoid a VAT investigation. The liquidator isn't giving him time to pay; she had no intention of collecting it in the first place.

It's not hard to get a realist estimate for anything these days or find the best place to sell it. It took the liquidator 30 hrs at £145/hr to put that deal together. Even a plumber would find himself on rogue traders at the very least if he presnted that bill for doing so little.

Your right about one thing; I am the only one with sleepless nights and that's the real shame of it.