Can a liquidator recover assets for the benefit of creditors?

When a company is confronted with insolvency, it becomes the responsibility of the directors to engage an insolvency practitioner as soon as possible. The practitioner will evaluate the circumstances and determine whether the business can be salvaged or if measures should be initiated to wind up the company. If it’s concluded that the company cannot be saved, the insolvency practitioner will assume control and initiate the liquidation process.


What occurs during liquidation?

As part of the liquidation process, the company’s assets are sold to generate funds for the benefit of its outstanding creditors. In cases of insolvent company liquidation, the funds raised typically fall short of paying every creditor in full. Hence, there’s a set order of priority determining who receives payment following the company’s liquidation.


Payment Hierarchy: Who gets paid first?

  • Secured creditors, such as banks and asset-based lenders with a registered charge against specific company assets, have the highest priority.
  • Next in line are preferential creditors, including staff.
  • Subsequently, unsecured creditors, comprising various lenders like suppliers, contractors, landlords, and HMRC, are prioritised.
  • Shareholders are the last to receive payment. However, in most insolvent liquidations, there are typically no funds remaining for shareholder payouts at this stage.

Liquidator’s Responsibilities and Duties

The primary duty of a liquidator is to maximise the funds available to creditors. They work in the best interests of creditors, aiming to distribute the maximum amount to each. This entails extracting as much money as possible from the company and its assets.


i. Transactions at undervalue

As part of the liquidation process, the insolvency practitioner carefully examines the company’s accounts and transactions. Any discrepancies, such as missing cash or assets, are thoroughly investigated. If any assets were sold below their value in the two years leading up to insolvency, the practitioner can petition the courts to reverse such transactions and restore the company to its pre-sale position.

If your company is insolvent, it’s risky to assume that selling assets quickly and cheaply will aid its survival. In reality, once insolvency is acknowledged, every effort must be made to protect creditors’ interests and prevent further deterioration. Selling assets at a low price only diminishes the funds available to creditors.

Upon insolvency, it’s crucial to engage an insolvency practitioner who will take charge of company assets. These assets will be professionally valued and sold through suitable channels to maximise returns.


ii. Preference payments

A preference payment occurs when certain creditors are favoured over others. This might happen because these creditors exert significant pressure on the business for payment, or because you’ve opted to settle a personally guaranteed loan while neglecting other creditors. Preference payments are a serious issue that could lead to disqualification from directorship in the future. To safeguard yourself and your creditors, it’s essential to refrain from making payments once the company is insolvent. Instead, cease trading and engage an insolvency practitioner who will ensure any remaining funds are distributed correctly and fairly among all creditors. 

If a preference payment has been made, the insolvency practitioner has the authority to demand its return, allowing for fair distribution among all outstanding creditors based on their position in the payment hierarchy.


iii. Analysing the director’s conduct

During company liquidation, insolvency practitioners are required to scrutinise the directors’ conduct in the period leading up to the company’s insolvency. In most instances, a company becomes insolvent despite the directors’ genuine efforts. If the liquidator determines that no malicious behaviour occurred, the liquidation proceeds without further action against the directors.

However, if the insolvency practitioner suspects wrongful trading, misfeasance, or fraud, these concerns are reported, and court action may ensue based on the gravity of the allegations.




How Vanguard Insolvency can help

If your company is insolvent or you’re worried it’s headed in that direction, reach out to the specialists at Vanguard Insolvency. Our committed team of licensed insolvency practitioners can assess your situation and recommend the best course of action. Vanguard Insolvency offers director advice online, over the phone, or in person at one of our offices nationwide or at a location convenient for you. Expert advice you can rely on is always within reach. Contact us today.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.