What-questions-are-asked-in-a-company-liquidation-investigation

How will directors be investigated after an investigation?

When a limited company goes into liquidation, its directors must be investigated by the insolvency practitioner appointed for the task. If the liquidation is ordered by the court, the Official Receiver (OR) handles the investigation.

If your company needs to be liquidated, you might worry about the questions you’ll be asked. 

First, the liquidator will send you a questionnaire to fill out, then you’ll likely have a face-to-face interview.

 

Why do directors of companies get investigated after liquidation?

Company directors have specific legal duties to fulfil while in office. These obligations safeguard the company’s creditors and, in certain situations, the broader public, from any negligent or deceitful behaviour.

When a company goes into liquidation, it signifies that there aren’t enough funds to pay back all creditors. 

Sadly, this often leads to unsecured creditors getting very minimal or no repayment from the proceedings.

That’s why the liquidator needs to question the current company directors as well as anyone who held the position in the past three years. It assists in understanding why the company collapsed and determines if any additional steps are required by the Insolvency Service.

 

Understanding what happens during a company insolvency investigation process?

In formal insolvency proceedings, the administrator or liquidator will submit a report to the Insolvency Service regarding director conduct. The investigation at this stage may encompass the following elements:

 

  • Reviewing the company’s accounting records. 
  • Collecting evidence from stakeholders, such as employees, accountants, and solicitors
  • Questioning directors and other key officers of the company
  • If there’s enough evidence suggesting director misconduct, a report is forwarded to the Insolvency Service, which then determines whether to pursue the matter in civil court under the Company Directors Disqualification Act (CDDA).
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What questions are asked during a liquidation investigation?

During a liquidation investigation, the liquidator may ask questions usually around the following topics:

1. Director’s Loan Account (DLA)

If your Director’s Loan Account was in debit at any point, it indicates that you borrowed funds from the company without repaying them. 

This might have led to financial challenges and played a part in the company’s downfall – negative DLAs are governed by specific rules and procedures regarding repayment.

2. General business practices

You might be asked about your general business practices, like whether you maintain minutes during board meetings and the level of detail recorded in them.

3. Payments made on behalf of the company

The liquidator will examine the company’s accounts for ‘questionable’ payments, such as prioritising one creditor over others or selling business assets below their fair value. 

These transactions, known as antecedent transactions, can be investigated up to two years before insolvency, particularly if involving a connected party.

4. Dividend payments

Frequent inquiries are made regarding dividend payments made before insolvency. If there weren’t enough distributable profits to justify any of these dividends, they might be considered unlawful, potentially leading to allegations of misconduct against you.

5. Timeline of events following insolvency

The liquidator must confirm that you’ve met your legal duties to creditors and stopped trading once you know the company was insolvent. Continuing to trade and worsening creditor losses, even unintentionally, could result in disqualification for you.

In many instances, a liquidation investigation isn’t cause for concern and proceeds smoothly. 

However, if misconduct or negligent/fraudulent behaviour is discovered, you might be asked to attend additional interviews.

It’s crucial to seek guidance from a licensed insolvency practitioner (IP) if your company faces financial difficulties. This action safeguards your creditors from preventable financial harm and shields you and fellow company directors from potential personal responsibility.

For further details on company liquidation investigations, feel free to contact Vanguard Insolvency. We provide complimentary, same-day consultations and operate from a wide network of offices across the country.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

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.