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What actions can a liquidator take to recover assets for the benefit of creditors?


Insolvency Practitioner Approved

Can a liquidator recover assets for the benefit of creditors?

If a company is facing insolvency, it is the duty of the directors to enlist the help of an insolvency practitioner at the earliest possible opportunity. The insolvency practitioner will assess the situation and advice whether the business can be saved, or whether steps should be taken to bring the company to an end. Should it be decided that the company is beyond rescue, the insolvency practitioner will take control of the company and place it into liquidation.

What happens in liquidation?

As part of this liquidation process the company’s assets are sold in order to realise as much money as possible for the benefit of the company’s outstanding creditors. In the case of insolvent company liquidation, there will simply not be enough money raised in order to pay every creditor in full. Therefore there is a defined order of priority when it comes to who gets paid following a company’s liquidation.

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Who gets paid first?

  • First in line are the company’s secured creditors. These include banks and asset-based lenders who have a registered charge against a specific asset or class of asset belonging to the company.
  • Next are any preferential creditors such as staff.
  • Following that are the unsecured creditors which consist of a wide variety of lenders, including suppliers, contractors, landlords, and HMRC.
  • The last group to receive payment are the company’s shareholders. In the vast majority of insolvent liquidations there is usually no money left at this stage in the process.

What does a liquidator do?

It is a liquidator’s primary duty to realise as much money as possible for the creditors. A liquidator acts in the best interests of the creditors so it is always their main objective to be able to distribute the maximum to each one. This means as much money as possible must be extracted from the company and its assets.

Transactions at undervalue

As part of the liquidation process the insolvency practitioner will scrutinise the company’s accounts and transactions, and concerns will be raised if these show cash or assets which are no longer in the company’s possession. If anything has been sold at undervalue, up to two years preceding insolvency, the insolvency practitioner can and will apply to the courts to have this transaction reversed and restore the company back to the position it would have been if the sale had not taken place.

If your company is facing insolvency it is dangerous to assume that selling assets quickly and cheaply is a good way of recovering some money in order to help your company survive. In fact, once you are aware your company is insolvent you must do everything you can to protect the position of your creditors and ensure it does not get any worse. By selling company assets cheaply, you are actually reducing the amount available for your creditors.

Once your company is insolvent you should enlist the help of an insolvency practitioner who will take charge of company assets. These will then be professionally valued and sold through the most appropriate channels to maximise the amount of money realised.

Preference payments

A preference payment is when one or several creditors are prioritised above others. This could be because they are the ones putting the most pressure on the business through their demands for payment, or alternatively you may have chosen to pay off a loan which was personally guaranteed while leaving other creditors out of pocket. Preference payments are a serious matter which could result in your disqualification from acting as a director in the future. In order to protect yourself, and your creditors, you should refrain from making payments once your company is insolvent. Instead you should cease trading and bring in an insolvency practitioner who will be able to distribute any remaining funds in the correct way and in the correct proportions.

If a preference payment has been made, the insolvency practitioner has the right to demand this money back so that it can be fairly distributed amongst all outstanding creditors according to where they are in the payment hierarchy.

Investigating director conduct

As part of company liquidation, insolvency practitioners are obligated to investigate the conduct of the directors in the months and years leading up to the company’s demise. In the vast majority of cases, a company becomes insolvent despite the best intentions of its directors. If the liquidator is satisfied that no malicious behaviour has occurred then the liquidation will be allowed to go ahead with no further action taken against the directors.

However, should the insolvency practitioner suspect wrongful trading, misfeasance, or fraud has taken place, then these concerns will be reported and court action may follow depending on the seriousness of the allegations.

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