What questions are asked in a company liquidation investigation?

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Updated: 21st October 2021

How will a liquidator interview directors during a liquidation investigation?

When a limited company is liquidated the directors must undergo investigation by the appointed insolvency practitioner, or in the case of forced liquidations, the Official Receiver (OR).

If your company needs to be liquidated, you may be concerned about the type of questions you’ll face. Initially, the liquidator will issue a questionnaire for you to complete, and this is usually followed by an in-person interview.

Why are company directors investigated following liquidation?

Company directors must fulfil certain legal obligations when in office. This protects the company’s creditors, and in some cases the wider public, from negligent or fraudulent conduct.

When a company enters liquidation it means there are insufficient funds to repay all creditors. Unfortunately, this typically results in unsecured creditors receiving very little or no return from the process.

This is why the liquidator must ask questions of the existing company directors, and also anyone who was a director during the previous three years. It helps to establish why the company failed, and identify whether any further action needs to be taken by the Insolvency Service.

Questions during a company liquidation investigation

Questions asked by the liquidator are typically associated with the following areas:

Director’s Loan Account (DLA)

If your Director’s Loan Account was overdrawn at any time it means you’ve borrowed money from the company. This could have created financial difficulties, and ultimately contributed to its decline - overdrawn DLAs are subject to specific rules and regulations on repayment.

Payments made on behalf of the company

The liquidator will scrutinise the company’s accounts for ‘questionable’ payments - paying one creditor in preference to others, for example, or selling business assets for less than their fair value. These are called antecedent transactions, and the liquidator can look back as far as two years before the insolvency.

General business practices

You may be questioned about your general business practices, such as whether or not you take minutes at board meetings, and how much detail is recorded.

Dividend payments

Questions are commonly asked about dividend payments that have been made leading up to the insolvency. If there were insufficient distributable profits available to support any of the dividend payments they will be deemed illegal, and you could face accusations of misconduct.

Timeline of events following insolvency

The liquidator needs to establish that you’ve fulfilled your legal obligations to creditors, and ceased trading as soon as you were aware the company was insolvent. If you carried on trading and worsened creditor losses, however unintended, you could face disqualification.

In many cases a liquidation investigation is nothing to worry about, and is relatively straightforward. If misconduct or negligent/fraudulent activity is uncovered, however, you may be required to attend further interviews.

It’s imperative to seek advice from a licensed insolvency practitioner (IP) if your company experiences financial distress. This not only protects your creditors from avoidable financial loss, it also protects you and other company directors from potential personal liability.

For more information about company liquidation investigations, please get in touch with Real Business Rescue. We can offer you a free, same-day consultation, and work from an extensive network of offices around the country.

Keith Tully

Partner

0800 644 6080
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