When a company is wound up it is the job of a liquidator to investigate the affairs of the company.
In fact, where it appears to a liquidator that the conduct of a director, in relation to the insolvent company, was “unfit”, he is immediately required to inform the Secretary of State (via the Insolvency Service). This requirement is imposed upon the liquidator by section 7(3) of the Company Directors Disqualification Act 1986.
Directors may find that liquidators act out of an abundance of caution and out of a motive of protecting their own interests. Therefore, the threshold for conduct being reported can be low on a scale of wrongdoing.
What steps should I as a Director take when dealing with the Liquidator?
If the liquidator makes a relevant report to the Insolvency Service there are steps that can be taken to discover the contents of the report.
However, the better course of action may be to try to work with the liquidator to ensure that no report is sent at all. Clearly, this strategy might only apply to cases where the conduct in issue is “marginal” and is less attractive where it is clear that a liquidator will have serious concerns from the start of the investigation.
If the former director does have a concern that some transactions may be considered questionable it may be prudent to correspond with the liquidator even where the liquidator has not raised any queries. This strategy may serve two purposes:
- It may allow the director to provide an acceptable explanation to the liquidator before he prematurely reports to the Insolvency Service;
- It creates a paper trail that may be valuable if director disqualification proceedings are initiated.
How can I assist the Liquidator?
This strategy can be executed with some simple correspondence, asking things such as:
- Have you received all company records and documents
- Holding receipts for all documents delivered
- Enquiring whether any further assistance is required
Assisting the liquidator in this way will not be suitable for all cases but may be appropriate where there are questionable circumstances that are capable of resolution before the matter is passed on to the Insolvency Service. This is simply one of a number of “windows of opportunity” that exist through the life of a disqualification investigation that ought to be explored in bringing the matter to a conclusion.