On Monday 15 January 2018, Carillion PLC, one of the UK’s biggest construction firms, and 5 associated companies, entered into the formal insolvency process known as Liquidation.
It is reported that the company has a staggering £1.5 billion worth of debt and one of the key questions being asked, is how the company’s poor financial condition was left unnoticed for a lengthy period.
It has recently been further reported that the directors of the company, including former directors, will be investigated by the Official Receiver, who was appointed as the Liquidator upon the commencement of the Liquidation.
But what can the Liquidator do in such situations and what can be done to recover funds for an insolvent company’s creditors?
What are the Liquidator’s investigative powers?
Liquidators have a range of statutory powers to enable them to probe into the recent history of an insolvent company, and those running the company, in order to investigate and where applicable, challenge certain transactions with a view to increasing the pool of assets available to distribute to the company’s creditors.
A Liquidator has the power to investigate previous transactions and the court has the power to make a number of orders, including an order reversing the transaction and returning the property back to the company or returning the proceeds of any sale to the company.
In certain circumstances, it may also be possible for a Liquidator to challenge the validity of a floating charge, which is security against all or a group of the company’s assets at any one time. If such a challenge is successful, this charge may be set aside meaning that the assets that fall under the charge are then available to be distributed to the unsecured creditors.
What are the potential claims against the directors?
The Liquidator can also look at the conduct of the directors who ran the Company. The directors have a number of fiduciary duties to the Company and must act in accordance with those duties and in the interests of the Company. If there is conduct which falls below these duties, they are at risk of proceedings being brought against them and they may be ordered to make a payment to the Company as compensation. There are a number of potential actions that can be taken by a Liquidator against a director, shadow director, de-facto director and/or former director for;
- Breach of fiduciary duties;
- Wrongful trading;
- Fraudulent trading;
- Breaches of the Companies Act 2006;
- Preferential treatment of creditors;
- Carrying out transactions at an undervalue; and
- Recovery of any funds owed by directors to the Company (i.e repayment of overdrawn directors’ loan accounts).
The main objective for a Liquidator in taking action is to swell the assets of the insolvent company for the benefit of the unsecured creditors.
The above may also form the basis of an action by the Secretary of State to disqualify a person from acting as a director, or directly or indirectly be involved in the promotion, formation or management of a company, for up to 15 years. Disqualification will also prevent that person from acting as a trustee of a charity, from being on the board of governors for a school or charity and may also prevent that person from continuing to be a part of a professional body, such as, an accountant, doctor or solicitor.
What to do if you find yourself in a similar situation?
If you are facing a legal challenge by an insolvency practitioner it is imperative that you seek early legal advice from a specialist insolvency solicitor to ensure you understand your position and what your options are. As any claim can also form the basis of legal action by the Secretary of State for a disqualification order against you, there can be serious and long-lasting consequences.
Our dedicated insolvency team at Grant Saw Solicitors are on hand to assist so please do not hesitate to contact us on 020 8858 6971 (Greenwich) and 020 8308 3610 (Sidcup).
This is not legal advice; it is intended to provide information of general interest about current legal issues.