Maximising recoveries from insolvencies – Guest Blog by Menzies LLP

8 October 2020 

With insolvencies predicted to be on the rise following emergence from the Covid crisis, it will be more important than ever for creditors of insolvent entities to reduce losses by working with insolvency practitioners to identify additional sources of recovery.

The role of an insolvency practitioner who is formally appointed over an insolvent company or person is generally to get in, realise and distribute the assets. This article explains some of the tools available to insolvency practitioners which aim to increase returns to creditors.

Information gathering powers

Insolvency practitioners will start by identifying what assets there are, by collecting trading records and making enquiries of creditors, company directors and others who may be able to provide information. Directors and employees of an insolvent company are required by law to assist the insolvency practitioner. The Court can enforce co-operation by summoning:

• Directors and company secretaries;
• Any person who has company assets or records; or
• Any person who is able to provide information about the business.

Claims which may be brought against directors and third parties

Provisions of the Insolvency Act enable specific claims to be made during formal insolvency procedures. The aim of these is to reverse attempted dissipation of the assets which should have been available to creditors generally. Some of the most common types of claim are:

Transaction at undervalue – where a gift has been made, or a transaction has taken place with no or insufficient consideration being received by the insolvent party;

• Preference – where a creditor, surety or guarantor has deliberately received better treatment than others;
• Post petition dispositions – payments and transfers of assets after the date of a winding up or bankruptcy petition are void unless the Court orders otherwise;
• Wrongful trading – where a company director knew or ought to have concluded that the company did not have a reasonable prospect of avoiding insolvent liquidation or administration, and the position for creditors has worsened;
• Fraudulent trading – where the business of a company has been carried on with intent to defraud creditors or for any fraudulent purpose;
• Misfeasance – where directors have misapplied company property or have breached their duties to the company and to creditors.

Disqualification and restrictions

There is a restriction on re-using a company name or trading name where the company has gone into insolvent liquidation. This applies to directors of the company for a period of five years. Contravention of this rule is a criminal offence and it may also leave the directors personally liable. The restriction can be avoided if directors meet one of a series of exceptions, such as obtaining permission from the Court.

Whilst individuals should generally recover from corporate failure or bankruptcy and get back on their feet, where there has been serious misconduct, an additional period of restrictions may apply:

• Where a person is considered to be unfit to be a company director, that person may be disqualified from acting as such for a period of up to 15 years;
• Where an individual’s conduct is poor prior to or during bankruptcy, that person may be subject to restrictions on trading, borrowing money and being a company director for a period of up to 15 years.

For more information, please click the link to view the webinar recording in full. Alternatively, to read more on the services that Menzies offers to maximise recoveries for creditors, please click here.

If you have any questions in relation to this webinar, please email Rachel Lai, Head of Menzies’ Investigations Initiative, at rlai@menzies.co.uk or call 02920 447 513.