Elliot Green explains what happens when the voluntary liquidator investigates directors of insolvent companies.
The relationship between liquidator and director does not always finish up as it started. The reason can be because of the change in the nature of the role of the insolvency practitioner (IP) before he or she is appointed as the liquidator, from the time when they were advising the director of the procedures to place the company into liquidation.
Liquidations are divided into three types: Creditors Voluntary Liquidation; Members Voluntary Liquidation (for solvent companies); and Compulsory Liquidation (a court orientated procedure). This article confines itself to the consideration of investigations into directors in Creditors Voluntary Liquidation and how the relationship can change.
Voluntary liquidation has two distinct phases: the build up and the main event.
In the build up (pre-appointment phase), the relationship between the company and the IP is very much rooted in matters of contract, whereas the main event (liquidation) is dominated by statute. The notable difference is that of control. In the build up the director remains in control of the process with the IP assisting with provision of the navigational information to ensure regulations are complied with. In liquidation, the liquidator assumes the helm and sets about on a voyage of, amongst other things, discovery.
Whilst in both phases, the duty to provide creditors with accurate information is very important, once a company is in liquidation, the liquidator is no longer merely a helpful coastguard; he or she is now the captain of the ship required to deploy an enquiring mind, assemble the company’s information and investigate.
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