When a company is facing insolvency, it can be a difficult and stressful time for directors. Nonetheless, it is important that the directors seek professional advice to ensure that they meet their legal obligations and organise an orderly windup.
After obtaining advice and agreeing the appointment of a liquidator, the directors will send out to all creditors the statutory notice of the creditors meeting allowing 10 clear days notice (templates usually provided by nominated Liquidator). The statutory notice must also be advertised in two daily newspapers.
It is important that the directors have access to the registered address of the company to access post for returned proxy forms. It may be necessary to change this address if the directors do not control the registered office.
Between the date of the decision to wind up the company and the appointment of the Liquidator at the creditors meeting, the Directors should undertake the following steps :
the employees should be made redundant
company assets should be secured (it may be necessary to change locks/alarm codes)
if there are bank loans/overdrafts, the directors should deposit any receipts in a separate bank or solicitor client account
no payments should be made from the existing bank account, and recurring utility payments should be cancelled (eg staff phones)
the directors may have to deal with creditors who attempt to enforce Retention of Title over stocks. It is advisable to seek legal advice before agreeing any claims ; best practice is to leave for the Liquidator to review that creditors have valid claims.
There are instances where it is justifiable to continue to trade for days or weeks between the time of taking insolvency advice and sending out the statutory notices (say to complete a project and realise funds). In this scenario it is important that directors undertake the following steps :
separate any stock which is subject to Retention of Title
only retain key employees (surplus staff should be made redundant and will have statutory entitlements which will be processed by the incoming Liquidator).
new supplies should be obtained on a Cash on Delivery basis, so as to ensure they are not drumming up more company debt.
In the interval between sending out notices to creditors regarding the creditors meeting and the meeting itself, the directors will have to prepare a Statement of Affairs to present to the creditor attendees at the meeting. This in effect, is an up to date statement of the assets of the company with the book values and realisable market values on liquidation. It should also include a list of creditors with the amounts owed.
The directors will often obtain the assistance of their accountant in preparing the Statement of Affairs. This is not a legitimate pre-liquidation expense, but may be invoiced to the Liquidator once ratified.
The Directors will also have to prepare a written statement to be read to the creditors at the meeting outlining a brief history of the company including:
incorporation date
location of registered office
directors and shareholders details
nature of the business
trading details
reasons for company collapse
When a company is solvent the directors duties are to the shareholders (often the directors themselves). When the company is insolvent, the directors duties are to the creditors and they have to ensure that their actions maximise company assets avalable to creditors and that their actions do not prejudice any of the creditors. By undertaking the above general steps, the directors will be making significant strides towards adhering to their legal duties and organising an orderly windup of the company.
McCarthy Walsh
Chartered Certified Accountants
Tel 01-444 5260
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