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What Does Liquidation mean for Directors?

When a company goes into liquidation the directors’ powers immediately cease. From this point onwards directors can no longer sign cheques, sell assets or issue orders to staff. They will also not be paid, although they may be asked to assist the proposed liquidator.

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Liquidation and Directors in Detail

When the directors decide that a company needs to go into liquidation they will chose a licensed insolvency practitioner to assist them through the process.

Usually within a one to two week period before liquidation the proposed liquidator will ask the directors to assist with the following:

  • Produce a detailed list of every supplier owed money. These are known as creditors
  • Produce a list of the money due into the company for unpaid sales. These are known as debtors
  • A list of company assets including where they are kept
  • A list of all the employees including pay details
  • Details of the company’s bankers
  • VAT, PAYE and corporation tax reference numbers and amounts owed
  • Copy hire purchase and loan agreements
  • Provide accounting records for the last six years of the business
  • Draft a company history

The proposed liquidator will also write to the directors asking them to stop trading and ensure that the assets of the business are preserved for the creditors as a whole.

In the final few days before the meeting of members (shareholders) and creditors, the liquidator will ask the directors to approve the statement of affairs (similar to a balance sheet). This is a snap shot of what the company still owns and what it owes. It is a very important document and if the directors intentionally get this wrong they can be prosecuted.

Creditors’ and Shareholders’ Meetings

It is important that the directors assist the liquidator in their analysis of the business as every aspect is required in preparation for the shareholders and creditors meetings. These are separated into two meetings.

The liquidator will ask the directors to attend both of these meetings in order to answer reasonable questions from the invited attendees and be chairperson to both meetings. The directors will also have to sign various forms and resolutions once the meetings have concluded.

The company is officially in liquidation once the meetings are over. It is at this point that all the director’s powers all cease and the liquidator then takes over. The time taken to complete the liquidation varies with every case, read more about which factors affect the time needed for liquidation.

Although the directors are no longer employed it is usual for the liquidator to ask the directors for further help on various matters, including tracing assets, helping collect disputed debts or answering questions about the business in the lead up to liquidation.

The statement of affairs is a snapshot of what the company owns and what it owes. It is a very important document and if the directors intentionally get this wrong they can be prosecuted

 

Whether it is a good or bad solution depends on your circumstances. You should always take professional advice before making a decision. For a free consultation or to talk to our insolvency experts, contact us today.


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