In normal circumstances there is no need for a party to go to Court to seek the liquidation of an apparently solvent company – but it is not “normal circumstances” when the relationship of the shareholders and directors of a company has broken down to the point that they cannot all agree on anything.
This puts the individuals involved under a lot of stress and puts the viability of the company at risk.
Section 246 of the Companies Act 1993 provides for an interim liquidator to be appointed by the Court, if it is satisfied, on an application being made, that it is necessary and expedient for the purposes of maintaining the value of assets owned or managed by the company, to take control of and preserve those at-risk assets.
The rights and powers of an interim liquidator can be limited by the Court in the manner that it thinks fit.
CASE STUDY:
Licensed Insolvency Practitioners (LIPs) from McDonald Vague were recently appointed by the Court as interim liquidators of two related companies involved in the construction industry. The companies each have the same 2 director / shareholders and 2 shareholders with each shareholder having 25% of the company shares.
Two of the shareholders are a husband and wife. The other two were a couple but are no longer together.
One company is a trading company, the other is a holding company, owning a property.
The business of the trading company is profitable and there was a good amount of work coming in, but issues arose, primarily between the two directors.
There were claims and counterclaims made by the two, against each other, of mismanagement of the business, and dishonest or unauthorised actions relating to the handling of individual clients, such as incorrect ordering of stock and transferring of clients from the company to other entities individually owned by the parties.
There were also claims of the unauthorised taking of funds from the company bank accounts, leading to one director blocking the access of the other director to the accounts.
One of the directors made application to the Court for the appointment of interim liquidators. They were supported (or, at least, not opposed) by one of the shareholders. The other director and shareholder opposed the application.
The Court, in its judgment, appointed the interim liquidators for the following reasons –
• The total breakdown in the relationship of trust and confidence between the shareholders leaving the companies unable to operate.
• The remote chance that there could be a commercial settlement between the parties.
• The financial position and ongoing solvency of the companies was uncertain and therefore it was unclear whether creditors were being safeguarded or were at risk because of the continued operation of the trading company.
The Court gave the Interim Liquidators the power to interview directors and shareholders, undertake an accounting of all trading and financial activity to determine solvency and to dispose of property if not profitable to maintain.
It also placed a requirement on the interim liquidators to report back to the Court within 21 days of appointment as to progress.
The Interim liquidation is on-going with the matter not back before the Court until early November 2022. They are continuing with certain existing projects, where that is justified and able to be funded by the clients involved.
They are also working on preparation of a settlement proposal to put before the shareholders, which if agreed to by all parties, would lead to the termination of the interim liquidation.
CONCLUSION:
In circumstances where a dispute between parties involved in a company has reached the stage where there is no common ground between them and the dispute is putting the viability of company at risk, having a licensed insolvency practitioner appointed is an option.
This allows for an independent person to review the position whilst ensuring that the assets of the company are not put at risk.
If you would like more information on the appointment of interim liquidators, or on any other insolvency issues, please contact one of the team at McDonald Vague.