On 15 January 2018, Carillion PLC and five associated companies entered into Liquidation. We reported the news and the Government’s demands at the time for the company directors to be investigated by the Official Receiver and Liquidator. The full article can be viewed here.
In this article, we set out the powers available to Liquidators to investigate the matters and conduct of the directors and any associated parties in the lead up to the insolvency. The main purpose of the investigations undertaken by office holders is to identify any potential action against individuals or to challenge particular transactions with a view to increasing the pool of assets available to realise (i.e. sell) and subsequently distribute to the company’s creditors.
The Liquidator will normally make initial requests for information as to the company’s financial position from the directors, who are under a general duty to comply with the Liquidator’s request. The Liquidator has the power, if necessary, to apply for an order from the Court requiring a person to provide information about the company or to attend a private examination in Court to answer questions under oath.
Such an order can be made against the following:
- Any officer of the company, including a director, manager, secretary and may extend to the company’s auditors;
- Any personal known or suspected to have in their possession any property of the company;
- Any person supposed to be indebted to the company; and
- Any person whom the Court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.
The Liquidator will then be obliged to submit their findings to the Official Receiver (assuming the Official Receiver is not the appointed Liquidator) and in turn, the Official Receiver is obliged to submit a report concerning any particular conduct of the directors to the Secretary of State, to consider any further legal proceedings.
There are a number of potential actions that can be taken by a Liquidator against a director, shadow director, de-facto director and/or former director. For example:
- Breach of Fiduciary Duties;
- Wrongful Trading;
- Fraudulent Trading;
- Breaches of the Companies Act 2006;
- Preferential treatment of creditors;
- Carrying out transactions at an undervalue; and
- Recovery of any funds owed by directors to the Company (i.e repayment of overdrawn directors’ loan accounts).
These actions can also form the basis for the Secretary of State to take action against the individual concerned to disqualify such a person from acting as a director, or be directly or indirectly involved in the promotion, formation or management of a company, for a period of between two to fifteen years.
Disqualification can be very serious, as it will also prevent that person from acting as a trustee of a charity, from being on the board of governors for a school or charity and may also prevent that person from continuing to be a part of a professional body, for example, an accountant, doctor or solicitor.
We have recently become aware that the Insolvency Service has now issued director disqualification proceedings on behalf of the Secretary of State for Business, Energy and Industrial Strategy against eight directors and former directors of the company. Proceedings were issued in the High Court on 12 January 2021. We will report on further activity in due course.