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What happens when a company liquidator drains an insolvent company of its assets, leaving creditors without a penny?
Mention company liquidators to Colin Kewell and a sense of disquiet befalls him. Having been the nucleus of a creditor 'uprising', he wants others to learn from his experience.
When Debtor plc (we can't use the real name for legal reasons) went into voluntary liquidation, Kewell Converters was owed £12,500. With something approaching a quarter of a million pounds of realisations owned by Debtor plc, Kewell was optimistic it could get something back from the wreckage. Instead, more than £197,000 - 92 per cent of the recovered assets - was billed by the liquidator in fees.
A further £20,000 went to former directors for rent and other expenses to allow the business premises to be used for the auction of Debtor plc's assets, while £4,500 was paid to a firm of debt collectors that had a close working relationship with the liquidator, who had been soliciting for proxy votes prior to the first meeting of creditors.
Austen Mitchell MP has been advising Kewell on possible action, having taken a close interest in insolvency practices over many years.
Mitchell has expressed his dismay at the current situation in the House of Commons. 'The issue of insolvency, liquidation and bankruptcy is emotive,' he said. 'It is fraught with concern, anxiety and agony for those involved. It is traumatic for them - and that is exactly why the area should be well regulated by scrupulous practitioners who can be called to account and owe a duty of care to those involved. Such practitioners should work to predictable, known rules; they should work openly and be subject to appeal and control to protect the vulnerable. None of those characteristics applies to insolvency as it is presently regulated.
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'The practitioners work in the dark; that darkness is compounded for the victims of insolvency. There is no effective independent regulation - indeed, there is no effective regulation. The framework of regulation consists of the Mafia regulating the Mafia: the practitioners regulate themselves in their own interests, without effective independent control.'
Mitchell adds: 'The fees are huge. Much of the work is done by unqualified staff, but the fees charged are £100 per hour for some grades and £300 to £500 per hour for partners.' He went on to explain what this could mean for individuals and companies. One pub landlady failed to pay a £4,400 bill to a wine merchant, and ended up being charged £120,000 for liquidation - because she was accused of non-co-operation.
Kewell's message to creditors caught up in liquidations is not to accept what may appear to be destiny. 'Creditors should take more of an active role in the appointment of the liquidator, and later,' says Leeves. 'We [the liquidation committee] did not know there was any alternative to paying the liquidator on a time/cost basis.'
Kewell, the FSB and Mitchell are all calling for fundamental reform of insolvency law, beyond that proposed in the Enterprise Bill currently being considered by Parliament.
The FSB is urging measures to protect creditors, properly regulate insolvency practitioners and increase the prospects of a company continuing as a going concern. 'We need to copy the US Chapter 11 procedures to try to ensure the survival of a firm, rather than supporting a culture of failure,' says John Emmins, FSB National Chairman. 'This is a classic case of where the UK is going wrong.'
What is insolvency?
A company is insolvent if it either
does not have enough assets to cover its debts, or is unable to to pay its debts when they fall due. An insolvent company goes into administration, administrative receivership, or liquidation. (The arrangements differ in Scotland.) Only individuals become bankrupt. Receivers are appointed by the Court or by creditors. Administrators are appointed by the company, after applying to the Court for an administration order.
Source: The Association of Business Recovery Professionals
For
the full article, see page 20 of the December 2001/January 2002 issue of
First Voice
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