If your company is compulsorily wound up the initially appointed liquidator will be the ‘Official Receiver’. Official Receivers act as officers of the government agency, the Insolvency Service.
The primary reason for concern for directors of a company facing a winding up petition and involvement of the Official Receiver is that the Official Receiver may investigate director conduct in the lead up to insolvency more thoroughly than a privately appointed liquidator.
To avoid the Official Receiver being involved company directors may wish to consider voluntary liquidation. Our liquidators would be happy to discuss your options and any concerns you have. Please do get in contact.
Responsibilities and powers of The Official Receiver
The Official Receiver will manage at least the first stage of a compulsory liquidation. The Official Receiver has no more and no less powers and duties than any other Insolvency Practitioner. The role involves :-
- To collect and protect assets for creditors.
- To take control of the company’s affairs.
- To investigate, and report on, the reasons for the insolvency and directors conduct.
- To keep creditors and shareholders updated.
Official Receiver vs Liquidator
The Official Receiver acts as liquidator where there is no private sector insolvency practitioner appointed.
While the Official Receiver will be involved initially with a liquidation, when it comes to the realisation of assets, a private sector insolvency practitioner will often be appointed by creditors for this role. In the case of large or highly complex cases, the Official Receiver may also bring in additional experts to assist with the liquidation.
Checks into Directors Conduct
There are 3 key areas of focus that will be investigated :-
- Wrongful trading.
- Any transaction at undervalue.
- Unfair preferences.
Assessing Wrongful Trading
If an Official Receiver reports that the director is guilty of wrongful trading, it is likely that the director will have to pay an amount to the insolvent company. The director can also be disqualified from being a company director for up to 15 years and face other fines and penalties.
The only defence to wrongful trading is the “every step” defence – where the director can show that he/she took every step possible to minimise the loss to the company’s creditors before the company’s insolvent liquidation.
Transaction at an Undervalue
The Official Receiver can investigate any transactions that were made at an undervalue during the period of up to two years before the company going into liquidation.
If the directors are found to have made a transaction at an undervalue (or several), the official receiver can apply to the courts to reverse the sale. They can also order the directors to recompense the company so that it is in the same position it would have been had the transaction been for the asset’s full value.
Unfair preference takes place if a company takes certain actions that put a creditor in a preferential position to other creditors.
The action must have been intentional – mistakes by the company or its directors will not be unfair preference (though they may be deemed as wrongful trading or a transaction at an undervalue). However, if the creditor is a connected party to the company, the intention is presumed and can only be overcome by clear evidence to the contrary.
Investigation into the Conduct of Directors
The Official Receiver will interview the company’s directors and go through the financial records. They may also make background enquiries with other parties, such as banks and the company’s accountants. The Official Receiver’s reports on cases are not publicly available.
If fraud or other wrongdoing appears likely, the Official Receive will report this to the Insolvency Service’s Investigations and Enforcement Services. The Official Receiver has wide ranging powers to obtain information that will support their investigations and can also examine people in court if necessary. Where there may be criminality, the Official Receiver may also deal with other agencies such as local police or the Serious Fraud Office.
Directors Duties To Co-Operate with Official Receiver
Directors have a duty to comply with requests from the Official Receiver to provide information about the company’s financial affairs and management and also to attend interviews when asked. The Official Receiver is not able to provide directors with legal or financial advice.
Initial meetings will usually be held in person and can last several hours. Questions will be around what assets are held, debts and the reasons for why insolvency has occurred. Following this, the Official Receiver will write to directors, setting out what is required from them. It is essential that directors co-operate with the Official Receiver’s office and if not, they could be summoned to court to answer questions or even arrested. Furthermore, directors who do not co-operate could be sanctioned by being disqualified from future company management roles for a period from 2 to 15 years.