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Buachaill
Buachaill, Barrister
Category: Law
Satisfied Customers: 10623
Experience:  Barrister 17 years experience
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Insolvency If a limited company files can

Customer Question

Insolvency
If a limited company files for Insolvency can its stock be traded with by a new company (same director, etc) that has just been set up six months ago although no consideration has changed hands?
Submitted: 2 years ago.
Category: Law
Expert:  Buachaill replied 2 years ago.
1. The stock would have to be sold in order that a new company could suddenly start selling the first company´s assets. Otherwise, there is a fraud on the company in insolvency as someone has taken its assets without paying for them. Here, I would look to the liquidator of the first company to find out what has happened. The liquidator has the onus to achieve the best price possible for all the assets of a company in liquidation. The liquidator cannot simply hand over stock to a director. If s/he did so, then both the liquidator and the director have committed an offence in the liquidation and you should inform Companies House of this fact, as it will impinge upon both their ability to act as officers of a company.
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Customer: replied 2 years ago.

Thank you for your reply.

The liquidator has supplied us with a list of creditors (me the biggest unsecured as 5 days later we would have had an Interim Charge going before the Courts). He has then listed apparently independent valuations for the assets. Amongst the assets is a book value of the stock of £150,000 yet the valuation has reduced this to £20,000. The Meeting of Creditors was on the 19th August 2015, yet, the director had a new company set up in February which commenced trading on the 31st May 2015. How could the new company start trading if it hadn't paid for the stock? And apparently, most surprisingly trade has recently improved??

There is also a freehold building listed as an asset (which I am sure is valued at least £100,000 below its market value) which has not been paid for yet, plus there is owed to the company, but written off at the moment £108,000 from the Director's other 100% owned company. This must reflect a conflict of interest?

Expert:  Buachaill replied 2 years ago.
2. At the outset, a director is not entitled to benefit from his own company's liquidation. Accordingly, both issues here - the stock and the freehold building and the inter company debt - represent offences in an insolvency. Accordingly, I would suggest you use the Insolvency Service's hotline to report these issue for investigation. Here is a link to the detail of both the telephone and email reporting options https://www.gov.uk/government/publications/what-is-the-insolvency-service-investigations-hotline. Be aware that a liquidator or any insolvency practitioner is obliged to use the assets of the insolvent company for its creditors. Be aware additionally, that as a major creditor of the company, you can seek directions from a court in relation to the winding up. Here you can go to court and get the court to direct that the stock should be valued at a higher value that the 20k given to it. Similarly, in relation to both the freehold building and the inter company debt. YOu can get a direction of the court that the liquidator treat these differently.
Customer: replied 2 years ago.

Thank you for your help. I believe that it was all pre planned since the new company was purchased for the director last February. We were in Court in March and his new company started trading on the 31st May. The creditors meeting was timed for 5 days before my court orders could be secured on the freehold property.

The director argues that I caused the insolvency but if a charge had gone on the freehold property it would not have effected its financial status. Also since no accounts were presented to companies house last year he obviously knew that the company was in financial difficulty and failed to inform the court when the order was made. Was this wrong and was it fraudulent trading since he had been planning his exit for 6 months before the creditor's meeting was called.

Expert:  Buachaill replied 2 years ago.
3. It is not possible at this remove to determine whether there was fraudulent trading or not. However, there is a good prima facie that this was the situation. Just because a director was planning an end to a company does not mean that there was fraudulent trading. Not only must the company have been trading whilst insolvent but there also must have been knowledge that this was so and an intention to run up liabilities as a result. Normally, it is the liquidator who would pursue such a case. However, you should first involve the Insolvency Service and take it from there. More information is required for a case of fraudulent trading to occur.