Confronting the s.234 Powers of a Liquidator

After the liquidation of a company there are different groups of people that may find themselves subject to the scrutiny of a Liquidator.

These people may be the former directors of the liquidated company, those responsible for its formation, it’s employees, or it’s professional advisors.

A Liquidator has a duty to investigate the affairs of a company to see whether the conduct of the directors is such that they may have been guilty of a civil or criminal offence.

A Liquidator will often be under pressure from the creditors to the liquidated company to deal out a form of punishment. However, the Liquidator will generally only be concerned about recovering property and realising company assets.

The Insolvency Act 1986 provides a Liquidator with powerful tools in order to assist them in realising company assets.

Section 235 of the Insolvency Act 1986 stipulate that former directors, employees and those engaged in the incorporation of the company have a general duty to co-operate with the Liquidator. If such a person fails to co-operate with the liquidator they can be subject to a fine that accrues at a daily rate. Section 235 Insolvency Act 1986.

The starting point for any Liquidator is normally to gather in the company property. A Liquidator has a power pursuant to section 234 of the insolvency act 1986 to demand that a person in possession or control of the Company’s books and records pay, deliver, convey, surrender or transfer the property, books, papers or records to the office-holder (Liquidator). Section 234 Insolvency Act 1986.

If a person who is subject to such a request fails to handover these documents they may be subject to an application to the court made by The Liquidator.

The person who is subject to the application should firstly consider whether the application is brought on behalf of the liquidated company by the Liquidator themselves or by the liquidated company itself. If the application is brought by the Liquidator and not the liquidated company there may be scope for the person subject to the application to apply cost pressure to the Liquidator.

If the liquidator is to take legal proceedings in order to recover the requested property the claim ought properly to be in the name of the company in liquidation. This was a contentious matter that was resolved in the case of Smith v Bridgend Borough Council [2002]. It appears that from time to time liquidators and their legal advisers do make the mistake of bringing a claim in the personal name of the Liquidator. In these circumstances the person subject to the request should make an application for a strike out of the claim and seek the recovery of their costs.

It is often advisable that in order to avoid unnecessary litigation an early and comprehensive response is made to the Liquidator.

For assistance in the area of Liquidator Powers please email or telephone 07460 005 769.