Administration and Liquidation - Overhaul of System needed urgently!

SSamuel2007

I think the whole system of Administrator and Liquidators needs reviewing.

Accountants (as brilliant as we are) cannot run a business on their own in which they do not have experience.

By liquidations not paying out to creditors, then this could cause a creditor for fail or for ex-employees to fall on hard times.

My thoughts are:

They should be forced to keep a director on in an active role and also have to prove
why they kept specific staff, the same rules for normal redundancy.

Their fees should also be capped to a percentage of the Balance Sheet value.

Any money paid out should be signed off by the director.

Any additional creditors realting to the period before liquidation, not on the Balance
Sheet, should be fully investigated and signed off by the director and any accountant
who previously audited the accounts.


Comments and any ideas on how take this further would be greatly appreciated.

deanshepherd

Hmm, companies go into administration because the directors have failed to run the business profitably (not necessarily through their own fault) so I am not sure why you would want to make it a pre-requisite to keep a failing board in control of the company.

If fees were capped then no accountant would do the work and in that situation the company continues to fail and no-one gets paid.

Administration is supposed to be a last ditch attempt to get creditors all of their money either by turning the company around or selling it off to realise the cash needed. In most cases that just isn't possible and the company is liquidated for whatever cash they can get.

Director involvement is not always helpful as they have emotional ties to the company and it's staff that can affect their judgement in a liquidation.

You and I may not be able to walk into a failing company and turn it around but it takes a lot of training and regulation to become an insolvency practitioner so these people have experience of running a variety of different businesses.

As an employee who has lost money through a failing company I feel for you but I think the damage was done long before the liquidators got involved.

AdamR

The issue of liquidators being the first to receive any payout has always interested me, though Dean rightly points out why this is the case.

However, could some form of agreement be reached whereby only a percentage of the liquidator's fee (say 75-90%) is preferential, with the balance forming part of unsecured creditors? It is a little unfair that an older debt may be sacrificed for one that technically didn't exist at the point the company went under.

Also, the balance not allowed as preferential should incentivise the practitioner to get every last penny for the company's assets, as his profit (not his cost, which should be settled by the preferential amount) is at stake.

Any further thoughts?

deanshepherd

You are in effect asking a liquidator to work at a discount of 10-25% on every job he does.

If I did that then I would simply put up my prices 10-25% to cover it. I am sure liquidators would do the same.

Similarly, I have recently been burned (as I am sure many of us have) by a client who promised to pay me once I got them up to date with their tax affairs - they were a couple of years behind with their VAT - and now are likely to be insolvent as a result of the VAT, interest and penalties that will arise.

From now on I will NEVER be doing work for companies in financial difficulty without getting paid up front and I certainly won't be offering them any discount!