Pre Insolvency Review “PIR”

Given the substantial increase in the number of formal insolvencies following the disruption of Brexit, Covid and other recent political catastrophes we are experiencing a significant increase in insolvency litigation against directors.

The litigation involves directors inappropriately obtaining government backed loans and extends to issues surrounding antecedence including preferences, transactions at an undervalue, Void Dispositions, overdrawn Directors’ Loan accounts (“DLA’s”) and illegal dividends to mention a few.

If the Directors had known the consequences of placing the company into the insolvency process, they clearly would not have done so voluntarily or at least would have been prepared for the outcome on them personally.

We have taken several instructions to assist directors who placed companies into an insolvency process on the basis that there would be no come back on them, naively. Many of the claims were not defendable and, in most cases, settlements had to be reached where directors effectively made personal payments to avoid the necessity of formal court proceedings.

In many cases the Directors believed the chosen Insolvency Practitioner was there to help them as individuals which is simply not the case.

As an example, we were instructed on a matter where the directors had transferred a corporately owned freehold property to themselves personally in settlement of substantial sums the company owed to them.  Following the transfer, the company sustained a substantial trading loss, through no fault of their own which resulted in the company becoming insolvent. They approached their chosen insolvency practitioner who knowingly aware of the property transaction, advised liquidation.  Following his appointment, the Liquidator issued proceedings against the directors for a preference which was not defendable.  Had the directors delayed the liquidation for 6 months, the preference would have likely been avoided. 

We would strongly recommend to the community and their clients BEFORE making the final decision to place the company into a formal insolvency process that they consider the effect of doing so on the Directors personally by obtaining a PIR from an insolvency Practitioner or a suitably qualified solicitor.

Ken Touhey 
Director of Insolvency and Recovery Limited 
info@tagcommunity.co.uk