Managing risk for liquidators

Members’ voluntary liquidations are unique among appointments for insolvency practitioners as they involve distributions to shareholders. These are frequently the last tranche of distributions to shareholders after the business of a solvent company has been wound down, its assets have been realised, all the trade creditors paid in full and the members’ voluntary liquidation is the last stage in the company’s history.

The shareholders are typically anxious to receive the final return from their investment as soon as possible and the risk for the appointed liquidator can arise as a result of this. The liquidator can come under a lot of pressure from the shareholders for a prompt distribution.

The liquidator of a members’ voluntary liquidation should obtain an indemnity from the shareholders against any company liability whether or not it is discovered after the final distribution. Giving an indemnity should not however be used by shareholders to pressurise a liquidator to distribute the company’s funds before the liquidator is certain that all the company’s liabilities are known and paid or provided for in full. An indemnity is not as good as money in the bank and all insolvency practitioners have heard stories about liquidators have had to rely on an indemnity to pay HMRC because the company’s funds were distributed before reliable tax clearance have been received.

Insolvency practitioners who take appointments as liquidators in members’ voluntary liquidations should manage the expectations of the shareholders of these companies. Tell the shareholders from the first meeting that the timing of the distributions will depend on advertising for creditors’ claims and receiving tax clearance. You may find that in some cases canny shareholders have already instructed accountants to quantify the company’s final tax liability and you will find out about this by making sure that discussing tax clearance is high on the agenda for the first meetings with the shareholders or their representatives.

Caroline Clarks insolvency career started over 30 years ago and since 1994 RMCS has been handling insolvency compliance, specialising in regulation and compliance.

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Caroline Clark RMCSC LinkedIn Caroline Clark
Contact: Caroline Clark
M: 07854 967976