Hi,
I am the Chief Accountant for a company that is going into administration. We became insolvent due to a major supplier taking its business away from us.
I believe this to be because we have an ineffective board that has made bad decisions and that directors have paid themselves in such away that they have now used up all of the working capital and cannot pay suppliers (this was the trigger for the large supplier pulling out).
The company is owned by a company who's shareholders are the members of the board in the company in question. The company itself also owns two other companies both of which are run by the same directors......in other words: The parent company own the Sub....the sub owns two subs....the shareholders of the parent are the directors of all companies.
My question is; If the sub goes into administration (which it will, next week), can the directors still remain as directors of the two other subs and are the two subs considered to be in administration as they are assets of their parent company?......my concern is that they will inevitably make the same bad decisions with the other two companies (that they haven't owned for very long) and they have suggested that I transfer my contract to one of the other subs (which is profitable) in order to remain employed.
Also, what are the consequences of me telling the administrator that I think the directors are incompetent?.........this will make itself apparent when I present the figures to the administrator anyway.
Replies (3)
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Lots of views and no comments...
...so I'll give you some sort of response, from the Insolvency Practitioner's perspective.
Firstly, answering your specific questions, there is nothing stopping the directors from being directors of the other group companies at the moment. If you feel the need to advise the Administrator of the (in your opinion) incompetency of the directors, he will consider that information, together with the outcome of his own investigations, in the report that he must lodge with the Government's DBIS (formerly DTi). It is that department that will consider whether their conduct is so unfit, that the directors deserve to be disqualified for being a director of a limited company again for a period of time, and will either take legal action to have them disqualified or will offer them a chance to simply agree to be on the disqualified directors' register (probably for a lesser period of time than if it went to court).
The other subsidiaries are not in Administration, just because their parent company is in Administration. The shareholdings are assets in the company in Administration, and if profitable, then the Administrator will be looking to realise them. If there are cross guarantees between the companies, then the other group companies may find themselved insolvent if the guarantees are called up.
Hope that helps!
Different processes but same goal
Whether it is in Administration or Liquidation and whether it is the respective Administrators or Liquidators taking 'control' of the business and/or its assets and/or the 'wind down' of the company, they will (or should) look to realise ALL assets.
The fact they haven't asked for details about other debtors yet may simply be down to them prioritising what they need to deal with.
Ultimately the Administrator or Liquidator will be concerned with spending time realising balances that are recoverable but should look into all outstanding balance to ascertain whether they are recoverable.
If the directors have been negligent in what they have done or have taken too much money out they need to account for this back to the insolvent company acting via the Administrator/Liquidator. So overall if the position is purely down to the directors then they will need to recompense the insolvent company. Only time will tell how much and if they do.
Interestingly though if it is in liquidation, they cannot be directors of other companies that have the same or basically the same name without committing a criminal offence and becoming personally liable for the debts of the other companies unless they satisfy one of 3 exceptions. This might be a sobering thought!
One other point, depending on the structure of the sale the previous owners may not lose out and interestingly it might make them some of the largest creditors and able to influence various aspects of the proceedings - fees, committees, identity of the Liquidator. If you want to know any more let me know.
Hope you enjoy your dealings with the Liquidators/Administrators. Best of luck.
Kevin Lucas