ML & liquidators

A client company, A Ltd, seems to have little prospect of recovering over £100k now that its client, B Ltd, has gone bust. This coming only a few months after a completely clean audit report for B Ltd.

It has emerged that B Ltd should have been paid by an offshore company, C Ltd. There is a suspicion that money was withheld in C Ltd, also that it was controlled from the UK and finally that C and B were under common or associated control.

To what extent is the liquidator bound to investigate these suspicions? and what evidence would be required for such suspicions?


davidwinch's picture

Liquidators and MLR

davidwinch | | Permalink

I am not sure I understand the question.

Liquidators (like accountants) are subject to the MLR 2007 and their work falls within the regulated sector.

That means that (as well as confirming the identity of their clients) they have to report suspicions of money laundering based on information which comes to them in the course of their work.  But (again like accountants) they are not required to seek out information which (if they obtained it) might give them grounds for suspicion, or strengthen their suspicions.

So the liquidator (just like an accountant) is not bound by the MLR to investigate suspicions.  If he has suspicions he is obliged to report them.  If he doesn't have suspicions he has nothing to report.

His suspicions (just like those of an accountant) might simply be based on someone's behaviour, or might be based on examination of documents, or might be based on things he has seen (such as someone in possession of cash or an expensive car), or things he has heard, etc.

If a liquidator (or an accountant) has a suspicion he may choose to make enquiries (before making a report) to see if that suspicion can be laid to rest.  If it can then he no longer has a suspicion and he has nothing to report.  But the MLR do not oblige him to make any such enquiries.

Where a liquidator differs from an accountant is that a liquidator often has possession or control of client's assets.  If the liquidator knows or suspects those assets to be tainted by crime then he will himself commit a money laundering offence unless he obtains consent from SOCA for his possession / use / transfer of those assets.  So you would expect a liquidator to be dealing with SOCA on a fairly frequent basis!

Also a liquidator may have legal and professional responsibilities to make enquiries about the reasons for a company or an individual becoming insolvent.  But that is nothing to do with MLR.  If those enquiries lead to him receiving information which causes him to have a suspicion then the MLR require him to report that suspicion to SOCA.

Some liquidators mistakenly fail to report to SOCA and report to BIS (the Department for Business, Innovation and Skills) instead.  Reporting to BIS is however no substitute for reporting to SOCA (and obtaining consent where appropriate).  Liquidators are (in appropriate circumstances) required to deal both with SOCA and with BIS.


MLR & liquidators

silverghost | | Permalink

David, thanks for the prompt and comprehensive reply. The concern here is that the liquidator - who is working on a fixed fee - would want to wrap up the job quickly.

The only unresolved element of my question relates to the suspicion of fraud and the evidence thereto. Should the client company refer the matter to SOCA (or indeed the Fraud Squad) or expect the liquidator to do this, now that the matter has been raised?

davidwinch's picture

Reporting to SOCA

davidwinch | | Permalink

There is no need for the client to report a suspicion to SOCA because you (being an accountant in practice) will already have reported your own suspicion (as you are obliged to do under MLR 2007 and s330 PoCA 2002).

A Suspicious Activity Report to SOCA does not, of course, necessarily trigger any investigation or action by the authorities.  My personal view is that a SAR along the lines you have described would be unlikely to be followed up.

If the client believes he has been defrauded I would suggest that, first of all, he write to the liquidator (if he has not already done so) setting out the facts and his concern that there may have been dishonesty resulting in a loss to him.  Obviously the client needs to be careful to avoid making accusations which have no evidential basis.

Then wait and see how the liquidator responds.

If the client is not happy with the liquidator's response he can consider making a complaint to the Companies Investigation Branch of BIS or to the police.  However neither BIS nor the police will be primarily concerned with protecting the interests of your client, they will be concerned with investigating any illegality.  Therefore he should not expect them to act as debt collectors for him.


Wrongful or fraudulent trading

The Black Knight | | Permalink

It may be worth having a chat with a lawyer to see if it is worth pursueing a claim against the directors.

You could also have a word in the ear of HMRC collector as I bet they are owed a few squid as well and will not notice what you have seen without some help.

I would write to the liquidator and put him on notice usually there is a space on the form for any additional information you think the liquidator should be aware of (careful wording as David says)

There may be other creditors in the same boat that would be interested too !

If the directors had concerns about the entities going concern in the period of 12 months following the signing of the accounts then this should have been disclosed in the accounts.

It would be interesting to ask if such a review of going concern was in fact carried out by the directors and why the going concern basis was considered appropriate.


The Black Knight | | Permalink

What did the related party note say in the accounts, about the related party?

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