What do you do if your opponent in litigation has or might become insolvent?
- Do your homework. For example: ring Companies Court (tel 020 7947
7328) to find out if there is a pending winding-up petition, or check
www.companieshouse.co.uk
or www.London-gazette.co.uk.
- A contract does not automatically terminate on liquidation. Check
whether the terms of your contract give an option to terminate on
insolvency.
- Check whether the terms of the contract give you any property rights
over the company's assets e.g. retention of title clause.
- Seriously consider whether to proceed with the litigation. You do
not need a judgment to register your debt with the liquidator.
- If there is a record of mutual credits and mutual debits between
you and the liquidated company, these will automatically be set against
each other.
- The liquidator has extensive powers to investigate transactions
e.g. deliberately paying some creditors in preference to others ;
disposal of assets at less than their market value; transactions with
"connected individuals". If these transactions are set aside,
the money recovered is potentially available to unsecured creditors.
- The liquidator will consider whether the directors continued to
trade the company after there was no reasonable basis to believe it
could avoid insolvent liquidation. The directors may be made personally
liable for the debts.
- Bend the liquidator's ear from an early stage.
May 2003
