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Insolvency law - who benefits?

Re: Insolvency law - who benefits?

Postby atticus » Wed Jan 24, 2018 1:53 pm

diy wrote:4. knowing a bit about legal firms billing processes (having written software for one or two), I'd be suspicious, that the fees earned were designed to consume the pot. What governance is in place to prevent that? Do they have any kind of duty to be value for money to the creditors - i.e. not spent £5k in fees, finding £3k of funds,
The lawyers almost certainly acted on a CFA. This makes them entitled on success to charge "basic costs" (the standard hourly rate fees) and a success fee as a percentage of basic costs. I think it likely that the success fee was 100%. That makes the solicitors' basic costs £45,000 (I am guessing inc VAT, so £37,500 plus VAT). Knowing the kind of investigation and preparation that goes into these cases, that figure is possibly even on the low side, even for a case that settles before trial.

The client (i.e. the liquidator) can seek an assessment by the Court of the solicitors' bill.

The problem is these cases can be expensive. The report filed at Companies House indicates that a claim was made for £2million. Obviously if that much was recovered, the figures quoted would leave a very different outcome - £1.7m for creditors. But the case settled for £300K. No doubt there were good reasons. But the cost of getting to that point makes a mockery of the system.
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Re: Insolvency law - who benefits?

Postby atticus » Wed Jan 24, 2018 3:19 pm

diy wrote:Is there anything to stop a director inviting creditors to make a deal pre-liquidation?
No. But if not all creditors agree, he's got a problem. If one of those creditors is HMRC, he need not bother asking. He could go through an insolvency practitioner and offer a Company Voluntary Arrangement. This requires agreement of 75% of creditors, by value.
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Re: Insolvency law - who benefits?

Postby diy » Thu Jan 25, 2018 9:46 am

I guess that last answer is where the possible improvements might be. If we accept the aim is to make as much funds available as possible to creditors and/or salvage any remaining going concern, then arguably a bunch of lawyers and accountants running up bills a small firm could never afford, is probably not the answer.

thank you for answering the questions.

I think I need to read more on item 1, I hadn't realised it was like this. If its speculative, how does one get the job? can multiple liquidators get involved? I'm assuming if gut feel is that there isn't enough to pay the fees, then the company simply stops trading and then what for the creditors? I think I need read up to avoid questions about questions.

EDIT: I'm reading this.. http://www.legislation.gov.uk/ukpga/1986/45/part/III which explains a bit more. It seems much like bankruptcy.
My suggestions are not legal advice
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Re: Insolvency law - who benefits?

Postby atticus » Thu Jan 25, 2018 10:01 am

The reforms implementing those procedures were made in 1986! You have wisely chosen to make the Insolvency Act 1986 your bed time reading. I am sure you will find it an excellent cure for insomnia.
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Re: Insolvency law - who benefits?

Postby atticus » Thu Jan 25, 2018 10:09 am

diy wrote: If its speculative, how does one get the job? can multiple liquidators get involved?
If it's "voluntary liquidation", the directors nominate a liquidator (in an insolvent liquidation the theory is that creditors make the nomination, but usually the directors' nominee gets the job).

If it's a compulsory (i.e. court ordered) liquidation, the Official Receiver gets the job initially. He may farm it out to a private insolvency practitioner, but generally only where there are assets to be realised.

Very occasionally, Carillion being a recent example, does the Court appoint a lquidator on making the winding up order. Carillion is an example of a very big company and an urgent need to have someone take control.

Joint liquidator appointments (where there is more than one liquidator) are not unusual.
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Re: Insolvency law - who benefits?

Postby atticus » Thu Jan 25, 2018 10:12 am

diy wrote:It seems much like bankruptcy.
Did you read my second post? You will eventually observe that company and personal insolvency are both dealt with in the Insolvency Act, with parallel processes: CVA/IVA, bankruptcy/liquidation etc. There are very similar rules and processes.
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Re: Insolvency law - who benefits?

Postby diy » Thu Jan 25, 2018 12:44 pm

Yes I did, but the pre-reading was necessary to apply context.
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