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In some cases, vigilant suppliers will act on early indications that a particular company is in trouble and will seek to limit exposure. But all too often confirmation that a company is in dire – or terminal – trouble arrives in the form of a written communication, leaving the unfortunate supplier perplexed and in many cases unsure of what steps to take next.
In fact, many suppliers have difficulty understanding the technical aspects of the three main events that indicate commercial failure or difficulty – liquidation, receivership and examinership.
Liquidations come in three formats. A Solvent or Members Voluntary Liquidation is a mechanism to dissolve a company and distribute its assets to shareholders in an efficient and (hopefully) amicable manner.
A Creditors Voluntary Liquidation comes about when the directors of that company call a meeting to consider the financial situation of the company and determine the company is insolvent and should not continue to trade. The directors then call meetings of both shareholders and creditors to consider the financial picture and appoint a liquidator. It is the shareholders who nominate the liquidator and this nominee is then considered by the creditors at their meeting and may be endorsed or rejected. The company nominee may then be replaced if a majority of shareholders agree and vote for an alternative.
An Official or Court Liquidation occurs where the company, either through its directors or creditors, makes an application to the High Court to have a liquidator appointed to a company. Normally a court liquidation is at the behest of creditors seeking recovery of a proven or undisputed debt. It can also be by a company that needs immediate protection where during the notice period for the creditors meeting the assets may be dissipated in which case the court may appoint a provisional liquidator.
In a Solvent or Members Liquidation all creditors will be paid in full and it is simply necessary to notify the liquidator of the amount owing to your company to ensure inclusion in the final payout.
In a Creditors or Court liquidation you will be invited to a meeting of creditors. Depending on the sums involved it is probably worthwhile either to attend or get representation at the meeting. For example, representation can be arranged, free of charge, through StubbsGazette and you will be informed of the proceedings. In order to do this you need to complete the General Proxy form received appointing your representative, including a note under the signature “Duly Authorised Officer”.
Normally, notification of liquidation will result in cessation of all current and future credit sales. In the event that you elect to continue supplies, you should register your claim under your Retention of Title clause. You may exercise your retention of title by physically taking back your goods or you may undertake a stock take to establish your claim is. Remember that it is the job of the liquidator is to wind up the company and distribute the assets in accordance with to rules of preference, meaning who gets paid in what order from what available assets.
Receivership is where a secured lender exercises rights conferred in a charge or mortgage document and “receives” a specified asset or assets under the relevant terms. Once the receiver has realised the value in satisfaction of the amount owing the process ends but often this results in the failure of the company.
Because of this it is often thought that a receivership situation is virtually identical with a liquidation but this is not the case.
With the agreement of the Receiver it is possible to continue to trade with a new account in the name of Companyname Ltd (In Receivership) and the Receiver is personally liable for any debts incurred on that account while they are running the business. Under these circumstances, it is important to keep abreast of developments within the company, in particular the end of the receivership period, as continuing to supply the company post-receivership increases your exposure to the original company.
Examinership occurs where a company seeks the protection of the High Court while in negotiation with creditors to make a structured settlement in the context of fresh equity being put into the business. It is intended for companies that are sustainable but which are unable to meet their immediate obligations.
The Examiner is appointed when the Court accepts that creditors will accept a lower dividend than the amount owing and that as part of the overall package this will give the company the means to survive. This dividend may be miniscule but may be acceptable as an alternative to liquidation and losing a valued client. Once the Examiner is appointed, the company is under the protection of the court, and for the next 90 days creditor may not seek payment. Retention of Title, however, still applies.
If a customer goes into examinership, as a creditor you will be asked to support the proposal made and if there is overall acceptance the company will settle the reduced outstandings. Be aware that if you continue to supply a company in Examinership you will continue to increase your exposure (although if you are a key supplier you can ask the Examiner for a personal guarantee for future goods supplied).
As always, prevention is better than the cures of Examinership, Receivership or Liquidations so make sure you are continually monitoring the credit rating of your customers.