INS44090 - What to investigate and how:
Debtors: Matters for investigation
Debtors is usually comprised mostly trade debtors but there may
be ‘others’ under various descriptions. These others
might include money owed by the directors by way of an overdrawn
loan account, see
When reviewing a Statement of Affairs which shows a
significant write down in the debts, then questions should be asked
of the directors.
- Establish the basis on which the write
down has been calculated. Is it the director’s own figure,
which he alone has calculated, or has the liquidator assisted?
- Ask for details of any known bad debts,
and ask which companies they relate to.
- Did the company continue to trade with the
customer when it became apparent the customer was unlikely to
- Did any of the debtors have special terms
such as credit terms in excess of those normally offered to other
customers, or additional discount?
- Are any of the directors’ relatives
or associates involved in any of the debtor companies?
- Have any of the debts arisen due to a loan
being given, as opposed to the debt arising through normal trading
- Have any of the debts arisen as a result
of a transfer of assets of the company
If, following your questions, you learn that debtors are much
reduced compared to the last balance sheet this might point to
- A reduction in trading levels well before
the commencement of the liquidation which could indicate the
existence of a successor business through which the bulk of the
trade was being conducted.
- Credit notes might have been issued. This
could be so that potential future customers of the successor
business can avoid payment of their debt to this liquidated
Work may have been done by the liquidated company but invoices
were issued by the successor company. This would result in the
successor company making a profit from sales by the liquidated
There may have been monies owed by (or to) associated
companies. If this is not shown as being still due you should find
out why. If it cannot be repaid (because the associated company is
in financial difficulties) you should ask why the funds were loaned
in the first place – were the directors breaching their
duties to the liquidated company by making a loan to a company in
trouble? If so, you should refer this to the liquidator as possible
misfeasance under Section 212 IA 1986.