The creditors’ meeting allows you the opportunity to question the directors to determine whether there might be a potential wrongful trading action.
If you suspect wrongful trading (see
INS44330) your purpose in asking
questions at the meeting is to determine a point at which the
directors knew or ought to have realised the company could not
avoid going into liquidation.
So questioning should be directed at key events, e.g. when the directors received financial information, or when a key customer was lost, in order to establish a definite point in time, i.e. a date when the directors knew or should have realised.
Whilst it is difficult to compartmentalise questioning (for instance, going over the reasons for the failure of the business may reveal there were long term structural problems indicating wrongful trading), consider the following.
What forecast budgets did the directors use to plan the
If cash flow forecasts were relied on, were these drawn up using realistic turnover or cost projections? Try to test what assumptions the projections were based on and how the directors arrived at these assumptions.
For example, if sales were projected to grow at 20% what evidence was there to support this assumption? Unsupported and over-optimistic projections would not be prepared by a ‘reasonable’ director.
When and how often were management accounts showing the
company’s current position produced? Who reviewed them, when,
and how often? Did they do so at formal meetings, and if so were
Ensure the location of such minutes and copies of the agendas are established, and that the liquidator, and hence the Department, gets to see the content. (Instances have been seen of directors minuting their realisation the company is in trouble, but taking no steps to protect the creditors, instead acting to minimise their own exposure.)
Did the management accounts give any indication the company may have financial difficulties? If so, what steps were taken by the directors and how quickly?
Did anyone else see and advise on the management accounts etc? Who? When? (Obtaining professional advice, e.g. from an accountant, is something a reasonable director might do.)
If formal management accounts were not prepared, how did the directors manage the company and its finances? Take the time to pin this down, as it impacts on other matters, such as whether there were shadow directors.
Have any auditors’ reports been ‘qualified’, i.e. they contain a specific comment by the auditors highlighting their concern about the company’s viability? When did the directors learn of this opinion?
When considering the company’s liabilities, you should
understand at what point the company stopped meeting its
liabilities, or started slipping on payment dates, and why. This
may be the point at which the directors knew or should have
realised the company could not avoid liquidation.
What arrangements were there with the bank? Was there an overdraft facility, how was it used, was it up to its limit, when was the limit breached? (If the bank is not a creditor, identify when it was paid, which may lead you to consider preference, see INS44395).
When did the company last remit PAYE, NIC and VAT? Why did the company stop making, or not make, remittances? If there were any Revenue or Customs instalment arrangements in place which failed, why did this happen?
What was the company’s normal procedure for paying creditors? That is, did the directors follow a routine and what was it? Once the routine if any has been established find out why and when the routine failed or was abandoned.
Did any of the company’s cheques bounce? When? (Follow up questions may lead you to consider preference, see INS44395.)
Did the company fail to keep up agreed payment schedules with trade etc. creditors? What is the history of any such failure? (Other creditors present at the meeting may help here.)
Did any creditor serve a statutory demand at any stage, and when? What happened?
Did the company at any stage require additional finance in order to simply carry on as before? If so, when did the requirement begin?