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
business?
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
these minuted?
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?
