The golden rule for administrations and liquidations is that the insolvency practitioners must maximise the return from the sale off the failed company's assets, for creditors. In a age when the public have easy access to investments in these companies, this is no longer the right way to do things.
There are several ongoing cases live as we write, where the public, who invested via one of the UK's much lauded equity crowdfunding sites, have to watch on as the directors of the failed company buy back the assets of the company for 2p, to then relaunch the brand shorn of its creditors and nowadays its mutilple investors. More often than not the amount the investors have lost is far greater than the amount owed to creditors.
What this situation creates is an easy out for insolvency companies. We now have two live cases where the practioners did not know that there were any investors involved. One had investments in ordinary shares issue via Crowdcube of around £1m over 4 years and the other investments of a similar sum. In the first company the Statement of Affairs which is prepared by the failed company, showed ordinary equity of just £7,000. Even the shareholder we act for had his record of investment declared as the wrong number. The CEO just didnt care.
The directors of the failed companies misrepresented the facts in Statement of Affairs and the liquidators are not bothered to check this. If it had not been for our involvement, they would have liquidated the companies without realising how much money the founders had lost. That cannot be right. We understand caveat emptor but this is just crazy.
Insolvency practitioners get paid a fixed sum and do not like to spend time on 'unnecessary' due diligence. There is nothing better for an IP than a pre pack - easy money. They love them and we hate them. One of the ones we are currently involved in, told us that investors were not their concern - well they should be.
Now equity crowdfunding exists and the Government has backed it almost to the point of blindness, surely we need a rethink. If only to try and stop the abuse of the system by greedy individuals who have no regard for the rights of the people who invested, in good faith, in their businesses. And there are plenty of them filling their boots on Crowdcube et al. We have the records and they will be on the new ECf.Buzz site for members to be amazed by.
It is not the first instance where we find the exponential progress in technology leaving behind our arcane legal system. Time to crack this nut.
It seems that the Insolvency Practitioners are also not too active in having a look at the Directors actions and it would also appear in a few cases that a MVL has been voted for when the company is in fact insolvent. I have even seen it where one of the big name Crowdfunding promoters voted for a MVL without the Director having a SOA to even show if it was when there was certainly some doubt at the time. That one got even worse as currently the Directors have still not filed the Special Resolution at Companies House 4 months later. Also seems a lack of interest by Companies House on ensuring compliance on filings. I know they are more active on late annual accounts filings, but I think that MVL Special Resolutions are even more important to protect potential new creditors and lack of timely filing should result in fast action
ReplyDeleteFull disclosure - IP's are generally my clients. They (and I) walk into a situation and pretty much have only the information provided by the directors and what is publicly available to rely on. Almost all IP's I've worked with in nearly 20 years would be appalled at creditors not being known to them and excluded from a process. If you have a suggested improvement, speak with R3 and the Insolvency Service or Dept for Business.
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