Managing life in the Twilight Zone: Director Duties
A Creditors’ Voluntary Liquidation (CVL) is often the best path to take for a company which has ceased trading, having concluded that it cannot pay its debts as they fall due or has liabilities in excess of its assets.
It is essentially the process to wind up the company’s affairs and to ensure assets are distributed to its creditors fairly. This case study illustrates the importance of good communication and organisation to ensure a seamless process for everyone involved.
The company was part of a non-UK owned group which had ceased to trade following the sale of the group’s business. The financial position of the company was complicated by significant intercompany debt. The external creditors of each company had been settled, but the intercompany balances had not been reconciled or settled. Essentially, all subsidiaries owed each other and the parent company, but with no assets, they were rendered insolvent.
The group directors, based in Ireland, wanted to formally close the now ‘shell companies’ down but were unable to swear declarations of solvency due to complications arising should the intercompany debts have been waived. While the process for liquidation was a relatively straightforward one, the directors wanted to work with an Insolvency Practitioner used to dealing with other European jurisdictions to ensure the winding up of the English estates and the rest of the group was conducted efficiently.
The directors, therefore, approached Mercer & Hole due to our longstanding cross-border practice and relationships.
The fact that the group was cross border was a challenge in itself. Mercer & Hole acted for the two UK companies, but it was complicated by the fact that we needed to liaise with the Irish liquidators to ensure the timings matched up and all the figures were aligned, as our goal was to ensure everything was dealt with efficiently and on time.
In addition, following initial due diligence, a cash balance was highlighted which required additional work on the intercompany positions to resolve where the funds were due to be paid.
How we helped
Mercer & Hole were engaged by the board of directors in Ireland. We assumed a role to coordinate and manage the liquidation of the group, including dealing with statutory process, notices and statements of affairs, as well as managing the more practical communication role across the jurisdictions.
A CVL, while in theory is relatively straight forward, can become more complicated than necessary where communication is not central to the process, or attention is not given to the details, particularly in this case where there were several entities involved. We ensured that everyone understood what was needed and what was happening throughout and ensured that we were available to the directors when they needed, including regular project calls.
The outcome was an efficient, smooth process, removing a lot of stress and uncertainty for the various stakeholders, with a pari-passu distribution of the cash balances to the intercompany creditors, and ultimate return to the parent company.
Feedback from the directors: “We are really grateful for the service provided by Mercer & Hole; professional and courteous throughout.”