Asset Location in Corporate Insolvency

Pages20-30
Publication Date01 Jan 1993
DOIhttps://doi.org/10.1108/eb025605
AuthorSally Wheeler
SubjectAccounting & finance
Asset Location in Corporate Insolvency
Dr Sally Wheeler
Dr Sally Wheeler
is a lecturer in law at the University of
Nottingham and an associate editor of
Insolvency Law and Practice.
ABSTRACT
This paper considers the methods open to
a liquidator to discover and recover assets.
In particular, it focuses on the powers
con-
ferred on the liquidator in the 1986 insol-
vency legislation and their effectiveness in
commercial reality.
There has been over the last four years
or so a steady increase in the instances of
corporate collapse.1 Despite the
increased popularity of bad debt insur-
ance,
the growth in the professionalism
of credit control, and the entrenchment
of devices like retention of title clauses,
businesses still find themselves at risk
from bad debts. These bad debts occur
for a number of reasons either singularly
or in combination; poor management,
harsh financial climate, poor end
product or fraud. The ease with which
the corporate form can be used for fraud
is well-documented.2 The type of fraud
highlighted by Levi is virtually impos-
sible to protect against and is unlikely to
be detected by the relevant regulatory
authorities in time to prevent it from
happening again, let alone to recover any
of the proceeds. This type of conduct is
perpetrated by professional fraudsters
who arc familiar enough with the
system of winding-up petitions, judg-
ment, debts etc to ensure that they will
not be called to account. The standard
pattern it appears is for goods to be
ordered on credit by a company set up
solely for that purpose. The goods arc
sold without ever having been paid for
and the company 'directors' move on
before they arc pressed to pay. These
business enterprises arc rarely liquidated
properly under the Insolvency Act 1986
simply because they arc not found soon
enough. These arc typically businesses
which require little or no institutional
finance because of the nature of their
business. Any cash injection required
occurs through obtaining goods on
credit.
At the margins of fraud stands a
rather different type of conduct, differ-
ent because it lacks the degree of pre-
meditation, is often not as long term
and, although the end result for the
creditor is the same, because society as a
whole fights shy of labelling it as fraud.3
This conduct typically includes starting
up a business under-capitalised from the
outset, poor cash flow control, failing to
produce the accounting records required
by the Companies legislation4 either
through ignorance, confusion or insuffi-
cient funds to pay for an auditor, poor
market research and an inability to
realise when the business is doomed to
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