Creditors urged to take action as asset stripping rises

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CREDITORS are being urged to take action before it’s too late to recover assets stifled away before a company is placed into liquidation.

Eleanor Temple, a barrister at Kings Chambers in Leeds, said she has seen a rise in the number of directors making fraudulent transfers of assets immediately before putting their company into liquidation.

This is done by transferring whatever value is left into another limited company, to a third party or even straight into their own private bank account. “Of course the aim is the same; to avoid paying creditors what is owed to them,” she said.

Ms Temple added: “Although administrators are sometimes able to identify such last-minute transfers, it may not always be clear from the books and other records.

“Creditors need to be alert to this trend and be prepared to work with administrators to identify any suspicious asset gaps.

“Often, creditors are in a far better position than the administrators to review company records and identify missing assets such as machinery they know has been used, or missing payments for recent orders that they know have been fulfilled.”

According to Ms Temple, company directors will sometimes attempt to carry on as normal under a new brand. When that is the case, creditors should be prepared to alert the administrators so that all the legal assets of the failed business can be recovered and their value divided amongst those who are owed, she said.

“Recovering assets and re-establishing a business becomes harder the more time passes so speed is of the essence if any significant value is to be retained,” she added.

“This is particularly the case where selling a business as a going concern might be an option – something that would often benefit both creditors and employees.”

Ms Temple warned directors contemplating fraudulent activity that tougher penalties are being introduced to tackle the issue.

“The legal system is responding to a rise in such illegal activities and, as a result, we are now seeing harsh and immediate custodial sentences for directors and individuals convicted of corporate fraud,” she said. “Swift prosecutions and tough penalties seem to be the order of the day regardless of whether the amount in question is significant or bordering on the trivial.”