The provisions of the Companies Act create an effective system for tracing missing assets of a company and generally revealing the circumstances that led to insolvency of a company and whether there was unlawful conduct by directors or other persons.
The law of insolvency exists primarily to protect a creditor’s claim against a debtor and creditors are often seriously aggrieved if a company goes insolvent and is unable to pay what is owing to them, whilst the former corporate controllers of the insolvent company often walk away, financially unscathed and seemingly with well-lined pockets.
The law provides that an enquiry may be held into the trade and affairs of an insolvent company, says PJ Veldhuizen, MD of Gillan & Veldhuizen. “So just because a company that owes you money has gone into liquidation and the liquidator tells you that there is no money, and/or very little prospect of a dividend, this doesn’t mean that that is the end of the story.”
The insolvency regime permits creditors who believe assets may have been disposed of for less than fair value or suspect collusive dealings to have occurred, or that other creditors have been unduly deferred, to cause either a public enquiry to take place in front of the Master of the High Court or a confidential enquiry to take place in front of a Commissioner appointed by the High Court to investigate the trade and affairs of the company in liquidation, and any person related to that company, to ascertain if any assets should be recovered, depositions set aside or claims be formulated against third parties. While this is not an inexpensive process, it very often yields dividends for justly disgruntled creditors.
Veldhuizen advises that, “You want to comply as best you can if you are subpoenaed to appear at an enquiry – you do not want to appear recalcitrant, obfuscatory or antagonistic towards the enquiree – you want to comply, and be truthful – end of story!”