Obligations to Liquidators

Navigating Obligations and Powers in Company Liquidation

Liquidation is challenging and often distressing time for companies and their stakeholders. When a company goes into liquidation, it is important to understand that relationships with external parties, such as lawyers and accountants, still exist. In this blog post, we will explore the obligations and powers that come into play during company liquidation.

The Privilege Claimed by Lawyers

One aspect to consider is the privilege claimed by lawyers. They sometimes argue that certain information is privileged because their relationship is primarily with the company director, rather than the company itself. This can create complications when seeking information during the liquidation process. It highlights the importance of clarifying the nature of the relationship between lawyers and both the company and its directors.

Section 261: Granting Extensive Powers to Liquidators

Section 261 of the Companies Act 1993 grants liquidators extensive powers to obtain information from anyone with knowledge of the company’s affairs. This provision equips liquidators with the authority to collect crucial evidence and gain insights into the company’s operations.

1. Document Requests:

• Liquidators have the right to request documents as part of their investigation. These documents can include employees’ accounts, lawyers’ documents, bankers’ documents, and other records that pertain to the company’s affairs.
• It is worth noting that customers’ documents may also be subject to request if they are considered part of the company’s records.

2. Interviews Under Oath:

• Liquidators can require individuals to attend interviews under oath. These interviews allow liquidators to gather additional information and clarify details regarding the company’s affairs.

Limitations and Safeguards in Interviews

During interviews with liquidators, information gathering is generally limited to the affairs of the company. It is important to understand this limitation to ensure that the scope of the discussion remains focused and relevant.

1. Limited Use of Interview Answers:

• Answers given during interviews cannot be used against individuals in a criminal context, except in cases of perjury. This safeguard ensures that individuals can provide honest and open responses without fear of self-incrimination. However, it is crucial to seek legal advice to fully understand the implications and rights during these interviews. 

2. Questions about Related Entities and Transfers:

• Liquidators often ask questions about related entities or transfers to directors during interviews, even if they may not directly relate to the affairs of the company under liquidation.
• It is important for individuals being interviewed to be aware of their rights and to answer questions confidently and responsibly.

As long as the question fits within the scope of what can legitimately be asked, refusing to answer a question is generally not allowed unless the person genuinely does not know the answer or needs to consult relevant documents.