To: Nicola Adkins
Subject: Advice to the Liquidator of the Client Company
The liquidator should ensure that the payment made by trustee through electronic transfer into the Insolvency Services Account (ISA) is accompanied by the details that identify the liquidator. As a liquidator Nicola should ensure that the details also contain the individual or trustee processing the payment as well as the estate to be credited (Tolmie, 2013). From the case, it is evident that Coppacad Ltd has been paying commissions to secure Unwins that amounts to 5% in the past five years. However, instead of the commission reaching Unwins, it has been going to Redgate, an intermediary company that introduced Coppacad to Unwins. There is a possibility the £100, 000 paid may not have reached the Unwins since the investigations do not show any transfer of money from Redgate to Unwins. This memo presents key factors that Nicola, a liquidator should consider based on the results of the company search.
CLAIMS THAT MIGHT ARISE AGAINST REDGATE:
It is the role of liquidator to note all claims that may arise against Redgate and carry out thorough investigation. There is the likelihood of the claims to be filed against Redgate if the payments made by Coppacad do not reach Unwins. The matter may be based on the purchase of £260, 000 apartments, when the earning is about £20, 000 a year. The allegations may be based on the clarification of the source of the funds used to purchase the three bedrooms flat. Bearing in mind that Redgate does not have any other property, there is the possibility of using the money being paid to Unwins to pay off the WLF interest for £200, 000 loans. It is worth to note that according to the Insolvency Regulations 2000, the payment can only be paid through electronic transfer after identifying the bank account ID as well as the name of the estate of the trustee. According to Tolmie (2013), the payments out of ISA can be made through electronic transfer to the trustee upon the agreement through relevant requisition form. In this case, the discretion is retained by the secretary of state to determine the mode of payment to create room to solve both technical and practical problems that may occur during the payment process.
The fact that Redgate is under one shareholder and director raises questions regarding the legitimate; Nicola has a role in finding more information on the details presented by the company when the agreement was made between Unwins and Coppacad. This will determine whether the details presented by the company are valid. Based on Tolmie (2013) argument, if Coppacad continues paying through Redgate through electronic means without establishing whether the money is reaching Unwins, there is a possibility of not acquiring the intended investment since from the company search results shows that Redgate may run bankrupt, leaving the trustee’s vacancy among between the two companies. However, Coppacad will not be able to account for the funds paid to the Redgate in its financial statements. It is important for Nicola to understand that whenever the creditor contracts with a liquidator through a trustee, the trustee plays a role of an agent of the trust so as to ensure that the trust is liable to sue or get sued. In this case, if Redgate is closed down it will be difficult for Coppacad to claim business possess if Unwin argues otherwise.
As a liquidator, Nicola should understand that trust is not a legal entity or principle such that it can have an agent. Necessary measures should be taken to carry more company search about Redgate since trust is not artificial as the enterprise; hence there are no ultra vires rules that can apply to it if the company does not exist. According to Milman (2017), the Redgate acted as a trustee and its action cannot influence the memorandum of association’s capacity because of protection against the third party’s good faith. Therefore, Redgate has an obligation as a trustee enforceable against it by Coppacad based on contract principles.
CLAIMS AGAINST HARRIET:
Harriet may be accused of director’s duty breach since he is the sole owner of the Redgate Company that participated in the deal. In any deal, the director is expected to act in good faith and not contrary with the company’s interest. Since the Harriet is the sole shareholder of Redgate, he should be ready to relieve himself from the breach if it was ultra vires. With reference to Milman (2017) argument, the contractual liability was incurred in the Redgate’s as well as the power as a liquidator. Hence Harriet has the right out of the trust fund, and hence he is entitled to pay appropriate amounts out of the trust fund.
Coppacad may file a case against Harriet’s right of identity; this may happen since the liability of Redgate to Coppacad is improperly incurred due to lack of capacity. This may arise if Harriet was not empowered by the trust instrument or by law when entering into the contract. Again, there might be a lack of due authentication, meaning that Harriet’s power to contract with Coppacad may not have been practiced in compliance with the internal procedure requisite to its exercise. This may happen if the agreement was made by only Unwins and Coppacad when unanimity was required without obtaining consent from Harriet, or they did not meet before issuing a contract. As claimed by Milman (2017), at the individual level, if the documents presented by Harriet during the agreement were incorrect, he is liable of a lawsuit as the director of the company.
HOW SUCCESSFUL LITIGATION MAY ACCRUE CREDITORS OF UNWINS:
The liquidator may file a case claiming the bankruptcy of Redgate to ensure that its debts to Unwins are covered as a way of settling their debts with Coppacad after successful litigation. This process will preserve the Unwins’ business as a going concern. Based on Chapter 11 Reorganization, the bankruptcy courts will determine if the suggested litigation has a success possibility. However, Section 1129 of the Bankruptcy Code articulates factors to be considered by the court when examining if the debtor will successfully consummate the proposed plan of litigation. On the other hand, the court may find out that Nicola’s plan is not feasible because of different reasons. Based on Tribe & Hunt (2013) argument, if the agreement was between various creditors, hence non-bankruptcy litigation between Unwins and its creditors such as Cumbria Bank may not succeed. On the other hand, if the litigation is pending, the court may suspend the judgment till the investigation is carried out on the current status of the creditor.
In most cases, the court may deny the reorganization plan even after successful litigation. However, there should be evidence from the debtor to convince the court that the claims in the ongoing litigation are strong enough to be considered feasible. However, if the creditors of Unwins believe that it qualifies to be denied an automatic stay, they may file a motion under Section 362d. Tribe & Hunt (2013) asserted that the case is allowed to conduct preliminary hearing accompanied by the final proceedings of the motion regarding the relief from stay; they can as well consolidate Unwins and Redgate and hold a single proceeding. The preliminary hearing is held within 30 days after the filing of automatic stay motion. However, Unwins may be indebted to the trust by its creditors because of improper transaction it conducted with Coppacad through Redgate. If Redgate does not have enough cash to pay Unwins, it is crucial for the Unwins to claim for the payment. The key issue is that Redgate stood into the shoes of Coppacad and is not able to pay for the amount to whom Unwin gave the credit. However, Coppacad cannot claim any money from Redgate before having a good deficiency on the accounts between Unwins and Redgate.
The creditors have an obligation to pay in if the trust fund can pay out the amount of the contract between Unwins and Redgate. This only occurs if there is not a problem resulting from the contract. However, in our case, there seem to be big issues regarding the financial position of Unwins due to its negative capital; this may be attributable to the amount that has not yet been paid by the debtors. According to Hayton (1997) arguments, it is hard for the creditors to fund its operations since it is not in a position to pay back based on the current financial position. However, there is the likelihood that Redgate is holding the fund paid by Coppacad till the receipt issued by Unwins is due. However, since Unwins is acting as a trustee for its creditors, the creditor’s right cannot be subrogated to favor the trustee’s right of indemnity if the contractual right is inadequate. The creditors, in this case, may not be able to satisfy the need to finance Unwins if the litigation against Redgate was successful.
The company search results show that there is the likelihood that Redgate is a company that is owned solely by Harriet. However, being the sole director and shareholder, the liquidator should determine if Harriet submitted wrong information during the registration of the company as well as during the contract between his company and Coppacad. The financial results of Redgate indicate that there is the likelihood that the litigation will be a success because of its features of being bankrupt. The success of litigation would influence the decision made by Unwins’ creditors such as Cumbria bank since the current financial position shows that it is not able to pay the debt.
Hayton, D. (1997). Rights of Creditors Against Trustees and Trust Funds. TOLLEYS TRUST LAW INTERNATIONAL, 11, 58-59.
Milman, D. (2017). Personal Insolvency Law, Regulation and Policy. Routledge.
Tolmie, F. (2013). Corporate and personal insolvency law. Routledge.
Tribe, J. P., & Hunt, S. J. (2013). Insolvency bonds: history, policy and substance. Browser Download This Paper.