The case was referred to McTear Williams & Wood by a regional solicitor firm acting for a group of creditors. The target company operated in the construction industry and owed £2.5 million to creditors.
Industry overview
The construction industry was severely impacted during the early stages of the COVID-19 pandemic with many developers facing significant cashflow pressures, contractual disputes and project delays. This led to an increase in insolvency cases within the sector. That was the backdrop to the target company’s liquidation having been a subsidiary company operating within a larger residential property development group.
Challenges/situation
At the height of the COVID-19 pandemic the target company based in East Anglia entered liquidation owing £2.5 million to 181 trade creditors. The company’s statement of affairs disclosed assets totalling only £0.2m. The reason given for the failure was the impact of the COVID-19 pandemic.
Risks
Creditors held substantial concerns that the liquidation was contrived and that assets had been dissipated before insolvency. A forensic investigation was demanded. Compounding the issue the proposed liquidator was based in Newcastle remote from the company’s operations. Creditors sought the appointment of their own choice of liquidator with a mandate to carry out a thorough investigation.
The solution
The original liquidator had estimated carrying out investigation work of approximately 29 hours. In all we spent over 1,300 hours. The cost of doing this was not underwritten by creditors. Our remuneration was on a ‘no win, no fee’ basis capped at a percentage of realisations. As such the cash at bank was largely ring fenced to pay an early interim dividend of £150k to creditors within three months of the liquidation.
Summary
The company’s books and records were thoroughly investigated, two rounds of interviews of the company’s officeholders and senior management were conducted and we batted off purported trust arrangements and frivolous associated creditors’ claims of £1.4m brought by associated creditors.
Why they turned to MWW
Solicitors recognised the complexity and potential wrongdoing involved and recommended McTear Williams & Wood based on our specialist expertise in forensic insolvency investigations. With our guidance they secured the support of 31 trade creditors, collectively owed £2 million to requisition a creditors’ meeting and appoint us as liquidators.
The outcome
The Process
Our detailed investigations uncovered unpaid invoices totalling £1.7 million due from related parties. Formal demands were issued and under significant pressure the directors agreed to mediation. A settlement of £2.75 million was achieved.
Within weeks £1.7 million was paid into the liquidation estate. The balance was secured against the group’s assets and the main shareholder’s personal residence protecting creditors’ interests. The balance was duly paid into the liquidation.
“This case is a prime example of how concerted creditor action and robust investigation can deliver exceptional recoveries. By digging deep and pushing hard, we turned a near-total loss into a significant dividend for creditors, without creditors having to dip their hands into their pockets to fund our work.” Gary Rupping, Director, McTear Williams & Wood
Initially, creditors expected a dividend of just 5 pence in the pound. Through McTear Williams & Wood’s intervention, creditors to receive 85 pence in the pound — all without having to fund the investigation.
Additionally, the instructing solicitors were paid all their time costs in full for their assistance. This outcome represents a true ‘win-win’ — except for the group’s directors, who had wrongly assumed they could leave creditors high and dry.
