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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Liquidator Maria is winding up Orion Ltd. She discovers that, shortly before liquidation, the directors sold a company building to a friend for much less than its value. Which action is it appropriate for Maria to take as part of her duties?

Maria should investigate the sale and, where the law permits, apply to the court to challenge the undervalue transaction so assets or value are recovered for the creditors. Her duty is to the general body of creditors, so she cannot ignore pre-liquidation transactions.

  1. AIgnore the sale because the directors acted before she was appointed
  2. BInvestigate the transaction and, if the law allows, apply to the court to challenge it so that value is recovered for the creditorsCorrect
  3. CPay the sale proceeds directly to the directors as compensation for their work

Explanation

A liquidator must investigate the company's affairs, including pre-liquidation transactions, and may challenge transactions at an undervalue through the court to recover assets for the general body of creditors. Ignoring the sale would breach her duty to maximise recoveries. Paying proceeds to directors has no basis.

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