Czech Republic

Best Advice Letter Intercepted


I intercepted today one of the best letters an accountant could possibly write to a troubled client. The client, whom I’ve remained Bill, wanted to go for a court appointed liquidator in East Europe assuming that some equity would apply as it does, at least in theory, in UK law. The accountant, whom I’ve renamed Ben, gave the client the benefit of his experience and we both agreed that I could share this with the Quoracy.com subscribers. By the way, the part about the liquidator driving the best car comes from a real case and in that particular case the liquidator is still driving it four years later and delaying the closure of the liquidation simply to prolong his free ride! There are many such cases, but that one took the biscuit. One other time I’ll tell you about what happened to a certain German tourist’s car in Belarus. But that’s another day. For now, enjoy and take note from Ben’s letter to Bill:

Dear Bill,

 

The Receiver will recover for himself first, including making a reserve for all future costs. He will ensure that he has money to run the liquidation including the wages of the employees he keeps on, security people, light and heat etc. He will drive the best of your cars, at the expense of the receivership, and sell it last.

 

Yes, the chargeholder may wait for years and have nothing in the end because there are preference creditors before him. The Receiver will sell the best stock first to satisfy his appetite and the most important creditors such as employees and taxes. This means he does not sell systematically nor is he in a hurry to finish if there is cash about. If he gets good prices then there may be money to distribute to the secured creditors. If he does not get good prices the banks will end up with the worst stock that will be given to them to take away or it will be sold by the weight to someone that gives the best price per ton. The Receiver will not work hard if there is little money at the end of the rainbow.

 

You need to estimate what the receiver will take and the costs to liquidate. This means the redundancy costs and costs to dispose of the outlets and stock which includes retaining some warehouse staff, bookkeeper, security upkeep costs (light and heat)  etc.  need to be considered in your schedule.

 

The receiver will keep his direct and indirect paymasters happy, ie the court and tax office. As employees rank higher than the tax office he will satisfy these as well.

 

The receiver will only hand out any surpluses, after the above, first to the secured creditors. What do you think will be left to distribute?

 

Regards

Ben

 
That’s quite an eye opener, isn’t it? Don’t let it get that far – if your business is starting to go down, get proper advice on time, from a reputable, international accounting or law firm.

Categories: Czech Republic, Poland

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