User talk:Sussiestbaka/sandbox

LIQUIDATION MISCONDUCT

Liquidation misconduct occurs when a company or a company’s creditor allows an error to continue existing longer than what is considered legal during liquidation. Liquidation for businesses in the US means to dissolute and redistribute, which happens when a business ends. Liquidation misconduct can lead to fraudulent trading, undervalued transactions, unfair preferences, and wrongful trading. These factors affect everyone who was involved in the liquidation process.This can be anyone from the janitor who holds two shares to the CEO who holds three hundred. When liquidation occurs; assets, debts, and equity all must be distributed evenly among creditors. Liquidation is part of the exit strategy that every entrepreneur needs to know about to better understand the marketplace.

Fraudulent trading involves having assets being made floating charges by directors and are allowed to be taken by any secured creditors. By abusing their positions, directors can make assets floating charges. Creditors who were only allowed to take floating charges now have access to assets that were made available to them through the liquidation of the company. Taking advantage of the company while it’s going under and trying to salvage as much of it for yourself is immoral and as result illegal. Creditors don’t have access to all the assets of the company, such as the computers provided for public use, or the mugs in a cafe. Someone with the authority to write these assets off as floating charges, however, can give creditors the option to take these floating charges when distributing compensation among creditors during liquidation. While this seems fair if the company no longer has anything else of value to reimburse creditors, allowing this will only encourage abuse by management. Creditors face the risk of the company going under everyday, but illegal behavior shouldn’t be allowed as a result. Cases in the past are usually results of very serious cases of fraud and problems with management.

Undervalued transactions such as a company providing less than what it cost, the transaction entering into the “vulnerability period”, the period within a specified time after bankruptcy, and the company was unable to pay its debts. Allowing companies to live off of credit while already in the process of liquidation is dangerous to the creditors. When a company goes under, it will ultimately end up coming out of the creditors’ pockets. As a promise to get a return on investment, creditors will be issued a part of the company. When the company liquidates, the creditors get back what little they can. But, if the company were to continue providing its employees the same amount it did before regardless of how much the company is actually worth, a lot of people are going to end up with useless promises. The parts of the company that were paid to creditors aren’t worth anything close to the original expected level of compensation, effectively cheating everyone who got paid with a part of the company. Laws to prohibit this are there to prevent prejudice against creditors and to prevent companies from conducting unethical methods.

Unfair preferences pertain to a person or company transfers assets or makes a payment right before going into bankruptcy, vulnerability period, payment giving the creditor an edge over the other unsecured creditors, or the bankruptcy was meant to show preference. This usually occurs as a result of insider trading. Allowing someone to know ahead of time when to pull out their investments before anyone else allows them to take the least amount of loss at the expense of everybody else. Information leaking within the company encourages widespread panic and can potentially shut down the entire production. The potential for creditors losing complete confidence and leaving the company with no investors also exists. A company that was only planning to downsize can now be facing liquidation as a result of a malicious rumor about the company liquidating just because management has abused its position to give creditors a headstart in the past. Bankruptcy policies only go into effect when the company faces bankruptcy, which usually occurs during liquidation. Laws to ensure creditors don’t gain from bankruptcy policies meant to protect company assets.

Wrongful trading is defined as creditors benefitting from mismanagement of an insolvent company. This can take form in floating charges, insider information trading, and abusing bankruptcy policies. Management has the information and power to make this problem possible, and whether they abuse it or not is what leads to wrongful trading. These are all charges of creditors trying to gain the most out of a liquidating company and forcing the company to liquidate and end in a way that would benefit the creditor the most.

LIQUIDATION RESPONSIBILITES

Report to liquidator/administrator Information on the company’s property, assets, and preferences. Abuse of this information leads to insider trading, management abuse, and taking advantage of bankruptcy practices. The officer in charge of the company’s liquidation is expected to report all of this information to the liquidator or administrator in charge of the company’s liquidation. Any form of manipulation of the information with the intent to deceive or provide any creditor with inside information is considered misconduct. Should the officer withhold any information for any reason, it is also considered misconduct.

Notice requiring statement of affairs Liquidators must gather all available information pertaining to the liquidation of the company and inform all relevant members involved in the liquidation process within reasonable time. All relevant members must have been at some point, an officer of the company. The statement of affairs of liquidators and administrators both must be verified by the AGM court procedure rules.