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Hie sir,
I have been going through subsequent events and the going concern.One of the things I learnt from corporate law was that when a company goes into liquidation ,appointed liquidators are not only responsible for the disolution process ,but will reimburse creditors what they were owed by the entity.usually institutions who secured some assets would get first preference to my understanding .However , can the firm still claim its money from liquidators?If at all this is correct , would I be right to think that the auditor must write a confirmation letter to the liquitors as they automatically become the directors ,inorder to confirm whether the amount owed exists and is correct ?Since this a going concern problem(per my opinion ) do auditors have the right to know about the liquidator’s ability to pay the debt for example declaration of an estimated amount available at former customer?Do inhouse legal advisors have a role to play in this issue?if so what information should an auditor be looking for in order to obtain sufficient appropriate evidence on the recoverability of this material amount ?
Thank you so much .
In any attempt to contribute to ans the question above; here below is my submission:
The other reason for company to be placed under liquidation is that, the company would have experienced problems in meeting its obligations creditors (supplier, banks and other financiers)
In some case, its liabilities will be greater than its assets.
Depending with the jurisdiction, once a company is placed under liquidation, a creditor’s meeting is called to for them to confirm their balances and the liquidator give the report on the assets available.
Coming to issues raise in the question:
a) The claims are made to the company not the liquidator. The liquidator is just standing there in his capacity as a independent trustee for creditors and member to manage the affairs of the companyb) Once it is know that that company is under liquidation, the liquidator’s duty is try to find who the client treat the owed amounts.
i) the whole amount owed may to be recognised if it certain that the the payment will be paid from liquidation proceeds. It is most unlikely due to the reason given above.ii) Normally a portion the the receivable might be certain to be paid. The remainder will be written off.
The most prudent move would be to write off the whole amount subject to what that the auditor would have decided based on the evidence obtained.
c) Normally, confirmations of amount owed to creditors by the liquidator are done through the creditors meeting. Therefore minutes of previous creditors may be the best source of evidence. There are normally public documents filed at Masters of the Court.
d. Depending on the amount from liquidation proceeds (remember assets are now being disposed on forced sale basis, of which some will realise below market value), the liquidator will distribute on pro rata basis to creditors. Their (b) above applies.
e) The role of the auditor is to find the the evidence on the assertions made on the amount concerned. Therefore the substantive tests, it will depend how the management would have reported it and the materiality to financial statements.
Hope it wasn’t too long!!!
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