NCJ Number
80056
Date Published
1980
Length
122 pages
Annotation
A working group investigated the law on liquidation of corporations and the opportunity for fraud. As a result, the group formulated suggestions for law reform which would, among other things, make all corporations filing for liquidation liable to submit a complete investigation report.
Abstract
The report first gives an overview of the law and its implications for companies wanting to liquidate and thus dissolve their debts and the shareholders' claims. The similarity between the law on bankruptcy and the law on liquidation is discussed, along with the common abuse of both laws -- filing for bankruptcy or liquidation as a means of dissolving debts, defrauding shareholders of due profits, and benefiting in other ways. Many companies, shortly after bankruptcy or liquidation will re-form under another name, with the intentions of going bankrupt again. Thus liquidation and bankruptcy are used in themselves as a method for routinely withholding payment to creditors and making profits in this way. The report also gives statistics on incidence of liquidation fraud. Then the working group lays out its suggestions for law reform. The group suggests that all corporations filing for liquidation be required to file an investigative report supporting the need for liquidation. The investigator shall be legally bound to report any suspicions of fraud or irregularity. Furthermore, the investigator recommending liquidation should be legally qualified to make such a recommendation and should have no connections to the corporation being investigated. The books of the company and the investigatory report would be audited by a qualified accountant during the investigation, and then be archived for a period of 10 years as a means of detecting companies that routinely liquidate. Finally, the working group recommends that the concept of forced liquidation (a requirement that liquidation must be pursued when the amount of debts reaches the amount of bound capital) be eliminated. Implications of the proposals are discussed. Appendixes present the dissenting remarks from members of the working group and the committee investigating the area of white-collar crime.