What types of liquidation are there?
There are 2 types of liquidations:-
- 1. Members’ voluntary liquidation – where the shareholders of a company decide to put it into liquidation and there are enough assets to pay all the debts of the company, i.e. the company is solvent.
- 2. Creditors’ voluntary liquidation – where the shareholders of a company decide to put the company into liquidation but, there are not enough assets to pay all the creditors, i.e. the company is insolvent.
Compulsory liquidation – where the court makes an order for the company to be wound up (a ‘winding-up order’) on the petition of an appropriate person. This would usually be a creditor of the company, but it can also be the directors of the company. If there is more than one director, all the directors must present the winding-up petition jointly – a single director cannot present a winding-up petition.
Where can I get advice about liquidation?
Before you take any action to put a company into liquidation, you should consider all possible options, including CVA, Administration and raising finance. You can get advice from your local Citizens Advice Bureau, a solicitor, a qualified accountant, a debt advice centre or your local Global Insolvency Solutions expert.
What are the alternatives to liquidation?
There are three possibilities to consider before appointing a liquidator:-
- 1. An Informal Arrangement – where the company could write to all its creditors in order to reach a mutually acceptable agreement to repay the debt over a certain period of time.
- 2. Company Voluntary Arrangement (CVA) – this is a formal version of the arrangement described above, where using a Global IS expert can you help achieve more success and agreement from creditor. A CVA requires the company to apply to the court – with the help of an authorised insolvency practitioner. If the creditors accept the proposal the insolvency practitioner would supervise the arrangement and pay the creditors in line with the accepted proposals.
- 3. Administration – this is a procedure that gives the company some breathing space from any action by creditors whilst a solution is found. This could enable the company to continue trading as a going concern or sell the assets for the benefit of secured or preferential creditors. An administration procedure must be managed by an Administrator who must be an authorised insolvency practitioner.
A creditor has presented a petition to the court to wind up my company. Can I appeal against or stop a winding-up order?
There are three ways that winding-up proceedings can be stopped:
- 1. The court can rescind (cancel) a winding-up order. The company (or anyone else) can apply for it to be rescinded if the court did not have all the relevant facts when making the winding-up order. Application should be within five business days of the order being made.
- 2. The company can appeal against a winding-up order. As a result of an appeal, the court can rescind the winding-up order or otherwise vary its decision. An appeal should be within four weeks of the order being made.
Liquidation proceedings can be ‘stayed’ (i.e. stopped), permanently or temporarily. A liquidator, the official receiver, a creditor or shareholder can apply for a stay of proceedings. If liquidation proceedings are stayed permanently, the directors usually regain control of the company. An application to stay the liquidation proceedings can be at any time after a winding-up order has been made.
I was a director of a company that has gone into liquidation. How will it affect me?
Once a company goes into liquidation the directors no longer have any control over it and the liquidator takes over. You have a duty to co-operate with the liquidator and identify all assets and liabilities of the company and provide details of its affairs.
What will happen to the company’s employees?
At the date of liquidation, all employees will be dismissed. They would be provided with documents and details of how to claim the monies due to them from the Redundancy Payments Office. Once the forms have been submitted they are forwarded to the appropriate office and a claim is made from the National Insurance Fund.
What are the liquidator's duties and responsibilities?
The liquidator is responsible for professionally managing the process to include:-
- 1. The responsibility for selling all the assets at market value and ensuring the proceeds are deposited into a trust account.
- 2. Considering and reviewing all creditors’ claims. Following the deduction of liquidation fees, creditors would be paid on the agreed claims in order of priority.
Investigating the conduct of the company directors and to report their findings to the Department of Trade and Industry (DTI).
Can the directors or another associate purchase the assets from the Liquidator?
There is therefore nothing to prevent the directors purchasing the assets of the company at market value. If the directors then decide to use these assets to start a new similar business, this is known as phoenixing.
What are my duties as a company director in compulsory liquidation proceedings?
In compulsory liquidation proceedings, the company’s directors must:
- 1. Give the official receiver information about the company’s affairs.
- 2. Give any insolvency practitioner who is appointed liquidator information about the company’s affairs and attend for interview when reasonably required.
- 3. Look after and hand over the company’s assets to the liquidator or official receiver; and
- 4. Look after and hand over the company’s books, records, bank statements, insurance policies and other papers relating to its assets and debts.
I was a director of a company in liquidation. Can I be held personally liable for any of the company’s debts?
No claim can be made on a director’s personal assets in respect of company debts unless:
- 1. You have given a personal guarantee or provided alternative security, in respect of the company debts; or
- 2. Successful wrongful trading proceedings are started after a company has gone into insolvent liquidation. The liquidator may apply to court for an order that you should contribute to the company’s assets. This could happen if, before the winding up began, you knew – or should have concluded – there was no reasonable prospect of avoiding insolvent liquidation and you failed to take every step to minimise the potential loss to the company’s creditors. Such proceedings are known as wrongful trading (section 214 of the Insolvency Act 1986) and are civil proceedings; or
- 3. HM Revenue and Customs make a claim under the tax regulations for your personal liability in respect of unpaid PAYE on their remuneration.
Unless any of the exceptions outlined above apply, a creditor cannot make a claim against you or your assets. If any of the exceptions do apply, you should discuss the matter with the creditor involved and the liquidator.
When will liquidation end?
How long liquidation takes will depend on the individual company, e.g. the nature of its assets and the complexity of the liquidation. Once the process has been completed the company will be dissolved and cease to exist.
What if I can’t afford to put my company into liquidation?
If you or the company cannot afford the costs of liquidation there are two options:
The company could simply stop trading and not enter into insolvency proceedings. It would then be for one of the creditors of the company to decide whether they petition for the winding up of the company.
The company could stop trading and then the directors apply for voluntary dissolution. A private company may apply to the Registrar of Companies to be struck off the Register under section 1004 and 1005 of the Companies Act 2006. This is not an alternative to formal insolvency proceedings, and creditors may prevent the striking off. Even if the company is struck off and dissolved, creditors and others could apply for the company to be restored to the Register.
Where can I get more information?
For more information on how to deal with cash flow problems and to find out if you are trading insolvently contact Global Insolvency Solutions today.