9e Compulsory Liquidation Flashcards
What is compulsory liquidation?
When a petition for a winding up order is presented to the court. The court then passes the order that the company is to be wound up.
What are the main grounds for compulsory winding up?
- Public company not been issued with a trading certificate within a year of incorporation.
- Company cannot pay its debts and deemed to be so if the following occur
A. A creditor who is owed at least £750 serves written demand for payment and doesn’t get it within 3 weeks.
B. Creditor had attempted to enforce a judgement against company by execution against company’s property but has been unable to do so.
C. Court feels this is the case. - It is just and equitable to do so but court will exercise every other possible remedy first.
Who can petition the court to wind up a company?
- Department for Business, Energy and Industrial Strategy (DBEIS).
- A member who has been a shareholder for at least 6 of the last 18 months.
- A creditor who is owed at least £750.
What are the effects of winding up a company?
- Action for payment of debt is stopped. Creditor must make a claim on liquidation.
- Floating charges crystallise.
- Trade ceases unless needed to finish liquidation process e.g. completing unfinished goods.
- Directors powers cease and liquidator takes over.
- Employees become redundant but liquidators can employee them to finish the liquidation.
What are the subsequent procedures of compulsory liquidation?
- Court appoints official receiver who within 3 months will call a meeting of the contributories (members).
- Members then appoint a liquidator who must be a licensed insolvency practitioner.
- Creditor approval is needed and usually by deemed consent method. If 10% reject the proposal an alternate process should be used.
- Assets are then sold and proceeds distributed.
- Once all proceeds are distributed, liquidator can wind up company by returning to court for an order to pass the winding up.
- Once received must be filed with registrar and company is dissolved as at the date of the court order.
Under what conditions can a liquidator ignore a charge?
- Unregistered charges (if charge hasn’t been registered with registrar within 21 days).
- Floating charge was created within 12 months of winding up.
- Transactions at an undervalue within 2 years pre liquidation unless the company acted in good faith, with the purpose of carting on the business and had reason to believe it was for thr benefit of the company.
- Preferencing a creditor - if the creditor will be in a better position than if the company liquidated, entered with intention to produce that result and it takes place 6 months before the commencement of liquidation with an unconnected person or two years prior with a connected person. CT
What happens if at the time of the transaction at an undervalue or preference , the company was unable to pay its debts or company went into administration/liquidation as a result of the transaction?
The liquidator can apply to the court for an order to restore the position to what it would have been like if the transaction never would have happened.
Who has the highest priority on liquidation and what can they do?
Fixed charge holders - they can appoint a receiver to sell the named assets in order to repay the debt to them.
After debts being repaid to fixed charge holders, what order must the liquidator repay debts?
- Cover liquidator costs
- Preferential creditors (employees) who get paid wages in four months preceding winding up, accrued holidya and o/s pension contributions (all ranked equally in claim for payment).
- Secondary preferential creditors (HMRC).
- Floating charge holders. All assets sold subject to floating charge, % gets ring fenced to pay unsecured creditors.
- Unsecured creditors (all ranked equally)
- Post liquidation interest.
- Members (declared unpaid dividends).
- Any surplus to be distributed to members. Capital would be returned to members.
How do you calculate a ring fenced fund?
50% of first £10,000 and 20% of the rest subject to max ring fenced fund (£600,000).
