BL - Insolvency and Vol. Liquidation

Question 1

Liquidation
What types of company can use a members’ voluntary winding up liquidation?

Answer 1

Solvent companies.

Question 2

Liquidation
What is the process for a MVL?

Answer 2

• Directors swear a declaration of solvency containing a statement of the company’s assets and liabilities as at the latest practicable date before making the declaration.
• The members must then pass a special resolution to place the company into MVL and
• an ordinary resolution to appoint a liquidator.
• The winding up commences when the special resolution is passed (s 84(1) and s 86 IA 1986).
• All debts must be paid in 12 months
• if liquidator thinks debts can’t be paid will convey MVL into CVL

Question 3

Liquidation
What are the consequences of a director knowingly making a false statement of solvency?

Answer 3

• fine or
• imprisonment (s 89(4) IA 1986).

If the debts are not actually paid in full within 12 months it will be presumed that the director did not have reasonable grounds for his opinion.

Question 4

Liquidation
What is the process for a Creditors Voluntary winding up Liquidation??

Answer 4

• Shareholders pass a special resolution to place the company into a CVL and
• an ordinary resolution to appoint a nominated liquidator.
• Within 14 days of the special resolution being passed the company must ask the company’s creditors to either approve the nominated liquidator or put forward their own choice of liquidator. (Where the creditors’ choice of liquidator differs from that of the company’s shareholders, the creditors’ nomination will take precedence).
• The directors must also draw up a statement of the company’s affairs (setting out the company’s assets and liabilities) and send it to the company’s creditors.

Question 5

Liquidation
What is the role of the liquidator?

Answer 5

To realise the assets.

They can undo certain transactions aimed at shifting the assets out of the company.

Question 6

What is the statutory order of priority?

Answer 6

• Liquidator’s fees
• fixed charge creditor (out of the proceeds of selling assets subject to the fixed charge).
• Other costs and expenses of the liquidation.
• Preferential creditors
• Creation of the prescribed part fund (if available) for unsecured creditors.
• Amount due to creditors with floating charges.
• Unsecured/trade creditors (including payment of the prescribed part).
• Interest owed to unsecured creditors.
• Shareholders.

Question 7

Who are Preferential creditors (the first tier and then the secondary tier).

Answer 7

• employees for remuneration due in the 4 months before the ‘relevant date’ (generally the date of the winding up resolution or petition) but subject to a maximum of £800 per employee plus accrued holiday pay, and for certain contributions owing to an occupational pension scheme.
• HMRC (indirect and employment taxes)

Question 8

How is the prescribed part fund calculated

Answer 8

• 50% of the first £10k
• 20% thereafter to a max fund of £600k for FC before 06.04.2020 & £800k after

Shares amount unsecured creditors.