Compulsory Liquiquidation

Question 1

Compulsory liquidation

Companies may be obliged to liquidate if …

Answer 1

A WINDING UP ORDER is presented to a court
( usually by a member or creditor)

Petition may be made following reasons:

1. Public company not been issues with TRADING CERTIFICATE within a year of incorporation
2. Comp unable to pay its debts- deemed if
   - a creditor owed (undisputed sum) MORE THAN £750 served a FORMAL DEMAND company failed to pay within 21 days
   - a creditor has attempted to enforce a JUDGMENT AGAINST company with no success

• it is PROVEN to satisfaction if courts this is the case- cash flow test OR assets are less than liabilities (balance sheet test)
  3. It is JUST & EQUITABLE to wind up comp- courts only make an order under ground if no other remedy available

3 cont’d if member petitions on this basis - comp must be SOLVENT & registered shareholder 6 out of last 18 months

Question 2

Consequences of Liquidation

Answer 2

Floating charges crystalise

Actions for recovery of debt against company are stopped

Legal proceedings against company are halted

D relinquish their power to liquidator

Employees automatically made redundant

Must CEASE TRADING (unless necessary liquidation e.g complete WIP)

Question 3

Compulsory Liquidation
, procedures

The official receiver will..
creditors..,

Answer 3

Within 12 weeks official receiver proposes appointment of IP

Creditors approval sought via deemed consent process realise assets distribute proceeds

Liquidator returns to court & court passes ORDER DISSOLVING comp

Once liquid process complete liquidator FILES ORDER & final report to REGISTRAR

Question 4

Order of priority liquidator pays debts in a compulsory liquidation?
-8

Answer 4

1. Fixed charge holder

2 liquidation exp- inc. liquidator remuneration

3 preferential creditors- inc employee wages and accrued holiday pay

4 prescribed part unsecured creditors

5 floating charge holder

6 unsecured creditor
7 preference shareholders

8members

Question 5

How do you calculate PRESCRIBED PART for unsecured creditors?

Answer 5

Calculate NET PROPERTY
This is assets remaining after deducting 1 fixed charge holder 2 liquidation exp 3 preferential creditors
…..
(If net roofer is less than £10k then no prescribed part)
…..

50% of 1st £10k

20% of (£2985k - 10k)

Note If net property is less than 2985k use net property renaming after you minus (50% of 10k)

Up to maximum of 600k