G Insolvency Law Flashcards
Voluntary liquidation meaning and procedure
Voluntary liquidation:
Occurs where the members pass a resolution to go into liquidation
Where articles provide that a company should be wonder up an ordinary resolution must be passed
A special resolution must be passed for any other reason
There are 2 types of voluntary liquidation, a members voluntary liquidation is used where the company is solvent, a creditors voluntary liquidation is used where the company is insolvent
Compulsory liquidation meaning and procedure
Compulsory liquidation:
Compulsory winding up commences when a petition for a winding up order is present to the court
Grounds include if the company has passed a special resolution to be wound up by the court, a plc has not been issued with a trading certificate within a year, the company is unable to pay its debts, or if a dissatisfied member petitions
Effects of winding up:
The liquidation is deemed to have started when the petition is first presented
All actions for the recovery of debt against the company are stopped
Any floating charges crystallise
Company ceases to carry on business as does the power of directors
Employees are made redundant
Company debts - order in which debts are paid off on liquidation
Application of assets:
The liquidator must repay debts firstly to fixed charge hodlers, expenses of liquidation and preferential creditors which can include wages or salaries and holiday pay
Secondary preferential creditors e.g. hmrc
Floating charge holders
Unsecured creditors
Post liquidation interest
Members in dividends and return of capital and any surplus is distributed to members
Administration vs winding up purpose, meaning and consequences
Purpose of administration:
Involves the appointment of an insolvency practitioner to manage affairs and property of the company
Often used as an alternative to liquidation to rescue a company in financial difficulty with the aim to continue as a going concern, achieve a better result for the creditors, and realise property to pay creditors
The administrator can only use realizing property as justification where it is not reasonable to rescue the company as a going concern and they can achieve a better result than if they were to wind up
Consequences of administration:
Rights of creditors to enforce security over assets are suspended, there are no enforcement of charges against the company, the directors continue in office but their powers are suspended
Carrying out the administration:
They are the company agent acting in best interests of the companies creditors
Power to manage the business and its property such as selling assets and borrowing money, power to remove directors and employees and can pay creditors without approval from court
Legal duties include sending notice of appointment to the company, and notice of appointment to creditors. Proposals must be approved by creditors
Administration will end when discharged by the court, must be completed within 12 months and all creditors notified
Appointment of administrator procedure, power and duties
Appointment:
The court can appoint an administrator, or the company and its directors can
The court will only agree to this if the company is likely to become unable to pay its debts and administration is a realistic benefit
