Insolvency Flashcards
What two options are available to companies in financial difficulties?
Liquidation
Insolvency
What is voluntary liquidation?
Where the members or creditors make a resolution to liquidate the company.
The company will continue to exist until the liquidation process is complete.
What happens in a Members Voluntary liquidation?
The company is still solvent.
The directors must provide a statement of solvency no more than 5 weeks before:
The members make a resolution to wind up the company:
Ordinary - if fixed duration or even provided for in articles.
Special - for any other reason.
The members will then appoint a liquidator.
What happens in a creditors voluntary liquidation?
The company is insolvent
The directors provide a statement of affairs to the creditors within 7 days.
A resolution is passed to wind up the company.
Members and Creditor appoint a liquidator.
What does the liquidator do?
Realise assets and Distribute proceeds.
Presents final report to Members (& creditors)
Informs registrar of final meeting and submit the report.
The company will be dissolved 3 months after.
How can creditors approve a liquidator?
Deemed consent - deemed approved unless 10% of creditors raise objections.
What is compulsory liquidation?
Where a court order is passed requiring the liquidation of the company.
Liquidation will commence as soon as the order is given.
What reasons would there be for a court order for compulsory liquidation?
The full list is set out in S122 of the Insolvency Act 1986.
- Public company with no trading certificate after 1 year.
- A company which is unable to pay it’s debts.
- It is just and equitable.
Who can petition for a court order for compulsory liquidation?
The DBEIS
A member who has been a registered shareholder for 6 of the last 18 months.
A creditor who is owed at least £750
What is the effect of a winding up petition?
Legal actions against the company for recovery of debts are stopped.
Floating charges crystallise.
Company ceases business except where necessary to complete winding up.
Powers of the directors cease.
Employees are automatically made redundant - can be re-employed to help with liquidation.
What happens when a petition to liquidate is granted?
Official receiver is appointed and calls a meeting of all members - within 3 months.
Members meeting will appoint a liquidator - creditor approval will be sought through usual process.
Once liquidation process is complete the liquidator will return to the court for an order to dissolve the company.
This is filed with the registrar and the company is dissolved from the date of the order.
What order will the Liquidator distribute the proceeds?
- Fixed charge holders
- Expenses of Liquidation
- Preferential Creditors - Wages, Accrued holiday, Pension contributions.
- Secondary preferential creditors - HMRC
- Floating charge holders (unto £6k is ring fenced for)
- Unsecured creditors
- Post liquidation interest
- Members - Declared and unpaid dividends, Return of capital (in line with class rights) any surplus.
Who can place a company in administration?
The courts in response to a Petition.
The holder of a qualifying floating charge
The company or it’s directors - if winding up has not begun.
What happens when a company is placed in administration?
The company enters a moratorium period:
Any petition for winding up will be dismissed.
No legal proceedings against the company can commence.
No HP/Leased property can be recovered.
The directors powers are suspended - they may continue in office.
What are the administrators tasks?
Act as the companies agent - so must act in best interest.
Take on the powers of the directors.
Hold the power to remove/replace Directors and Employees.
File notice of their appointment within 7 days.
Draw up a statement of proposal within 8 weeks.
Gain approval of statement of proposals in a creditors meeting or through Deemed consent.
Court may remove the administrator if the proposals are not approved.
