Insolvency Flashcards
Liquidation?
Before company is dissolved must be wound up or liquidated
Entails collecting company’s assets, and converting them into money, then using the money to pay debts and anything else that remains and distributing the surplus to members.
When liquidation is complete liquidator gives notice of it to the registrar.
Types of liquidation?
Compulsory liquidation by order of the court. High court (NI only) Voluntary liquidation (members or creditors)
Compulsory liquidation?
If the company’s paid up share capital does not exceed 120,000 the local county court has jurisdiction to order that the company be wound up.
Most liquidations are voluntary, agreed in general meeting, compulsory is last resort if company refuses to satisfy demands or unresponsive due to abandonment of directors - usually in family companies
Grounds for winding up order in NI?
s122 IA 1986/ Insol NI Order 1989
Default is made in delivering statutory declaration of capital
Company does not commence business within a year of incorporation
Number of members is reduced below statutory minimum (2)
Company is unable to pay debts
Court is of opinion that it is just and equitable
Company’s inability to pay debts?
Deemed unable to pay debts if defaults for 3 weeks or more in meeting a demand for debt exceeding 750
Court is satisfied that unable to pay
Demands of 2 or more creditors are aggregated - can club together
Petition for unable to pay debts can be presented by…
The company Any creditor(s) who establish prima facie case DTI Official Receiver Courts
Petition for inability to pay debts can be presented by…
The company
Any creditor(s) who establish prima facie case
Re A Company 001573 1983
DTI - s4440 IA 1986
Official Receiver - where voluntary winding up cant be continued with regard to interests of creditors or contributaries
Courts
Effects of winding up order?
Official receiver from DofE becomes liquidator
Commenced at the time the petition was first presented
Dispositioni/transfer of shares/company property is void; article 107
Seizure of company assets after liquidation commenced is void
Directors lose power
Employees automatically dismissed
Liquidator assumes powers of management
Floating charges crystallises at this point
Legal proceedings against company while in administration?
Any legal proceeding against company halted and none may begin without leave of court - important - drumdollagh construction company convicted of manslaughter over death of employee, this then caused the company to go into insolvent winding up - criminal proceedings could not proceed while company was in administration
Creditors Voluntary Liquidation
No declaration of solvency
Initiated by directors
75% of shareholders must agree to pass resolution to wind up and appoint liquidator
Meeting of creditors then convened to present company’s statement of affairs - what is income, outgoings and available for repayment?
Not necessary to resort to court
liquidator appointed by members has no power to dispose of company’s assets until creditors confirm the liquidator
Members’ voluntary liquidation
There IS a declaration of solvency
Company must be assumed to be insolvent unless directors accept personal responsibility for stating they believe the company is solvent
Creditors have no part in liquidation unless it appears that there is not enough money to be paid in full - must be paid within 12 months
Creditors have no right to interefere with company’s conduct of affairs
Members voluntary liquidation continued?
If liquidator concludes the company will be unable to pay its debts in full within specified period, he must call a meeting with creditors advertised in Belfast/London Gazette - at meeting liquidator will lay before creditor statement of affairs
At end of liquidation, liquidator is required to hold general meeting of company and lay before it its statement of acts and dealings, then a final meeting. He must send registrar a copy of his accounts and a return that the meeting was held and this leads to the dissolution of the company.
Effects of going into voluntary liquidation?
Directors remain in office but powers cease
Company’s property must be applied in payment of its debts
Company may carry on business, only for purposes of beneficial winding up
No transfer of shares of alteration of members’ status
Assets and liabilities in a compuls ory or voluntary winding up?
Convert company’s assets to money and apply it in payment of debts before distributing anything left to shareholders.
Consider the priority of debts.
If company has issued preference shares, the holders have a priority entitlement to repayment of capital but have no right in participation of distribution of assets.
Fraudulent trading?
Only done by the liquidator which hard to prove beyond reasonable doubt - criminal offence with prison sentence.
Business has been carried on with intent to defraud creditors.
As the global pandemic continues to effect businesses’ survival and future solvency, we are reminded of the words of Buckley J in the 1960s case of Re White & Osmond (Parkstone) Ltd which ring eerily true in the present day. Although White & Osmond concerned a claim for fraudulent trading under the Companies Act 1948, the words also apply to directors continuing to trade through the pandemic. It is a reminder to keep in mind their general duties to the company, and in the bad days (the “cloudy fog of depression”) their duties towards creditors.
