Insolvency - liquidation Flashcards
What is liquidation?
The process by which a company’s business is wound up and its assets transferred to creditors and, if there is a surplus of assets over liabilities, to its members.
What are the functions of a liquidator?
- Realise the companies’ assets for cash
- Determine identity of creditors and amount owed to each of them
- Pay a dividend to the creditors on a proportionate basis relative to the size of their determined claims
What is compulsory liquidation?
A courts-based process for placing a company into liquidation.
How is compulsory liquidiation initiated?
A winding up petition is presented to the court by applicant (creditor, directors, administrator, receiver, supervisor of CVA, SoS for Business)
What happens when a winding-up petition is presented?
An official receiver becomes liquidator until another person is appointed.
What are the grounds for compulsory liquidation as set out in s122(1) IA 1996?
Most common is inability to pay debts, evidenced by:
* Failure to pass balance sheet test
* Cash flow test
* Satisfy a statutory demand
* A creditor sues and is unable to enforce judgment debt
What happens to certain dispositions of a company’s property after the commencement of winding up?
Certain dispositions, transfers of shares, and changes to members will be void.
What is granted if the court deems that the grounds for a winding-up order are satisfied?
An automatic stay.
This halts any further action against the company regarding its debts.
When does dissolution occur after winding up has been completed?
Three months after notice is given to the Registrar of Companies that winding up has occurred.
What is a Members Voluntary Winding Up (MVL)?
A winding up process only for solvent companies.
What must directors declare in an MVL?
Directors must declare solvency and that the company can pay its creditors in full + interest within 12 months.
What are the consequences for directors if they declare solvency without reasonable grounds?
Directors may be liable if they do not have reasonable grounds for their opinion.
What must members do to initiate an MVL?
Members must pass a special resolution.
Can an MVL be converted to another type of winding up?
Yes, it can be converted to a Creditors Voluntary Winding Up (CVL).
What is a Creditors Voluntary Winding Up (CVL)?
A form of insolvent liquidation commenced by resolution of shareholders, under the control of creditors.
What can shareholders do in a CVL?
Shareholders may nominate a liquidator, but creditors must approve or nominate their own within 14 days of the SR.
If the SH’s choice of liquidator is approved, they need an OR to appoint their nominated liquidator
What powers does the liquidator have in a CVL?
The liquidator has extensive statutory powers to manage the company and avoid certain transactions, as set out in IA 1986.
