Liquidation Flashcards
A member’s voluntary liquidation is ….
(to close the company )
The shareholders of the company can only activate it when they decide to put the company into liquidation, and there are enough assets to pay all of the debts
Solvent means
To pay all of the debts
The creditors would initiate a which liquidation ?
Compulsory
Compulsory liquidation ?
The company doesn’thave enough money to pay off their creditors
The director of the company, or more likely the creditors will be initiating it
What is liquidation ?
This relates to a company that is closing down and selling all
in assets.
In liquidation, the company is dissolved (closed), and the assets
are sold off.
The proceeds from assets are used to pay off the debts of the
company.
A liquidator is appointed to carry out this process
3 types of liquidation
1) Member’s voluntary liquidation
2) Creditor’s voluntary liquidation
3) Compulsory liquidation
The liquidator must be ….
A qualified insolvency practioner, Once liquidation commences
the liquidator replaces directors in running company
Voluntary liquidation - Member’s voluntary liquidation
Solvency: Company is solvent
Procedure:
1 ) Director’s statuary declaration of solvency setting
out that company will be able to meet its debts in full.
2)Fire and/ or prison for directors who make a solvency statement
having no reasonable grounds for it
3) Shareholders appoint a liquidator , who realises company
assets , pays debts and distributes surplus to Shareholders
Approval of liquidator action: members in a general meeting
Completion - how it’s resolved:liquidator calls meeting of members
and sends copy of final accounts to Registrar who dissolves company
three months later
Creditors’ voluntary liquidation
Solvency: insolvent
Procedure:
1) Directors call a general meeting to pass a resolution and
appoint a liquidator. Directors call creditors meeting
2) Creditors can overrule members’ choice o liquidator and
appoint an alternative if required. The member’s liquidator is
only retained if the creditors do not take action to appoint
a liquidator. This consists of up to five individuals
The creditors and the company are entitled to nominate up to five
individuals for the committee, but the creditors have the
right to reject the company’s nominations.
Approval of liquidator action: Liquidation Committee
Completion: Liquidator calls meeting of members and Creditoranand send copy of final account to Registrar who dissolves company three
months later
Compulsory liquidation
If the company is unable to pay its debts , any creditor or
creditors owed at least £750 can make a written demand for the
debt to be settled. If Company fails to pay within 21 days:
1) The creditor can apply to the Court to have the
company wound up
2) Creditors obtain judgment against company for debt
bu has not received payment ( Order from the court to pay
back what is due)
3) Creditors satisfies Court that company is insolvent
Creditors’ Voluntary liquidation ( CVL) - Kaplan
This is where directors with involvement from creditors , accept
the company is insolvent an agree to liquidate the company.
This is often result of financial pressure from Creditors and
discussions with them. Once the directors accept the
company is insolvent , a CVL is often the best option
Member’s voluntary liquidation ( MVL) -kaplan
This is where the members ( shareholders) of a company
voluntarily decide to wind down a SOLVENT company and
extracts the profits.
This is usually when the shareholders no longer
wish for the company to exist ( for example if the Owner -managers want to retire)
Compulsory liquidation - Kaplan
This is where a company is forced into liquidation by a
creditor. Any creditor who is Owed at least £ 750 that is
at least 21 days overdue can apply to the courts for the
Winding up petition. A company then has 14 days to settle
the debt in full or agree a payment plan. If this is not done
then the petition will be heard in court , who may then serve
a winding up Order.
The company is then closed and an official Receiver will be
appointed
