Liquidation Flashcards
What is liquidation?
The process of ending a company’s life
What is another term for liquidation?
Winding up
Which companies does liquidation apply to?
Both solvent and insolvent
What are the types of liquidation?
1) Compulsory liquidation
2) Voluntary liquidation
How does compulsory liquidation work?
Begins with winding up petition, based on compulsory liquidation grounds
What are the compulsory liquidation grounds?
1) Inability to pay debts (most common)
2) Just and equitable grounds
What happens once compulsory liquidation is granted?
- Official receiver becomes liquidator
- Directors lose power
- Employees dismissed
- Legal proceedings against company are stayed
What are void transactions in compulsory liquidation?
Any disposition of property or transfer of shares after the petition
What is voluntary liquidation?
Initiated by the company without court involvement
What are the two types of voluntary liquidation?
1) Members’ Voluntary Liquidation (Solvent)
2) Creditors’ Voluntary Liquidation (Insolvent)
What is the process of Members Voluntary Liquidation?
- Directors make declaration of solvency
- Members pass special resolution to wind up
- Members pass ordinary resolution to appoint liquidator
What is a declaration of solvency?
Where debts can be paid within 12 months
What happens if a liquidator later believes company is insolvent after Members Voluntary Liquidation?
It must convert into a CVL
What is a Creditors’ Voluntary Liquidation?
Members pass special resolution to wind up, creditor choose the liquidator
What must directors prepare for Creditors’ Voluntary Liquidation?
A statement of affairs
What is the test for inability to pay debts?
1) Failure to pay a statutory demand for £750+ within 21 days
2) Unsuccessful execution of court judgement
3) Cash flow test (cannot pay debts as they fall due)
4) Balance sheet test (liabilities > assets including contingents)
Who can petition for compulsory liquidation?
- Creditors
- Company
- Directors
- Administrator
- Administrative receiver
- CVA supervisor
- Secretary of state
What does a liquidator take over from once appointed?
Takes over control from the directors
What must a liquidator be?
An insolvency practitioner or official receiver
What are the core functions of a liquidator?
- Collect and sell assets
- Pay creditors
- Distribute surplus to members
What are the powers of a liquidator?
- Sell company property
- Execute deeds and documents
- Raise funds using assets as security
- Appoint agents
- Defend or initiate legal proceedings
- Carry on business temporarily if necessary
- Pay debts / compromise claims
What are the powers to avoid transactions?
Liquidator can set aside preferences, extortionate credit transactions, onerous property, undervalue, etc
