Week 8 & 9 Liquidation

Question 1

What are the 2 possibkle ways in which a company is liquidated?

Answer 1

2 possible ways in which a company is liquidated:

Voluntary liquidation

Compulsory liquidation via a court (Insolvency Act (IA) 1986, s124A)

Question 2

Is a special resolution needed to wind up a company?

Answer 2

Under IA 1986, a voluntary winding-up of a company may be achieved through an action by the company’s members

Special resolution is required

Question 3

What is a liquidator?

Answer 3

A liquidator will be appointed at a general meeting – it is their role to wind up the company and distribute its assets (IA 1986, s 91)

Question 4

what are the conditions for voluntary liquidation?

Answer 4

Voluntary liquidation Can only take place if the company is solvent i.e. it can satisfy all of its remaining creditors and have assets left over

Question 5

how many weeks must the declaration of solvency be made before the resolution to liquidate is passed?

Answer 5

A declaration of solvency must be made within a five-week period before the resolution to liquidate is passed

Question 6

If wining up take slonger than a year how many general meetings are needed?

Answer 6

If the winding-up takes longer than a year, the liquidator will call a general meeting every year

Question 7

Whta does the declaration of solvency contain?

Answer 7

the declaration of solvency states that:

The directors have made a full enquiry into the affairs of the company, and…

Have formed the opinion that the company will be able to pay its debts in full within a period of not more than 12 months from the date on which the winding up or liquidation commences

A director who makes a declaration of solvency without reasonable ground is committing a criminal offence.

Question 8

What does the liqudator do?

Answer 8

The liquidator is Appointed to wind up the company and to dispose of its assets in the best interests of the creditors, and to formally remove the company’s registration at Companies House

Must be a qualified insolvency practitioner

Will seek to collect any assets owed to the company and to dispose of them of realise capital
Proceeds are distributed to the creditors

If all debts settled, remaining proceeds distributed to company members

Question 9

What is compulsory liquidation?

Answer 9

Liquidation through a court can be made by any of the following petitioning the court (IA 1986, s 124):

The company, the directors or any creditor

A contributory e.g. holder of a floating charge

A liquidator or temporary administrator

The secretary of state where a public company has not been issued with its trading certificate

The Official Receiver, where voluntary winding-up is no longer possible

Question 10

What may the court do if directors are likely to remove company assets?

Answer 10

Appoint a provisional liquidator, who may or may not be the official receiver.

Question 11

what are the seven grounds on which an order for compulsory liquidation of a company be made?

Answer 11

IA 1986, s 122 lists the grounds on which an order for compulsory liquidation of a company be made. They are:

(a) The company has by special resolution resolved that the company be wound up by the court

(b) The public company has not been issued with a trading certificate and has been registered for over a year

(c) It is an old public company re: Cons. Prov. Act

(d) The company does not commence its business within a year from incorporation, or suspends it business for a whole year

(e) The number of members is reduced below 2 (except for an Ltd)

(f) The company is unable to pay its debts

(g) the court is of the opinion that it is just and equitable that the company should be wound up

Question 12

What is the official recevier?

Answer 12

When appointed, their role is to identify the state of the company’s affairs with regard to its assets, debts and other liabilities

Question 13

what must the official reciever be supplied with?

Answer 13

Under IA 1986, s 131, the Receiver has to be supplied with:

Particulars of the company’s assets, debts and liabilities

Names and addresses of company’s creditors

The securities held by the creditors (& dates given)

Any further relevant information

Question 14

What is the timeframe for the official reciever to receive information?

Answer 14

Info needs to be provided within 21 days of notice

Question 15

who must provide information to the official receiver?

Answer 15

This information should be provided by:

Officers of the company

Employees of the company (if they are capable of providing information)

Those who have been either or the above within that year

Question 16

what is the order in which creditors are paid off in teh case fo liquidation?

Answer 16

1) secured creditors with fixed charges

2) costs of winding up

3) preferential creditors

4) secured creditors with floating charges

5) unsecured creditors

6) shareholders

Question 17

How does the distrubutioon of a comapnys assets in case if liquidation work iun relation to secured creditors with fixed charges?

Answer 17

1 – Secured creditors with fixed charges

The asset on which the charge relates to is sold, and the creditor receives the money owed for the charge

After payment, if the company has money left over, this goes into the general asset pool

If the proceeds do not satisfy the amount owed, the creditor becomes an unsecured creditor of the outstanding amount e.g. if the asset has depreciated

Question 18

What are preferential creditos in the case of liquidation?

Answer 18

3 – Preferential creditors

These include:
Employees (up to limit of £800)

Occupational pension schemes

HMRC (since 2020), for outstanding tax liabilities

Question 19

What if a group cnat be paiud during liquidation?

Answer 19

If one of the groups can’t be paid in full, all the creditors will receive an equal percentage of their outstanding debt

E.g. 20p in the pound

All groups below them will get nothing