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Liquidation

What is Insolvent Liquidation?

There are two main forms of insolvent liquidation:

Creditors Voluntary Liquidation (CVL)

Compulsory Liquidation

Creditors’ Voluntary Liquidation (CVL)

A CVL is the Voluntary Winding up of an Insolvent Company. For a company to be placed into CVL, the company directors must recommend to the company shareholders that the company be placed into Liquidation as a consequence of the company being insolvent. I.e:

  • Cash flow insolvent – The company can no longer afford to pay its debts as and when they fall due.
  • Balance sheet insolvent – The liabilities of the company exceed the value of the company’s assets.

WHEN IS AN CVL APPROPRIATE?

A CVL is appropriate when a Company is Insolvent. The company can either no longer pay its debts as and when they fall due, or when its liabilities exceed the value of its assets.

WHY CANT I JUST STRIKE THE COMPANY OFF?

A company is struck off from Companies House Register when an application is made to Companies House for the company to be removed from the register. This can only be done if it:

  • has not traded in the last three months.
  • has not changed names in the last three months.
  • is not presently threatened with Liquidation.
  • has no agreements in place with creditors, e.g. a Company Voluntary Arrangement (CVA).

DO I NEED TO GO TO ANY MEETINGS?

The directors would hold a board meeting to consider recommending liquidation to the company’s shareholders. Following this an extraordinary general meeting of the shareholders must be held for the members to pass resolutions to place the company into Liquidation and to nominate a Liquidator.
As of 6 April 2017, it is no longer an automatic requirement of the Insolvency Act 1986 (as amended) to hold a physical meeting of creditors. Depending upon the circumstances of the Liquidation the members’ Appointed Liquidator may be ratified as the creditors liquidator by deemed consent or by holding a virtual meeting.
A physical meeting of creditors will only be held if it is specifically requested by either creditors representing ten percent of the total creditor debt, ten percent of the total number of creditors or by ten creditors in number.

WILL THE CVL BE ADVERTISED?

Notices of the Liquidation must be advertised in the London Gazette. This is the only place that the liquidation is usually advertised unless the Liquidator feels it is necessary to place additional advertisements.

WHAT ARE THE LIQUIDATOR’S DUTIES?

A Liquidator has a number of practical and statutory duties to adhere to in the normal course of a Liquidation. These duties include:

  • The maximisation of realisations from the assets of the company for the benefit of the company’s creditors.
  • Reporting to creditors on the progress of the liquidation and, where appropriate, seeking creditor approval for certain actions within the liquidation.
  • Where appropriate, the collation and agreement of creditor claims against the company.
  • The distribution to creditors of all available funds that have been realised through the Liquidation process.
  • The investigation into, and the reporting upon, the conduct of the company directors prior to the company’s liquidation.

Compulsory Liquidation

To place a company into Compulsory Liquidation, one or more of the company’s creditors must petition to the court. Once in Compulsory Liquidation, all assets are liquidated into cash and the proceeds are then used to repay outstanding debts the company owes.

A company can only receive a Winding-up Petition from a creditor if they owe more than £750 and have failed to pay. Failure to pay can be either an unpaid County Court Judgement or a Formal Demand which is still outstanding.

The conclusion of Compulsory Liquidation is the dissolution of the business. The company will cease to exist and will be struck off Companies House Register within 3 months of the conclusion of the Liquidation.

Can I stop Compulsory Liquidation?

Options available to a company that is facing Compulsory Liquidation vary depend on how far along you are in the process. The only way to definitively stop Compulsory Liquidation is to satisfy the outstanding amount to the creditor in full, coming to satisfactory payment terms for both parties or by placing the company into a formal Insolvency Process.

Insolvency Options

Dependant on how far along the process your company is, there are a few options available:

What happens when a company enters Compulsory Liquidation?

Once the winding up process has finalised the company is placed into Compulsory Liquidation. Usually the Official Receiver is appointed Liquidator of the company and it is their duty to comply with the duties of the Liquidator.

If the Official Receiver feels it necessary or creditors vote to appoint a third-party Liquidator, a Licensed Insolvency Practitioner will be appointed to take the role of liquidator. Upon appointment it is then their duty to comply with the Insolvency Act 1986 and also comply with their Duties as Liquidator.

What are the liquidator’s duties?

A Liquidator has a number of practical and statutory duties to adhere to in the normal course of a Liquidation. These duties include:

  • The maximisation of realisations from the assets of the company for the benefit of the Company’s Creditors.
  • Reporting to creditors on the progress of the Liquidation and, where appropriate, seeking Creditor Approval for certain actions within the Liquidation.
  • Where appropriate, the collation and agreement of Creditor Claims against the company.
  • The distribution to creditors of all available funds that have been realised through the Liquidation process.
  • The investigation into, and the reporting upon, the Conduct of the Company Directors prior to the company’s Liquidation.