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LPC Law Notes Business Law and Practice Notes

Fourteen Liquidation Notes

Updated Fourteen Liquidation Notes

Business Law and Practice Notes

Business Law and Practice

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Company Law – Private Limited Companies

Liquidation

1. Liquidation

Objective: to bring the existence of the company to an end and to distribute its assets to those entitled to them. [Can often follow administration where company cannot continue despite efforts in moratorium].

How:

  • Appoint liquidator (qualified insolvency practitioner)

  • Liquidator takes control of the company

  • Collects assets [includes challenging certain past transactions in order to increase company assets – if necessary]

  • Pay off debts and distribute between members [in prescribed order]

  • Company is dissolved. Struck of register.

Types of liquidation

Compulsory

  • Imposed by court order

  • Usually when company is insolvent

  • Who to present petition: S.124 & 124A IA 1986 [company; directors; creditor or creditors; contributory (incl. members and former members – e.g. anyone liable to contribute to assets of company on winding up; Secretary of State (but only on grounds of public interest); any administrative receiver, administrator or supervisor of a CVA

  • Grounds for the petition [e.g. unable to pay debts] See lecture slides (just and equitable etc)

  • Court’s discretion: Court can refuse to make winding up order even if grounds have been satisfied [e.g. majority creditors oppose winding up; or petition creditor is owed 750 or less.

  • Winding up order: Official Receiver becomes liquidator until permanent appointment of liquidator is made. Call meeting of creditors. All creditors can have their own nominee to replace official receiver as permanent liquidator. Creditors’ nominee takes precedence.
Member’s Voluntary Liquidation [M.V.L]

  • Commenced by resolution of company

  • Directors make statutory declaration of solvency [S.89 IA 1986] - “the company is able to pay its debts in full within 12 months of commencement of liquidation” [COMPANY IS SOLVENT]

  • Director’s liable to imprisonment / fine if they make declaration without reasonable grounds.

  • Procedure: Shareholders Special Resolution to wind up [S.84 IA] and Ordinary Resolution to appoint liquidator [S.91 IA].

  • MVL can always be converted into a CVL if company becomes insolvent.

Creditor’s voluntary Liquidation

[C.V.L]

  • COMPANY IS INSOLVENT

  • Creditors begin the process – NO court order is required.

  • Procedure:

Special Resolution to wind up [S.84IA]; and

Ordinary Resolution to appoint liquidator [S.100 IA – this is only provisional appointment as creditor’s nominee may replace / take precedent.

Creditor’s meeting [within 14 days] – see slide / diagram

Role / powers of the liquidator:

Qualified insolvency practitioner

Duties: to collect in, realise and distribute company’s assets

Agent of the company

Statutory powers:

S.165/ 167 IA 1986 Making any compromise or arrangement with creditors, selling company’s property, borrowing on security of the company’s assets, bringing legal proceedings and carrying on the business of the company so far as may be necessary for the beneficial winding up.
S.178 IA 1986 Collection of assets – power to disclaim onerous property, which includes unprofitable contract, any property which is un-saleable or not readily saleable etc.

Pay-out following liquidation

Order of...

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