Contents
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This
is a guide
only and should
be read with
the relevant
legislation.
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Introduction
This booklet is
a simple guide to
liquidation and
other insolvency
procedures. It summarises
some of the rules
that apply to voluntary
arrangements, administration
orders, receivers
and voluntary and
compulsory liquidations.
Please also refer
to the relevant
legislation, which
you will find in
the Companies Act
1985 (as amended
in 1989 and later),
the Insolvency Act
1986 and the Insolvency
Rules (Scotland)
1986.
Please remember
that if your company
is considering liquidation,
or any other measures
to deal with insolvency,
you should seek
appropriate professional
advice or consult
an authorised insolvency
practitioner.
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CHAPTER 1
General information
1. What
are insolvency proceedings?
These are formal
measures taken to
deal with company
debt. There are
many different types
of company insolvency
proceedings. All
are covered in this
booklet.
2. Do insolvency
proceedings apply
to all types of
companies?
The parts of this
booklet covering
compulsory
winding-up and
receivers
(including administrative
receivers) apply
to registered and
unregistered companies
(including oversea
companies).
The parts of this
booklet covering
voluntary
winding-up and
administration
orders do not
apply to unregistered
companies, which
cannot be wound
up by these methods.
If the liquidation
or receivership
began before 29
December 1986, then
the law in force
at that time will
continue to apply.
Remember: Not all
companies in liquidation
are insolvent.
3. Do all
companies have to
go through insolvency
proceedings before
being dissolved?
No. If the Registrar
has reason to believe
that a company is
not carrying on
business or is not
in operation, its
name may be struck
off the register
and dissolved without
going through liquidation.
A private company
that is not trading
may apply to the
Registrar to be
struck off the register.
This procedure
is not an alternative
to formal insolvency
proceedings.
More information
about striking off
and dissolution
of a company is
available in our
booklet, 'Strike-off,
Dissolution and
Restoration (Scotland)'.
4. Can anyone
supervise insolvency
procedures?
All liquidators,
administrative receivers,
administrators and
supervisors taking
office on or after
29 December 1986
must be authorised
insolvency practitioners.
Insolvency practitioners
may be authorised
by:
- the Chartered
Association of
Certified Accountants;
- the Insolvency
Practitioners'
Association;
- the Institute
of Chartered Accountants
in England and
Wales;
- the Institute
of Chartered Accountants
in Ireland;
- the Institute
of Chartered Accountants
of Scotland;
- the Law Society;
- the Law Society
of Scotland; or
- the Secretary
of State for Trade
and Industry.
5.
What happens to
the directors of
an insolvent company?
The liquidator,
administrative receiver
or administrator
has a duty to send
the Secretary of
State a report on
the conduct of all
directors who were
in office in the
last 3 years of
the company's trading.
The Secretary of
State has to decide
whether it is in
the public interest
to seek a disqualification
order against a
director.
Examples of the
most commonly reported
conduct are:
- continuing the
company's trading
when the company
was insolvent;
- failing to keep
proper accounting
records;
- failing to prepare
and file accounts
or make returns
to Companies House;
and
- failing to send
in returns or
pay to the Crown
any tax that is
due.
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CHAPTER 2
Voluntary arrangements
1. What
is a voluntary arrangement?
A voluntary arrangement
is when a company
makes an agreement
with its creditors
by proposing a 'composition
in satisfaction
of its debt' or
a 'scheme of arrangement
of its affairs'.
This means an arrangement,
approved by the
court, in which
the company has
formally agreed
terms with its creditors
for the settlement
of its debts.
2. Who may
propose a voluntary
arrangement?
A voluntary arrangement
may be proposed
by:
- the administrator,
if there is an
administration
order;
- the liquidator,
if the company
is being wound
up; or
- the directors,
in other circumstances.
3.
Who considers the
proposal?
When the directors
have proposed the
arrangement, the
nominee appointed
to supervise its
implementation reports
to the court within
28 days on whether,
in his or her opinion,
meetings of the
company and of its
creditors should
be called.
4. How is
a proposed voluntary
arrangement approved?
The meetings summoned
by the nominee decide
whether to approve
the voluntary arrangement
which, subject to
certain restrictions,
may be approved
with or without
modifications. It
is then binding
on all creditors
who had notice of
the meeting and
were entitled to
vote. All creditors
who had notice of
the meeting are
bound by the terms
of the arrangement.
5. What
happens when the
arrangement is approved?
If the meetings
of members and creditors
approve a voluntary
arrangement, then
the nominee or his
replacement becomes
the supervisor of
the arrangement.
6. What
needs to be sent
to Companies House?
The supervisor must
send a copy of the
chairman's report
of the meeting.
At least once every
12 months, the supervisor
must send an account
of receipts and
payments, together
with a progress
report, to all interested
parties including
the Registrar.
When the arrangement
is completed, the
supervisor must
notify the Registrar,
within 28 days after
final completion.
If the arrangement
is suspended or
revoked, the Registrar
must be notified.
The appropriate
forms are:
| Form
title |
Number |
| Notice of
report of a
meeting approving
a voluntary
arrangement |
1.1
(Scot) |
| Notice of
order of revocation
or suspension
of voluntary
arrangement |
1.2
(Scot) |
| Notice of
voluntary arrangement's
supervisor's
abstract of
receipts and
payments |
1.3
(Scot) |
| Notice of
completion of
voluntary arrangement |
1.4
(Scot) |
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CHAPTER 3
Administration orders
1. What
is an administration
order?
It is a court order
made to appoint an
administrator to manage
the company's affairs.
2.
What is the purpose
of an administration
order?
Its purpose may be
to:
3.
When may a court
make an administration
order?
A court may make
an administration
order when the company
is, or is likely
to become, unable
to pay its debts
and the court considers
that the making
of an administration
order could achieve
one of the purposes
outlined above.
4. Who may
make a petition
for an administration
order?
This may be done
by the company itself,
its directors or
one or more of its
creditors including
any contingent or
prospective creditors.
The administrator
appointed by the
order must notify
the Registrar of
the order.
5. What
is the effect of
the order?
While an administration
order is in force,
the company cannot
be wound up and
an administrative
receiver cannot
be appointed or,
if previously appointed,
they must vacate
office. There are
restrictions on
enforcing any security
over the company's
property, selling
any goods and starting
any legal proceedings.
More details about
receivers are given
in chapter
4.
6. Who must
an administrator
notify of his appointment?
An administrator
must:
What
is the Edinburgh
Gazette?
The Gazette
is published
by The Stationery
Office and
contains
various
statutory
notices
and advertisements.
It is published
twice weekly
and can
be obtained
from The
Stationery
Office,
73 Lothian
Road, Edinburgh
EH3 9AW.
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7. What
are the administrator's
duties?
The administrator
takes control of
all the property
to which the company
is, or appears to
be entitled. He
or she prepares
proposals for achieving
the purpose for
which the administration
order was made and
calls a meeting
of creditors to
consider those proposals.
If the majority
of creditors approve
the proposals, the
administrator then
manages the affairs,
business and property
of the company in
accordance with
the proposals.
8. Does
the administrator
need to send anything
else to Companies
House?
Yes. The administrator
must send details
of the proposals
within 3 months
after the order
was made.
Then, every 6 months,
the administrator
must send an account
of receipts and
payments.
9. How long
does an administration
order last?
It continues until
the court discharges
it - in other words,
decides that the
order is no longer
needed.
If there is a court
order to discharge
the order, or to
vary its terms,
the administrator
must send a copy
to the Registrar
within 14 days after
the order was made.
10. Which
forms should be
used?
The appropriate
forms are:
| Form
title |
Number |
| Notice of
petition for
administration
order |
2.1
(Scot) |
| Notice of
administration
order |
2.2
(Scot) |
| Notice of
discharge of
administration
order |
2.4
(Scot) |
| Notice of
statement of
administrator's
proposals |
2.7
(Scot) |
| Notice of
result of meeting
of creditors |
2.8
(Scot) |
| Administrator's
abstract of
receipts and
payments |
2.9
(Scot) |
| Notice of
variation of
administration
order |
2.12
(Scot) |
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CHAPTER 4
Receivers
1. What
is a receiver?
Appointed by or
on behalf of the
holder of a floating
charge, a receiver
has the power to
sell or otherwise
realise the charged
assets of the company
in an attempt to
repay the debt owed
to the charge-holder.
2. Who tells
the Registrar and
Accountant in Bankruptcy
(AIB) that a receiver
has been appointed?
Within 7 days of
the appointment,
the person who appoints
the receiver must
deliver notice to
the Registrar and
AIB. When the receiver
ceases to act, the
holder of the floating
charge must deliver
notice to the Registrar
and AIB within 14
days.
3. What
document must the
receiver send?
Within 3 months
of his appointment,
the receiver must
deliver a report
to AIB with copies
to:
- the company's
creditors;
- the holders
of a floating
charge; and
- any trustees
for secured creditors
of the company.
The report must:
| Statement
of affairs
This is a
summary of
the company's
assets, liabilities
and creditors.
The administrative
receiver decides
whether it
is required
and who should
prepare it.
Within 2 months
of the anniversary
of appointment,
the receiver
must send
AIB an account
of receipts
and payments
covering the
first 12 months
of receivership
and for every
12 months
thereafter.
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4.
Which forms should
be used?
The appropriate forms
are:
| Form
title |
Number |
| Notice of
the appointment
of a receiver
by a holder
of a floating
charge |
1
(Scot) |
| Notice of
the appointment
of a receiver
by a court |
2
(Scot) |
| Notice of
the receiver
ceasing to act
or of his removal |
3
(Scot) |
| Receiver's
abstract of
receipts and
payments |
3.2
(Scot) |
| Notice of
receiver's report |
3.5
(Scot) |
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CHAPTER 5
Voluntary liquidation
There are two kinds
of voluntary liquidation:
-
members'
voluntary liquidation
(MVL) - which
means the directors
have made a
statutory declaration
of solvency;
-
creditors'
voluntary liquidation
(CVL) - which
means that the
directors have
not made such
a declaration.
1. When can
a company go into
MVL?
This can take place
when the directors
of a company believe
that the company is
solvent.
A
majority
of the company's
directors
must make
a statutory
declaration
of solvency
in the 5
weeks before
a resolution
to wind
up the company
is passed
- see question
3.
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2. What
is in the declaration?
The statutory declaration
will state that
the directors have
made a full inquiry
into the company's
affairs and that,
having done so,
they believe that
the company will
be able to pay its
debts in full within
12 months from the
start of the winding-up.
The declaration
will include a statement
of the company's
assets and liabilities
as at the latest
practicable date
before making the
declaration.
3. When
does liquidation
actually start?
The liquidation
starts when the
members, in general
meeting, pass a
resolution (usually
a special resolution)
to wind up the company
voluntarily.
4. Must
notice of voluntary
liquidation be given
to anyone?
Yes. Notice of the
special resolution
for voluntary winding-up
of the company must
be published in
the Edinburgh
Gazette within
14 days of the general
meeting. The company
must also send a
copy of the declaration
and the special
resolution to the
Registrar and AIB
within 15 days of
the general meeting.
5. When
may a CVL be appropriate?
A company may go
into CVL when it
cannot pay its debts.
6. What
must the company
do?
The company passes
an extraordinary
resolution to say
that it cannot continue
in business because
of its liabilities
and that it is advisable
to wind up.
The resolution must
be:
- advertised in
the Edinburgh
Gazette within
14 days; and
- sent to the
Registrar and
AIB within 15
days.
A
meeting of creditors
must be held in
the next 14 days
after passing the
resolution. Notice
of the meeting must
be sent to the creditors
at least 7 days
before the meeting.
Also, the directors
must prepare a statement
of affairs for consideration
at the meeting,
and appoint one
of themselves to
attend and preside
over the meeting.
When the liquidator
is appointed, the
directors must provide
him or her with
a statement of affairs
and otherwise co-operate
with the liquidator.
7. Does
the company have
to advertise notice
of the meeting?
Yes. The meeting
must be advertised
in the Edinburgh
Gazette and in two
newspapers in the
area where the company
has its principal
place of business.
8. What
are the main duties
of a liquidator?
The liquidator is
appointed to wind
up the company's
affairs. The liquidator
does this by calling
in all the company's
assets and distributing
them to its creditors.
If anything is left
over, the liquidator
distributes it among
the members of the
company.
9. Does
a liquidator need
to notify anyone
of his or her appointment?
Yes. Within 14 days
of being appointed,
a liquidator must
publish a notice
of appointment in
the Edinburgh Gazette
and notify the AIB.
If the liquidation
is voluntary, the
liquidator must
also give notice
in a newspaper in
the area where the
company has its
principal place
of business.
10. What
does the liquidator
have to send to
AIB?
The liquidator must
send a statement
of affairs and a
statement of receipts
and payments for
the first 12 months
of liquidation.
After that, statements
must be sent every
6 months until the
winding-up is complete.
11. Can
an MVL be converted
into a CVL?
Yes. If the liquidator
decides that the
company will not
be able to pay its
debts in full in
the period stated
in the directors'
statutory declaration
of solvency, he
or she must call
a meeting of the
creditors which
must be held within
28 days. The liquidation
becomes a CVL from
the date of the
meeting.
12. What
are the requirements
for giving notice
in such a case?
The liquidator must:
- post a notice
of the meeting
to each creditor
at least 7 days
before the date
of the meeting;
-
advertise
the date of
the meeting
in the Edinburgh
Gazette and
in 2 newspapers
in the area
where the company
has its principal
place of business;
and
-
prepare
a statement
of affairs for
consideration
at the meeting.
A copy of the
statement must
be sent to the
AIB within 7
days of the
meeting.
13.
What happens when
the company's affairs
are fully wound
up?
The liquidator presents
an account to final
meetings of creditors
and members of the
company. He or she
must advertise the
meetings in the
Edinburgh Gazette
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