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 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'.
4. Can anyone
supervise insolvency
procedures?
All liquidators,
administrators,
administrative receivers
and supervisors
taking office on
or after 29 December
1986 must be authorised
insolvency practitioners.
Receiver managers
and Law of Property
Act (LPA) receivers
do not have to be
authorised.
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,
administrator or
Official Receiver
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 |
Report
of a meeting
approving
a voluntary
arrangement |
|
Order
of revocation
or suspension
of voluntary
arrangement |
|
Voluntary
arrangement's
supervisor's
abstract of
receipts and
payments |
|
Notice
of completion
of voluntary
arrangement |
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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 Gazette?
The Gazette
is published
by HMSO and
contains various
statutory
notices and
advertisements.
It is published
daily. References
to the Gazette
are to the
London Gazette
in respect
of companies
registered
in England
and Wales.
Notices placed
by the Registrar
of Companies
in England
and Wales
are included
in the Company
Law Official
Notifications
Supplement
to the London
Gazette which
is published
on microfiche.
You may see
copies at
the Companies
House search
rooms in Cardiff
and London.
Some of the
larger public
libraries
also have
copies. |
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 administration
order |
|
Administration
order |
|
Administrator's
abstract of
receipts and
payments |
|
Notice
of discharge
of administration
order |
|
Notice
of variation
of administration
order |
|
Statement
of administrator's
proposals |
|
Notice
of result
of meeting
of creditors |
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CHAPTER 4
Receivers
1. What
is a receiver?
There are many different
kinds of receiver
and their powers
vary according to
the terms of their
appointment.
An administrative
receiver is a receiver
or manager of the
whole, or substantially
the whole, of a
company's property
who is appointed
by or on behalf
of the holders of
any debentures of
the company secured
by a floating charge.
He or she has the
power to sell (or
otherwise realise)
the assets covered
by the floating
charge and apply
the proceeds to
the debt owed to
the charge-holder.
Receivers who are
not administrative
receivers may be
appointed in other
circumstances. For
example, under powers
contained in an
instrument or document
creating a charge
over a company's
property, a receiver
or manager may be
appointed until
the debt is recovered.
Receivers may also
be appointed under
the Law of Property
Act 1925.
2. Who gives
notice of the receiver's
appointment?
The person who appoints
the administrative
receiver, receiver
or manager, or has
them appointed under
the powers contained
in an instrument,
is responsible for
informing the Registrar
within 7 days of
the appointment.
An administrative
receiver must also
publish notice of
his appointment
in the Gazette
and in an appropriate
newspaper.
When the administrative
receiver, receiver
or manager ceases
to act they must
notify the Registrar.
3. What
must the receiver
send to Companies
House?
Within 3 months
of appointment,
an administrative
receiver must make
a report to:
- the Registrar;
- the company's
creditors;
- the holders
of a floating
charge; and
- any trustees
for secured creditors
of the company.
The
report must
explain
the circumstances
of the appointment
and the
action the
administrative
receiver
is taking.
The report
must also
include
a summary
of any 'statement
of affairs'
prepared
for the
receiver
by the officers
or employees
of the company.
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.
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All receivers must
send an account
of receipts and
payments for the
first 12 months
of receivership
to the Registrar,
and:
- for administrative
receivers, at
12-monthly intervals
thereafter;
- for receivers
and managers,
at 6-monthly intervals.
4. Which forms
should be used?
The appropriate forms
are:
Form
title |
Number |
Notice
of the appointment
of receiver
or manager |
405(1) |
Notice
of ceasing
to act as
receiver or
manager |
405(2) |
Receiver
or manager
or administrative
receiver's
abstract of
receipts and
payment |
|
Administrative
receiver's
report |
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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. |
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?
he 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 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 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 Gazette within
14 days; and
- sent to the
Registrar 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 tatement 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 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 Gazette and
notify the Registrar.
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
Companies House?
The liquidator must
send a statement
of affairs and Form
4.20 to the
Registrar within
7 days of the creditors'
meeting.
The liquidator must
also send a statement,
in duplicate, of
receipts and payments
for the first 12
months of liquidation.
After that, statements
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