Corporate Insolvency - Liquidation Flashcards
(19 cards)
What is liquidation?
Liquidation or winding up, is the process by why a company’s business is ended, its assets are realised and distributed to creditors, and any surplus is returned to members. The company is then dissolved and removed from the register
Are both solvent and insolvent companies subject to liquidation?
Yes - solvent companies may also be liquidated if they are ending the business, members wishing to move on?
What is the liquidator’s primary function?
To realise company’s assets, determine the creditors and amounts owed, and pay dividends to creditors on a pari passu basis (equal ranking)
What happens to the company after liquidation?
It is dissolved - typically 3 months after the liquidator files notice (in voluntary liquidation) or files notice with CH (compulsory liquidation)
What is compulsory liquidation?
A court ordered liquidation initiated by a winding-up petition under statutory grounds
Who may petition the court for compulsory liquidation?
A creditor, the company, directors, administrator, administrative receiver, CVA supervisor or Secretary of State on public interest grounds
What are they key grounds for a winding-up order?
- Company is unable to pay its debts
- It is just and equitable to wind up the company
What are the immediate consequences once a winding-up order is made?
- Automatic stay on legal proceedings
- Automatic dismissal of employees
- Directors lose power and office
- Dispositions of property and share transfers post-petition are void
When can a company initiate voluntary liquidation without a court order?
- expiry of a company’s purpose under articles
- Special resolution by solvent company
- Special resolution due to insolvency
When can a company use a Member’s Voluntary Liquidation?
Only when it is solvent?
What is required for an MVL to proceed?
- Directors must swear a statutory declaration of solvency (s 89(1) IA 1986) stating the company can pay its debts plus interest within 12 months.
- Statement of assets and liabilities must accompany it.
- Special resolution to wind up the company and ordinary resolution to appoint a liquidator.
What if the liquidator discovers the company cannot pay its debts in an MVL?
The liquidation must be converted to a creditor’s voluntary liquidatio
What are the consequences for a director who falsely declares solvency?
They may be fined or imprisoned
When is a Creditor’s Voluntary Liquidation used?
When the company is insolvent and the shareholders pass a resolution to wind it up
What is the procedure for CVL?
- Shareholders pass a special resolution to wind up and an ordinary resolution to nominate a liquidator
- Directors must invite creditors to confirm or nominate a new liquidator within 14 clear days
- Creditors’ nomination takes precedence if there is disagreement.
- A statement of affairs must be sent to creditors
What happens to directors; powers once a liquidator is appointed?
Director powers cease, and liquidator assumes full control and fiduciary duties
Who may act as liquidator?
Licenced Insolvency Practitioner
What are the Liquidator’s key functions in court-ordered liquidation?
- Secure, realise and distribute assets
What transactions can a liquidator avoid to maximise asset recovery?
- Disclaim onerous property
- Set aside transactions at undervalue
- Set aside preferences
- Challenge extortionate credit transactions
- Invalidate floating charges for inadequate consideration
- Set aside transactions defrauding creditors
