Liquidation

What is liquidation?

This is the process by which the company’s commercial life comes to an end, and the assets are distributed via an order of priority.

What is compulsory liquidation, who can apply and when?

This is a court based process where an applicant presents a winding up petition to the court.

Who can apply?

• Creditors

• Shareholders/directors

• administrators

• receivers

• supervisor of a CVA

This can be applied for where there is an in ability to pay a statutory demand exceeding £750, and the company has not paid for 21 days.

What is members voluntary winding up (MVL)?

This can only be used for solvent companies!

Directors swear a declaration of solvency and must pay any creditors within 12 months.

Shareholders must pass an SR to approve the MVL or an OR to appoint a liquidator.

The MVL converts to a CVL if they fail to pay their debts.

What is a creditors voluntary winding up (CVL)?

This is for insolvent companies which is commenced by the shareholders but is controlled by the creditors.

The shareholders must pass an SR to place the company into CVL and an OR to appoint a liquidator.

Creditors can appoint their own liquidator within 15 days of the SR passing.

What powers does a liquidator have?

Broad ranging powers but ultimately they must secure and realise the assets of a company.

They can

• sell any property

• execute deeds

• raise money on the security of assets

• draw up bills of exchange and promissory notes

• carry on the business

• disclaim onerous property

• apply to court to set aside historic transactions.

What is the Statutory Order of Priority for Creditors?

1. liquidators costs and expenses of preserving and realising fixed charge assets

2. Fixed charge creditors (any debt not fully realised ranks as unsecured)

3. Liquidators general costs and remuneration

4. Preferential creditors (employee claims for unpaid wages, max £800 per employee, VAT and PAYE)

5. prescribed part fund (funds set aside for unsecured creditors from selling non-fixed charge assets, 50% of first 10k and 20%of remainder up to 800k after 2020.

6. Floating charge creditors

7. unsecured creditors

8. interest on unsecured debts

9. shareholders.