Liquidation
There are three types of liquidation which we handle as follows :
» Members Voluntary Liquidation (MVL)
» Creditors Voluntary Liquidation (CVL)
» Compulsory Liquidation
A MVL involves a company which is solvent and is able to pay all of its debts in full, together with statutory interest, within a period not exceeding 12 months, often with surplus assets being returned to shareholders as a capital distribution. The other two types deal with insolvent companies.
Procedure
A company is placed into voluntary liquidation by the passing of a special resolution at a general meeting of the members. The creditors in an insolvent liquidation get the opportunity to appoint their own liquidator if they so wish and meet the criteria.
The duty of a liquidator in each case is to collect in the assets of the company and distribute them equally amongst the creditors.
A company is placed into compulsory liquidation by the court making a winding up order. Among the persons who can petition the court for a winding up order are: a creditor, a shareholder, the directors, the company itself and the secretary of state.
Practical
A liquidator in an insolvent liquidation has a duty to investigate the affairs of the company and also has to report to the Department of Business, Energy and Industrial Strategy (BEIS) on the conduct of the directors prior to liquidation. The BEIS may then decide to take action to disqualify the directors, either by an order of the court or an undertaking by the directors. The disqualification can last for a period of between 2 and 15 years. During this period the individual is prohibited from acting as a director or being involved with the management of a limited company.
Liquidators have many powers, some of which are as follows :
» Reverse transactions which transfer assets at an undervalue.
» Reverse a preference payment to a creditor.
» Take action to make the director personally liable for the company’s debts.
» Order any person to provide information relating to the company’s affairs.
The Enterprise Act 2002 also introduced a prescribed part for unsecured creditors in an liquidation. This is where a proportion of any realisations to be distributed to a holder of a floating charge is reserved and distributed to unsecured creditors. This applies to administrations as well and is calculated on the net property available for distribution as follows;
50% of £10,000
20% of the balance, up to a maximum of £800,000
HM Revenue and Customs has, with effect from 1 December 2020, regained a partial preferential status in all formal insolvencies in respect to taxes paid by employees and customers which the insolvent business was temporarily holding, giving rise to secondary preferential status.
For more information and/or for a free initial meeting and confidential advice without obligation, please call 01582 469700.
