Over our years of working within insolvency, we have been asked many questions by directors whose companies have received a petition to wind them up, or by creditors who can’t get paid. When designing this website, we thought that it would be best to summarise those queries that have been raised most frequently. If you have a question that you would like to ask, please contact us. We will be happy to reply to you directly and keep this page updated.
What is a Liquidation ?
It’s a process that turns the company’s assets into cash. That cash is then distributed to creditors and, if there is some left over, to shareholders.
In almost all circumstances it is the end of the road for the company.
Who turns the company’s assets into cash ?
A Liquidation must be conducted by an IP, who will be called the Liquidator.
So what’s a Compulsory Liquidation and how is it different to a Creditors’ Voluntary Liquidation (CVL) and a Members’ Voluntary Liquidation (MVL) ?
A Court can make a Winding Up Order if asked to do so and the company will then be in Compulsory Liquidation. A CVL is also an insolvent Liquidation. The company is not able to pay all its debts in full, but the directors and shareholders have taken steps to wind it up. An MVL is solvent and creditors will all be paid, together with interest.
Who can ask the Court to wind a company up ?
A petition can be issued by:
- an unpaid creditor;
- the company;
- its directors; or
- the shareholders.
What does an unpaid creditor need to prove to ask for a winding up Order ?
The creditor must be owed more than £750 and the Court will need to be satisfied that the company is insolvent.
In practice a Compulsory Liquidation is the only procedure that any creditor can commence regardless of the company’s and other creditors’ wishes. It is usually the last resort for a frustrated creditor and should not be used as a debt collection tool.
How does a Liquidator get appointed in a Compulsory Liquidation ?
Initially the Official Receiver (OR) will be appointed following the Court’s Order. Creditors can request a Liquidator at a meeting of creditors, or by the Secretary of State if there is a clear majority of creditors, by value, that want one. Alternatively, the OR may ask the Secretary of State to appoint a Liquidator from a rota of local IPs.
What are the Liquidator’s duties ?
As well as selling the company’s assets and collecting its debts, the Liquidator should review the company’s books and records from prior to the Liquidation and can bring Court proceedings against anyone who has committed a Liquidation offence.
The OR will continue to investigate the actions of the directors and will decide whether any action should be taken against them.
Overall, the Liquidator should act in the best interests of all creditors. When there are sufficient funds to pay a dividend then the Liquidator will review, agree or reject creditors’ claims.
How often must the Liquidator keep in touch with creditors ?
Most Liquidators are happy to deal with creditors’ queries throughout the Liquidation, but otherwise a Liquidator must report to creditors annually and when the Liquidation is finished.
Who pays the Liquidator ?
The Liquidator’s expenses and own costs come out of the company’s assets before unsecured creditors get paid. If there are insufficient funds to pay the Liquidator, they won’t get paid unless a third party has agreed to put up the money.
What happens to the company after Liquidation ?
It is “struck off” the register at Companies House. After a while the name is available to be re-used by anyone looking to set up a company.
Something we’ve not covered yet ? Send us a query via our contact page and we’ll answer you and add it to this section too.