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We have divided our questions and answers
section into two areas: one about personal insolvency and
the other on corporate or company insolvency. This section
is dedicated to questions on corporate insolvency matters.
If you cannot find the answer to your particular question,
don’t worry! These are just a small sample of the types of
questions regularly asked. Please feel free to call us at
any of our locations
nearest to you.
Alternatively, you can email us at corporate@cba-insolvency.co.uk
What is Liquidation?
Liquidation is the end of a company’s life and it is the most
common procedure used here in the UK. The company usually
ceases all trading activities at the point in which the directors
consult with a licensed insolvency practitioner or after the
shareholders have passed a resolution to place the company
into liquidation.
There are three main types of liquidation:
Creditors Voluntary Liquidation (CVL) - this arises when the
directors of the company decide that the company can no longer
continue to trade due to its insolvent position and take steps
to consult with a licensed insolvency practitioner to convene
a meeting of the company’s creditors.
Members Voluntary Liquidation (MVL) - in this situation, the
company is able to pay its debts in full and wishes to cease
its trading activities. The circumstances giving rise to such
liquidation may be as a result of the shareholders of the
company wishing to realise their investment. Alternatively,
it may be that a group of companies wishes to restructure
and reorganise and some of the companies in the group may
be no longer be required or may not fit into the core business
of the group. In such cases, the shareholders will make use
of this method of disposal to tidy up the loose ends.
Compulsory Liquidation - this type of liquidation arises when
the court makes a winding up order on the petition of an unpaid
creditor, or, the company itself can petition the court to
be wound up.
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What is the
role of a Liquidator?
The liquidator’s role is to act in the best interests of all
creditors (secured, preferential and unsecured) when realising
the company’s assets. He will authorise the sale of the company’s
assets and ensure that the best price is received. The funds
held by the liquidator are then distributed firstly to the
secured creditors and then to the preferential and unsecured
creditors (the trade creditors)
The liquidator also has the power to investigate all aspects
of the company’s life including the actions of the directors.
He must also prepare a report on the conduct of the directors,
for submission to the DTI within 6 months of the appointment,
and to bring about the appropriate proceedings if they have
committed an offence under the insolvency act 1986.
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Who appoints
a Liquidator?
In the case of a CVL, the shareholders pass a resolution to
wind up the company and appoint a liquidator. At a subsequent
creditors meeting, the creditors can then either confirm the
shareholders nomination or appoint their own liquidator by
voting in person or by proxy. A liquidator must be voted in
by a majority (by value) of creditors.
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How do
I put my company into liquidation?
This is a very straightforward process. You will need to consult
with a licensed insolvency practitioner (IP). Your accountant
will be able to guide you as it is most likely that he will
already have established such contacts for other clients.
Once you have made contact with the IP, you will be guided
through the process. It should be said that the earlier you
contact the IP, the easier it is to gather all relevant information
and prevent any creditor from commencing legal action particularly
in such instances where you have already received a writ or
summons. For more information regarding this process please
refer to our brochure series entitled “Liquidations”.
Alternatively you can e-mail us at corporate@cba-insolvency.co.uk
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As a director
will I be liable for any of the company’s debts?
If, as a director, you have given personal guarantees to secure
your financing of say, the company’s overdraft or loan account,
then the lender will look to recover the balance owing if
the funds available from the realisation of the assets are
insufficient to settle the debt.
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How do I register
a complaint against a licensed insolvency practitioner?
Any complaints regarding a license holder should be notified
to the license holder’s regulating body. If you wish to make
a complaint you should ask for the details of the particular
regulating body.
Here is a shortlist for ease of reference:
The Association of Chartered Certified
Accountants (ACCA) www.accaglobal.com
The Institute of Chartered Accountants
in England and Wales (ICAEW) www.icaew.co.uk
Insolvency Practitioners Association
(IPA) www.ipa.uk.com
The Law Society www.lawsoc.org.uk
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Who pays the Insolvency
Practitioner (IP)?
In the case of a CVL, the IP receives his fees from the sale
of the assets of the company. Fees are calculated on a time-cost
basis and are made known to creditors when annual reports
are sent. In case of administrative receiverships, the IP’s
fee is negotiated with the floating chargholder making the
appointment.
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What if the company
has no assets?
If the company has ceased to trade, you as a director, could
approach an IP and discuss the matter of fees for the preparation
of work involved in calling the creditors’ meeting. The IP
will be able to tell you what costs are involved and how much
you will be required to pay.
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What is a proxy
and how does it work?
A proxy is a formal instruction to a named individual or the
chairman of the meeting to vote on behalf of the creditor
at the meeting. The proxy must be lodged (in the case of a
CVL) at the place and by the time specified in the formal
notice of the meeting, which accompanies the proxy form. The
creditor may complete the proxy form in a particular way setting
out exactly how he/she wishes the vote to be cast or, the
creditor may chose to allow the named proxy holder to use
his/her discretion at the meeting.
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What happens
to the employees in a company after liquidation?
The Government will meet various employee entitlements, but
subject to limits which are periodically revised. These claims
are all paid by the Department of Trade and Industry (DTI)
which then claims as a creditor in the liquidation. The employees
are usually given a leaflet by the licensed insolvency practitioner,
which explains the whole process. For more information on
this subject visit the following link – www.insolvency.gov.uk
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How do I make a
claim?
Creditors will be notified by the Licensed Insolvency Practitioner
who has been appointed by the shareholders, giving details
of the time and place of the creditors meeting. Creditors
will also be requested to complete a “proof of debt” form
along with a proxy form.
The statement of claim forms the basis upon which a dividend
(where dividends are payable) is calculated. If you are uncertain
how to complete such forms, please feel free to e-mail us
at
corporate@cba-insolvency.co.uk
and we will be pleased to e-mail you a sample form for guidance
purposes.
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If a dividend is likely, how long before
I receive it?
This is largely dependent upon the complexity of the case.
In certain instances liquidation may last several years. where
litigation is involved. It may also take a long time to agree
the claims of creditors, in matters relating to tax (Inland
Revenue, VAT). However, where the case is relatively straightforward,
a liquidator would seek to close a case within a period of
twelve months.
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How
are creditors informed about a company in liquidation?
If you are a creditors listed in the books and records of
the company, you will automatically receive a formal notice
of the meeting together with a proxy for and a proof of debt.
You should lodge your claim at the address shown on the form,
(usually the address of the licensed insolvency practitioner
instructed to convene the meeting) regardless of whether you
wish to vote or not.
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What
happens at a creditors’ meeting and is it important to attend
such meetings?
A creditors’ meeting gives you the opportunity to attend and
questions the directors (in a CVL). At the meeting, creditors
vote for or against the nominated liquidator. If the liquidator
holds over 50% in value of the total trade creditors, he will
remain in office as liquidator. You may also request to sit
on the liquidation committee (in the case of a CVL).
Creditors – please note that there
are occasions when it is important to have professional representation
at creditors meetings. CBA will be happy to attend meetings
on your behalf where your debt is substantial. We will provide
this service to you free of charge. If you wish to discuss
this matter further, please contact the following, providing
all relevant details – Note: this
offer only applies to any creditor who is owed monies in a
CVL. Noelin.Byrne@cba-insolvency.co.uk
Other types of creditors’ meetings:
In administrative receivership, the creditors will be presented
with a report prepared by the administrative receivers, which
will give an overview of their involvement since their appointment.
The report will contain details of the company’s current financial
situation and an estimate of likely dividend available for
creditors, wherever possible.
Company Voluntary Arrangements A creditors’ meeting is called
to enable creditors to vote for or against the company’s proposals
with or without modifications.
Compulsory Liquidation Same as CVL except that directors will
not be present. However, Official receiver will give creditors
copy of report he has prepared, detailing the assets and liabilities
of the company.
Administration At these meetings creditors will receive a
full report of involvement of the administrator(s) since his
appointment. They will also be asked to vote on proposals
to decide on the exit route for the company in administration.
See our brochure Administration
for further clarification.
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What is
wrongful trading?
Under the Insolvency Act 1986, it is an offence for a director
of the company to continue to trade whilst knowingly insolvent.
It does not mean that the director should cease to trade immediately
but he ought to take steps to reduce the losses to creditors.
The best protection a director can have in this situation
is to seek advice at an early stage. Otherwise a civil action
may be brought against directors of companies who have failed
to take the necessary steps to minimize losses to creditors
when they knew or ought to have known the insolvent state
of a company. Hence our motto of “Timely Intervention”. If
you contact CBA at an early stage, you can be guaranteed expert
advice.
Directors – call us or e-mail us with your enquiries at corporate@cba-insolvency.co.uk
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Is
there an alternative to liquidation if I have a cash flow
problem?
Yes, there is a process called a Company Voluntary Arrangement
(CVA) and this is widely used here in the UK as a method by
which a company can trade out of its difficulties, given the
right set of circumstances.
This process enables you to spread your repayments over a
period of time and to offer a reduced payment to your creditors,
if the company cannot afford to pay them in full. The acceptance
by creditors of the company’s proposals will depend on a variety
of factors. However, most creditors are prepared to help,
provided the company can show that it has a real chance of
meeting its proposals to creditors.
If you, as a director of a company, wish to discuss what is
required to start this process please do not hesitate to e-mail
us at corporate@cba-insolvency.co.uk
You can also take a more detailed look at what is required
during the process by downloading our brochure – Company
Voluntary Arrangements.
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