LIQUIDATION

FFRREEQQUUEENNTTLLYY AASSKKEEDD QQUUEESSTTIIOONNSS

AAss aa ddiirreeccttoorr,, wwhhaatt aarree mmyy dduuttiieess oonnccee aa lliiqquuiiddaattoorrhhaass bbeeeenn aappppooiinntteedd??

A director is required to co-operate fully with theliquidator in all matters relating to the company. All books and records must be handed over.

WWhhaatt aabboouutt tthhee rree--uussee ooff tthhee ccoommppaannyy’’ss nnaammee??

The same or similar names can only be used in veryspecific circumstances. Any breach of this is treatedseriously by the court and could result in personalliability for the directors for company debts.

CCaann tthhee aasssseettss bbee ssoolldd ttoo tthhee ddiirreeccttoorrss??

Yes. The liquidator can sell the assets to anyinterested party. His duty is to maximise the valueof the assets.

WWiillll II rreecceeiivvee aa ccooppyy ooff tthhee rreeppoorrtt mmaaddee bbyy tthheelliiqquuiiddaattoorr ttoo tthhee DDTTII??

No. This is privileged information and is notavailable to anyone – including creditors.

HHooww aarree ffeeeess aaggrreeeedd??

The method of charging fees is fully explained atthe outset. All details of fees and costs are agreedat the creditors’ meeting.

WWHHAATT TTOO DDOO NNEEXXTT??

Call us for a free consultation – we will be delighted to help. Telephone 0011992222 772222 220055email: eennqquuiirriieess@@ggrriiffffiinnaannddkkiinngg..ccoo..uukk

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G&K - Liquidation - DL:BAM 8591 liquidation 07/05/2008 17:17 Page 1

Liquidation Liquidation

CCRREEDDIITTOORRSS’’ VVOOLLUUNNTTAARRYY LLIIQQUUIIDDAATTIIOONN AANNDDCCOOMMPPUULLSSOORRYY LLIIQQUUIIDDAATTIIOONN

LLIIQQUUIIDDAATTIIOONN –– WWHHAATT IISS IITT??

To liquidate a company is to formally wind up its affairs – trade ceases, assets are realised and the liabilitiesquantified. If the debts exceed the value of the assets thecompany is insolvent. In this situation it is the creditorsthat control the liquidation process. There are two types offormal process to deal with an insolvent Liquidation;

Creditors Voluntary Liquidation. Compulsory Liquidation.

Often the most difficult decision for directors to make iswhen to commence a formal insolvency procedure. Thereare numerous definitions of insolvency but the one mostcommonly quoted is that a company is insolvent if it isunable to pay its debts as they fall due.

Other factors, relevant to the particular company, may also need to be taken into account when the board ofdirectors are considering this question. It is important tohave financial information to assist in the decision makingprocess. The most important thing is that the directors actreasonably. Taking professional advice at this point anddocumenting reasons for decisions is essential.

DDiirreeccttoorrss ccaann bbee mmaaddee ppeerrssoonnaallllyy lliiaabbllee ffoorr ccoommppaannyy ddeebbttss iiff tthheeyyccoonnttiinnuuee ttoo ttrraaddee bbeeyyoonndd tthhee ppooiinntt wwhheenn tthheeyy sshhoouulldd hhaavveetthhrroowwnn iinn tthhee ttoowweell.. WWee wwoouulldd bbee pplleeaasseedd ttoo aaddvviissee tthhee bbooaarrdd ooffddiirreeccttoorrss aanndd hheellpp tthhee ddiirreeccttoorrss mmaakkee tthhee rriigghhtt ddeecciissiioonn..

CCRREEDDIITTOORRSS VVOOLLUUNNTTAARRYY LLIIQQUUIIDDAATTIIOONN ((CCVVLL))

Despite the title, it is the directors that commence theproceedings in this case. The directors will formally resolvethat the company cannot continue to trade by reason of itsdebts. The directors will appoint an Insolvency Practitionerto assist with the preparation of a statement of affairs tobe presented to creditors at a meeting of creditors whichwill usually take place within 28 days. In practice, ofcourse, it is the firm of Insolvency Practitioners thatprepare the statement of affairs.

On the day of the meeting of creditors there is also ameeting of shareholders. There must be at least 75 percent of shareholders voting at that meeting supporting theresolution to proceed.

TTHHEE CCRREEDDIITTOORRSS’’ MMEEEETTIINNGG

At least one director must attend and chair thecreditors’ meeting. The creditors are invited toattend this meeting and must be given at least 7 days notice. The Insolvency Practitioner willpresent the financial information to the creditorsand will, in practice, control and assist with thesmooth running of the meeting.

Questions will be invited from the creditors to thedirectors that they may have in connection with theinformation produced or generally they may haveabout the conduct of the directors. The creditors willtake a formal vote on the appointment of theLiquidator. In practice the creditors usually appointthe same Insolvency Practitioner as the directors.The financial/statutory information that is madeavailable is;

Statutory information – officers of the company, registered office, etc.

Copies of the company accounts or extracts from those accounts.

Written report from the Directors explaining the trading history and the reasons for the company failure.

Sworn statement of affairs summarising the company’s assets and liabilities.

Schedule of the company’s creditors.

Deficiency account dealing with the overall losses in the final period of trade.

DDUUTTIIEESS OOFF TTHHEE LLIIQQUUIIDDAATTOORR

To maximise the realisation of the assets.

To bring and defend legal proceedings.

To agree creditor claims and to pay dividends to the company creditors.

To report to the Insolvency Service at the Department of Trade and Industry (DTI) within 6 months into the conduct of the directors.

CCOOMMPPUULLSSOORRYY LLIIQQUUIIDDAATTIIOONN ((CCLL))

The key difference between a CL and a CVL is that aCL is driven by a creditor, or a number of creditors –not the directors. The creditor, often HM Revenueand Customs, will issue a winding up petition andserve it at the company’s registered address.

In practice, the service of the petition can have adevastating effect. The petition is advertised in theLondon Gazette – the company‘s bankers willbecome aware of this and may well freeze thecompany bank account. In practice, this is mostlikely to put the company out of business.

The court hearing of the petition will take placeapproximately 6 weeks after the issue of thepetition. Once the hearing takes place it is likelythat a winding up order will be made. The OfficialReceiver (OR) - a civil servant will be appointedLiquidator. Creditors must be notified within 12weeks. Creditors will also be advised whether theOR thinks it necessary to call a meeting of thecompany’s creditors. An Insolvency Practitioner willbe appointed by the creditors at the creditors’meeting or through a Secretary of Stateappointment where the OR will liaise between themajor creditors and the Insolvency Practitioner oftheir choice.

The OR will carry out the investigation into theconduct of the directors and subsequent report tothe DTI.

Should a winding up petition have been issued this CL procedure will take precedence over the CVL procedure.

G&K - Liquidation - DL:BAM 8591 liquidation 07/05/2008 17:17 Page 2