The Insolvency Act 1986 and corresponding Rules govern the liquidation of a company in the UK. Whichever liquidation procedure is taken, the liquidator must be a licensed insolvency practitioner. At Invocas Financial Business Recovery & Insolvency, not only do we have a detailed knowledge of the relevant legislation, we also have a wide range of experience of each type of liquidation.
If you are a director of a company faced with the prospect of liquidation, our team of licensed insolvency practitioners can advise you on the implications of the various courses of action available. If a liquidation procedure is required, we will work to ensure that the best possible outcome is achieved and that the rights of all parties are protected.
What happens in a Creditors' Voluntary Liquidation?
- A Creditors' Voluntary Liquidation (CVL) is normally used to wind up the affairs of a company which is no longer viable and has no realistic opportunity of selling its business.
- The winding up process is initiated by the company's directors. They resolve to hold meetings of both shareholders and creditors to consider resolutions to wind up the company and appoint a liquidator.
- The shareholders' meeting may be held up to 14 days before the creditors' meeting. The Liquidator appointed by the shareholders has powers which are restricted to protecting the company’s assets until the creditors' meeting has taken place.
- At the creditors' meeting, the creditors are provided with a chairman’s report. This contains relevant company information and a summary of the financial position, known as a statement of affairs. The creditors are asked to confirm the appointment of the liquidator (by a simple majority vote) and to decide whether they wish to appoint a liquidation committee to supervise the liquidation. After the meeting, the Liquidator will realise the company’s assets and apply these to the claims of the various creditors.
Compulsory Liquidation (Court Liquidation in Scotland)
Compulsory Liquidation is often used in Scotland to facilitate the sale of a small business or the assets of a company that has become insolvent.
This procedure is driven by the Court. It can be instigated by the company, the directors or by the company’s creditors.
There are a variety of reasons why a Compulsory Liquidation may be a preferred option over and above CVL. For instance, there may be a need for the early appointment of a Provisional Liquidator to safeguard the company's assets.
A creditor would usually start the winding up process by serving a demand for the payment of a debt. If the demand is not met, the company may be issued with a Winding Up Petition and the Court may subsequently make a Winding Up Order.
If this happens in England and Wales, the Official Receiver (a government official) is automatically appointed as Liquidator. Depending on the circumstances of the case, another insolvency practitioner may take over the subsequent running of the Liquidation (which then proceeds along similar lines to a Creditor’s Voluntary Liquidation).
There is no Official Receiver in Scotland. Instead the Winding Up Petition will nominate a licensed insolvency practitioner as Liquidator of the company. The insolvency practitioner is required to consent, in writing, to their nomination as Liquidator. Our team of licensed insolvency practitioners can advise those who have received either a demand or a winding up petition on the most appropriate course of action.
In Scotland it is common to seek the appointment of a provisional liquidator. This allows the business and assets of a company to be controlled by the insolvency practitioner at a much earlier stage in order to protect to interests of creditors. The company, or its directors, will often seek the appointment of a provisional liquidator to allow the company’s trading to be supervised by the insolvency practitioner and allow them to market and sell the company’s business and assets with the authority of the court.
If you'd like to speak to us about liquidation or any other of our corporate debt solutions, please get in touch.
