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Introduction
This booklet
is a simple guide to liquidation and other insolvency procedures. It summarises
some of the rules that apply to voluntary arrangements, administration
orders, receivers and voluntary and compulsory liquidations. Please also
refer to the relevant legislation, which you will find in the Companies
Act 1985 (as amended in 1989 and later), the Insolvency Act 1986 and the
Insolvency Rules (Scotland) 1986.
Please
remember that if your company is considering liquidation, or any other
measures to deal with insolvency, you should seek appropriate professional
advice or consult an authorised insolvency practitioner.
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CHAPTER 1
General information
1. What are insolvency proceedings?
These are
formal measures taken to deal with company debt. There are many different
types of company insolvency proceedings. All are covered in this booklet.
2. Do
insolvency proceedings apply to all types of companies?
The parts
of this booklet covering compulsory winding-up and
receivers (including administrative receivers) apply
to registered and unregistered companies (including oversea companies).
The parts
of this booklet covering voluntary winding-up and
administration orders do not apply to unregistered
companies, which cannot be wound up by these methods.
If the liquidation
or receivership began before 29 December 1986, then the law in force at
that time will continue to apply.
Remember:
Not all companies in liquidation are insolvent.
3. Do
all companies have to go through insolvency proceedings before being dissolved?
No. If the
Registrar has reason to believe that a company is not carrying on business
or is not in operation, he may strike its name off the register and dissolve
it without going through liquidation. A private company that is not trading
may apply to the Registrar to be struck off the register. This procedure
is not an alternative to formal insolvency proceedings.
More information
about striking off and dissolution of a company is available in our booklet,
'Strike-off, Dissolution and Restoration (Scotland)'.
4. Can
anyone supervise insolvency procedures?
All liquidators,
administrative receivers , administrators and supervisors taking office
on or after 29 December 1986 must be authorised insolvency practitioners.
Insolvency
practitioners may be authorised by:
- the Chartered
Association of Certified Accountants;
- the Insolvency
Practitioners' Association;
- the Institute
of Chartered Accountants in England and Wales;
- the Institute
of Chartered Accountants in Ireland;
- the Institute
of Chartered Accountants in Scotland;
- the Law
Society;
- the Law
Society of Scotland; or
- the Secretary
of State for Trade and Industry.
5. What happens
to the directors of an insolvent company?
The liquidator,
administrative receiver or administrator has a duty to send the Secretary
of State a report on the conduct of all directors who were in office in
the last 3 years of the company's trading. The Secretary of State has
to decide whether it is in the public interest to seek a disqualification
order against a director.
Examples
of the most commonly reported conduct are:
- continuing
the company's trading when the company was insolvent;
- failing
to keep proper accounting records;
- failing
to prepare and file accounts or make returns to Companies House; and
- failing
to send in returns or pay to the Crown any tax that is due.
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CHAPTER 2
Voluntary arrangements
1. What
is a voluntary arrangement?
A voluntary
arrangement is when a company makes an agreement with its creditors by
proposing a 'composition in satisfaction of its debt' or a 'scheme of
arrangement of its affairs'. This means an arrangement, approved by the
court, in which the company has formally agreed terms with its creditors
for the settlement of its debts.
2. Who may propose a voluntary arrangement?
A voluntary
arrangement may be proposed by:
- the administrator,
if there is an administration order;
- the liquidator,
if the company is being wound up; or
- the directors,
in other circumstances.
3. Who considers
the proposal?
When the
directors have proposed the arrangement, the nominee appointed to supervise
its implementation reports to the court within 28 days on whether, in
his or her opinion, meetings of the company and of its creditors should
be called.
4. How
is a proposed voluntary arrangement approved?
The meetings
summoned by the nominee decide whether to approve the voluntary arrangement
which, subject to certain restrictions, may be approved with or without
modifications. It is then binding on all creditors who had notice of the
meeting and were entitled to vote. All creditors who had notice of the
meeting are bound by the terms of the arrangement.
5. What
happens when the arrangement is approved?
If the meetings
of members and creditors approve a voluntary arrangement, then the nominee
or his replacement becomes the supervisor of the arrangement.
6. What
needs to be sent to Companies House?
The supervisor
must send a copy of the chairman's report of the meeting.
At least
once every 12 months, the supervisor must send an account of receipts
and payments, together with a progress report, to all interested parties
including the Registrar.
When the
arrangement is completed, the supervisor must notify the Registrar, within
28 days after final completion. If the arrangement is suspended or revoked,
the Registrar must be notified.
The appropriate
forms are:
| Form
title |
Number |
| Notice
of report of a meeting approving a voluntary arrangement |
1.1
(Scot) |
| Notice
of order of revocation or suspension of voluntary arrangement |
1.2
(Scot) |
| Notice
of voluntary arrangement's supervisor's abstract of receipts and payments |
1.3
(Scot) |
| Notice
of completion of voluntary arrangement |
1.4
(Scot) |
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CHAPTER 3
Administration orders
1. What
is an administration order?
It is a
court order made to appoint an administrator to manage the company's affairs.
2. What
is the purpose of an administration order?
Its purpose
may be to:
- save the
whole or any part of the company as a going concern; or
- approve
a company voluntary arrangement; or
- sanction
(agree to) a compromise or arrangement; or
- get a
better price for the company's assets or otherwise realise their value
more favourably than in a winding up.
3. When may
a court make an administration order?
A court
may make an administration order when the company is, or is likely to
become, unable to pay its debts and the court considers that the making
of an administration order could achieve one of the purposes outlined
above.
4. Who
may make a petition for an administration order?
This may
be done by the company itself, its directors or one or more of its creditors
including any contingent or prospective creditors. The administrator appointed
by the order must notify the Registrar of the order.
5. What
is the effect of the order?
While an
administration order is in force, the company cannot be wound up and an
administrative receiver cannot be appointed or, if previously appointed,
they must vacate office. There are restrictions on enforcing any security
over the company's property, selling any goods and starting any legal
proceedings. More details about receivers are given in chapter
4.
6. Who
must an administrator notify of his appointment?
An administrator
must:
- advertise
the order in the Edinburgh Gazette and in a newspaper in the area where
the company has its principal place of business; and
- send a
copy of the court order to the Registrar with Form
2.2 (Scot).
What
is the Edinburgh Gazette?
The Gazette is published by The Stationery Office and contains various
statutory notices and advertisements. It is published twice weekly
and can be obtained from The Stationery Office, 73 Lothian Road, Edinburgh
E 9AW. |
7. What
are the administrator's duties?
The administrator
takes control of all the property to which the company is, or appears
to be entitled. He or she prepares proposals for achieving the purpose
for which the administration order was made and calls a meeting of creditors
to consider those proposals. If the majority of creditors approve the
proposals, the administrator then manages the affairs, business and property
of the company in accordance with the proposals.
8. Does
the administrator need to send anything else to Companies House?
Yes. The
administrator must send details of the proposals within 3 months after
the order was made.
Then, every
6 months, the administrator must send an account of receipts and payments.
9. How
long does an administration order last?
It continues
until the court discharges it - in other words, decides that the order
is no longer needed.
If there
is a court order to discharge the order, or to vary its terms, the administrator
must send a copy to the Registrar within 14 days after the order was made.
10. Which
forms should be used?
The appropriate
forms are:
| Form
title |
Number |
| Notice
of petition for administration order |
2.1
(Scot) |
| Notice
of administration order |
2.2
(Scot) |
| Notice
of discharge of administration order |
2.4
(Scot) |
| Notice
of statement of administrator's proposals |
2.7
(Scot) |
| Notice
of result of meeting of creditors |
2.8
(Scot) |
| Administrator's
abstract of receipts and payments |
2.9
(Scot) |
| Notice
of variation of administration order |
2.12
(Scot) |
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CHAPTER 4
Receivers
1. What is a receiver?
Appointed
by or on behalf of the holder of a floating charge, a receiver has the
power to sell or otherwise realise the charged assets of the company in
an attempt to repay the debt owed to the charge-holder.
2. Who
tells the Registrar and Accountant in Bankruptcy (AIB) that a receiver
has been appointed?
Within 7
days of the appointment, the person who appoints the receiver must deliver
notice to the Registrar and AIB. When the receiver ceases to act, the
holder of the floating charge must deliver notice to the Registrar and
AIB within 14 days.
3. What
document must the receiver send?
Within 3
months of his appointment, the receiver must deliver a report to AIB with
copies to:
- the company's
creditors;
- the holders
of a floating charge; and
- any trustees
for secured creditors of the company.
The report must:
- explain
the circumstances leading to the appointment of the receiver;
- give information
about any action being taken by the receiver;
- include
a summary of the statement of affairs prepared for the receiver by the
officers or employees of the company.
Statement
of affairs
This is a summary of the company's assets, liabilities and creditors.
The administrative receiver decides whether it is required and who
should prepare it.
Within
2 months of the anniversary of appointment, the receiver must send
AIB an account of receipts and payments covering the first 12 months
of receivership and for every 12 months thereafter.
|
4. Which
forms should be used?
The appropriate
forms are:
| Form
title |
Number |
| Notice
of the appointment of a receiver by a holder of a floating charge |
1
(Scot) |
| Notice
of the appointment of a receiver by a court |
2
(Scot) |
| Notice
of the receiver ceasing to act or of his removal |
3
(Scot) |
| Receiver's
abstract of receipts and payments |
3.2
(Scot) |
| Notice
of receiver's report |
3.5
(Scot) |
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CHAPTER 5
Voluntary liquidation
There are
two kinds of voluntary liquidation:
- members'
voluntary liquidation (MVL) - which means the directors have made a
statutory declaration of solvency;
- creditors'
voluntary liquidation (CVL) - which means that the directors have not
made such a declaration.
1. When can
a company go into MVL?
This can
take place when the directors of a company believe that the company is
solvent.
| A majority
of the company's directors must make a statutory declaration of solvency
in the 5 weeks before a resolution to wind up the company is passed
- see question 3. |
2. What
is in the declaration?
The statutory
declaration will state that the directors have made a full inquiry into
the company's affairs and that, having done so, they believe that the
company will be able to pay its debts in full within 12 months from the
start of the winding-up. The declaration will include a statement of the
company's assets and liabilities as at the latest practicable date before
making the declaration.
3. When
does liquidation actually start?
The liquidation
starts when the members, in general meeting, pass a resolution
(usually a special resolution) to wind up
the company voluntarily.
4. Must
notice of voluntary liquidation be given to anyone?
Yes. Notice
of the special resolution for voluntary winding-up of the company must
be published in the Edinburgh Gazette within 14 days of the general meeting.
The company must also send a copy of the declaration and the special resolution
to the Registrar and AIB within 15 days of the general meeting.
5. When
may a CVL be appropriate?
A company
may go into CVL when it cannot pay its debts.
6. What
must the company do?
The company
passes an extraordinary resolution to say that it cannot continue in business
because of its liabilities and that it is advisable to wind up.
The resolution
must be:
- advertised
in the Edinburgh Gazette within 14 days; and
- sent to
the Registrar and AIB within 15 days.
A meeting of
creditors must be held in the next 14 days after passing the resolution.
Notice of the meeting must be sent to the creditors at least 7 days before
the meeting. Also, the directors must prepare a statement of affairs for
consideration at the meeting, and appoint one of themselves to attend and
preside over the meeting.
When the
liquidator is appointed, the directors must provide him or her with a
statement of affairs and otherwise co-operate with the liquidator.
7. Does
the company have to advertise notice of the meeting?
Yes. The
meeting must be advertised in the Edinburgh Gazette and in two newspapers
in the area where the company has its principal place of business.
8. What
are the main duties of a liquidator?
The liquidator
is appointed to wind up the company's affairs. The liquidator does this
by calling in all the company's assets and distributing them to its creditors.
If anything is left over, the liquidator distributes it among the members
of the company.
9. Does
a liquidator need to notify anyone of his or her appointment?
Yes. Within
14 days of being appointed, a liquidator must publish a notice of appointment
in the Edinburgh Gazette and notify the AIB. If the liquidation is voluntary,
the liquidator must also give notice in a newspaper in the area where
the company has its principal place of business.
10. What
does the liquidator have to send to AIB?
The liquidator
must send a statement of affairs and a statement of receipts and payments
for the first 12 months of liquidation. After that, statements must be
sent every 6 months until the winding-up is complete.
11. Can
an MVL be converted into a CVL?
Yes. If
the liquidator decides that the company will not be able to pay its debts
in full in the period stated in the directors' statutory declaration of
solvency, he or she must call a meeting of the creditors which must be
held within 28 days. The liquidation becomes a CVL from the date of the
meeting.
12. What
are the requirements for giving notice in such a case?
The liquidator
must:
- post a
notice of the meeting to each creditor at least 7 days before the date
of the meeting;
- advertise
the date of the meeting in the Edinburgh Gazette and in 2 newspapers
in the area where the company has its principal place of business; and
- prepare
a statement of affairs for consideration at the meeting. A copy of the
statement must be sent to the AIB within 7 days of the meeting.
13. What
happens when the company's affairs are fully wound up?
The liquidator
presents an account to final meetings of creditors and members of the
company. He or she must advertise the meetings in the Edinburgh Gazette
at least one month before.
Within one
week of the meeting having taken place, the liquidator must send the account
to the Registrar and AIB together with a return of the final meeting.
Unless the
court makes an order deferring the dissolution of the company, it is dissolved
3 months after the return and account are registered at Companies House.
14. Which
forms should be used?
The appropriate
forms are:
| Form
title |
Number |
| Notice
of appointment of liquidator voluntary winding-up (members or creditors) |
600 |
| Statement
of affairs |
4.4
(Scot) |
| Liquidator's
statement of receipts and payments |
4.5
(Scot) |
| Notice
of liquidator's statement of receipts and payments |
4.6
(Scot) |
| Notice
of final meeting of creditors |
4.17
(Scot) |
| Return
of final meeting of voluntary winding-up |
4.26
(Scot) |
| Liquidator's
statement of account |
92
(Scot) |
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CHAPTER 6
Compulsory liquidation
1. What
is 'compulsory liquidation'?
Compulsory
liquidation of a company is when the company is ordered by a court to
be wound up.
2. Which
courts can order a compulsory liquidation?
The Court
of Session, or sheriff court with the appropriate jurisdiction, may order
the winding-up of a company. This may be, for example, on the petition
of a creditor or creditors on the grounds that the company cannot pay
its debts.
A company
is regarded as unable to pay its debts if, for example, a creditor:
- is
owed more than £750;
- presents
a written demand in the prescribed form (known as a statutory
demand (Form 4.1 (Scot)) to the company; and
- the
company fails to pay, secure or agree a settlement of the debt
to the creditor's reasonable satisfaction.
There
are other situations where a company is deemed unable to pay its debts.
Please read the relevant legislation. |
The court
may also order the company to be wound up on the petition of:
- the company
itself;
- the company's
directors or one or more members;
- the Secretary
of State for Trade and Industry; or
- the Financial
Services Authority (formerly the Securities and Investment Board).
3. Must the
petition be advertised?
Unless the
court directs other arrangements, the petition must be advertised in the
Edinburgh Gazette.
4. What
appears on the company record held by Companies House?
If the petition
is successful, the company must send Form 4.2 (Scot)
and a copy of the winding-up order to the Registrar and AIB straightaway
and it will be placed on the company's public record.
The petition
itself is not presented to the Registrar so it will not appear on the
public records.
5. Who
acts as the liquidator when an order is made to wind up the company?
A provisional
liquidator may be appointed after the petition is presented. If a winding
up order is made, an interim liquidator is appointed. Both the provisional
and interim liquidator must notify AIB of their appointments.
6. What
are the duties of the interim liquidator?
Within 28
days of the appointment, the interim liquidator investigates the company's
affairs and will call meetings of creditors and contributories (that is,
those people liable to contribute to the assets of a company in the event
of it being wound up). The meetings appoint the official liquidator who
must notify AIB within 7 days. If no liquidator is appointed at the meetings,
the court appoints a liquidator.
The liquidator
must send to AIB a statement of receipts and payments for the first 12
months of liquidation and thereafter every 6 months until the winding
up is complete.
7. What
happens when the winding-up is complete?
When the
Registrar and AIB receive notice from the liquidator of the final meeting
that winding-up is complete, the Registrar will register it and publish
its receipt in the Edinburgh Gazette.
Unless the
Court directs otherwise, the company will be dissolved three months after
the notice was registered at Companies House.
| If
the liquidator, is satisfied that the company's realisable assets
(that is, assets which could be sold or disposed of to raise money)
will not cover the expenses of winding-up and that no further investigation
of the company's affairs is necessary, he may apply to the Registrar
for early dissolution of the company. The company will be dissolved
3 months after the application is registered at Companies House |
8. Which
forms should be used?
| Form
title |
Number |
| Statutory
demand for payment |
4.1
(Scot) |
| Notice
of winding-up order |
4.2
(Scot) |
| Liquidator's
statement of receipt and payments |
4.3
(Scot) |
| Notice
of liquidator's statement of receipts and payments |
4.4
(Scot) |
| Notice
of appointment of liquidator |
4.5
(Scot) |
| Notice
of final meeting of creditors |
4.17
(Scot) |
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CHAPTER 7
Further information
1. Where
can I go for help?
Staff at
Companies House in Edinburgh and AIB will be able to advise you on general
matters, but if you are considering liquidation or insolvency proceedings
you should seek the advice of an insolvency practitioner or the Insolvency
Service.
Complaints
about the conduct of a licensed insolvency practitioner should be sent,
in writing, to:
The Insolvency
Practitioners' Section
The Insolvency Service
Area 1.10
PO Box 203
21 Bloomsbury Street
London
WC1B 3QW
They will
then forward the complaint to the practitioner's authorising body.
2. Where do I get forms and guidance booklets?
This is one
of a series of Companies House booklets, which provide a simple guide
to the Companies Act - see the inside front cover for a full list.
On request,
we can also provide guidance on related legislation. Titles include: 'Oversea
Companies' (GBO1), 'Limited Partnership Act' (GBO2) and 'European
Economic Interest Groupings' (GBO4).
Statutory
forms and guidance booklets are available free of charge from Companies
House. The quickest way to get them is through our website or by telephoning
0870 333 3636. If you prefer you can write to our Stationery Teams in
Cardiff or Edinburgh - addresses on the inside back cover.
The following
forms are available from Companies House:
Receivership
forms
| 1(Scot)
|
Notice
of the appointment of a receiver by the holder of a floating charge
|
| 2(Scot) |
Notice
of the appointment of a receiver by the court |
| 3(Scot) |
Notice
of the receiver ceasing to act or of his removal |
| 3.4(Scot) |
Notice
of authorisation to dispose of secured property |
| 3.5(Scot) |
Notice
of receiver's report |
Liquidation
forms
| 4.2(Scot) |
Notice
of winding up order |
| 4.17(Scot) |
Notice
of final meeting of creditors |
| 4.26(Scot) |
Return
of final meeting in a voluntary winding-up |
| 4.27(Scot) |
Notice
of court's order sisting proceedings in winding up by the court |
| 4.28(Scot) |
Notice
under section 204(6) or 205(6) |
| 111/110 |
Members'
Voluntary - Return of final winding up meeting |
| 112/110 |
Creditors'
Voluntary - Return of final winding up meeting |
Forms can
also be obtained from the Accountant in Bankruptcy or from legal stationers.
A list of legal stationers can usually be found in Yellow Pages.
3. How
do I send forms to the Registrar?
- Documents,
including court orders, should display the correct company name and
registration number, where appropriate.
- Companies
House will only acknowledge receipt if you provide a stamped addressed
envelope.
- You should
supply documents in portrait format (that is, with the shorter edge
across the top)
Documents may
be delivered by post, by hand (personally or by courier) or by the Hays
Document Exchange service.
The relevant
addresses are:
The
Registrar of Companies
Companies House
37 Castle Terrace
Edinburgh EH1 2EB
DX ED235 Edinburgh 1 |
The
Accountant in Bankruptcy
George House
126 George Street
Edinburgh EH2 4HH
DX ED311 |
| Please
note: Companies House does not accept accounts or any other statutory
documents by fax. |
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