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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 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'.
4. Can anyone
supervise insolvency procedures?
All liquidators,
administrators, administrative receivers and supervisors taking
office on or after 29 December 1986 must be authorised insolvency
practitioners.
Receiver managers
and Law of Property Act (LPA) receivers do not have to be
authorised.
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, administrator or
Official Receiver 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 |
| Report of a meeting
approving a voluntary arrangement |
1.1 |
| Order of revocation
or suspension of voluntary arrangement |
1.2 |
| Voluntary arrangement's
supervisor's abstract of receipts and payments |
1.3 |
| Notice of completion
of voluntary arrangement |
1.4 |
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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. 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.
4. 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.
5. 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.
6. Who must an
administrator notify of his appointment?
An administrator
must:
- advertise the order
in the 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 Forms
2.6 and 2.7.
What is the
Gazette?
The Gazette is published by HMSO and contains various
statutory notices and advertisements. It is published
daily. References to the Gazette are to the London Gazette
in respect of companies registered in England and Wales.
Notices
placed by the Registrar of Companies in England and
Wales are included in the Company Law Official Notifications
Supplement to the London Gazette which is published
on microfiche. You may see copies in the Companies House
search rooms listed at the back of this booklet (except
in Scotland). Some of the larger public libraries also
have copies. |
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 administration
order |
2.6 |
| Administration
order |
2.7 |
| Administrator's
abstract of receipts and payments |
2.15 |
| Notice of discharge
of administration order |
2.19 |
| Notice of variation
of administration order |
2.20 |
| Statement of
administrator's proposals |
2.21 |
| Notice of result
of meeting of creditors |
2.23 |
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CHAPTER 4
Receivers
1. What is a receiver?
There are many different
kinds of receiver and their powers vary according to the terms
of their appointment.
An administrative
receiver is a receiver or manager of the whole, or substantially
the whole, of a company's property who is appointed by or
on behalf of the holders of any debentures of the company
secured by a floating charge. He or she has the power to sell
(or otherwise realise) the assets covered by the floating
charge and apply the proceeds to the debt owed to the charge-holder.
Receivers who are
not administrative receivers may be appointed in other circumstances.
For example, under powers contained in an instrument or document
creating a charge over a company's property, a receiver or
manager may be appointed until the debt is recovered. Receivers
may also be appointed under the Law of Property Act 1925.
2. Who gives notice
of the receiver's appointment?
The person who appoints
the administrative receiver, receiver or manager, or has them
appointed under the powers contained in an instrument, is
responsible for informing the Registrar within 7 days of the
appointment. An administrative receiver must also publish
notice of his appointment in the Gazette
and in an appropriate newspaper.
When the administrative
receiver, receiver or manager ceases to act they must notify
the Registrar.
3. What must the
receiver send to Companies House?
Within 3 months of
appointment, an administrative receiver must make a report
to:
- the Registrar;
- 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 of the appointment and the action
the administrative receiver is taking. The report must
also include a summary of any '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. |
All receivers must
send an account of receipts and payments for the first 12
months of receivership to the Registrar, and:
- for administrative
receivers, at 12-monthly intervals thereafter;
- for receivers and
managers, at 6-monthly intervals.
4. Which forms should
be used?
The appropriate forms are:
| Form title |
Number |
| Notice of the
appointment of receiver or manager |
405(1) |
| Notice of ceasing
to act as receiver or manager |
405(2) |
| Receiver or manager
or administrative receiver's abstract of receipts and
payment |
3.6 |
| Administrative
receiver's report |
3.10 |
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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 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 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
Gazette within 14 days; and
- sent to the Registrar
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 tatement 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 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 Gazette and notify the Registrar. 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 Companies House?
The liquidator must
send a statement of affairs and Form 4.20
to the Registrar within 7 days of the creditors' meeting.
The liquidator must
also send a statement, in duplicate, 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 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 Registrar 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 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 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 in conversion from a members' voluntary to a creditors'
voluntary liquidation |
4.18
& 4.20 |
| Statement of
affairs in a creditors' voluntary liquidation |
4.19
& 4.20 |
| Liquidator's
statement of receipts and payments |
4.68 |
| Members' voluntary
winding-up declaration ofolvency embodying a statement
of assets and liabilities |
4.70 |
| Return of final
meeting in a members' voluntary winding-up |
4.71 |
| Return of final
meeting in a creditors' voluntary winding-up |
4.72 |
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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 High Court, or
a county 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))
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;
- the Financial Services
Authority (formerly the Securities and Investment Board);
or
- the Official Receiver.
3. Must the petition
be advertised?
Unless the court directs other arrangements, the petition
must be advertised in the Gazette.
4. What appears
on the company record held by Companies House?
If the petition is
successful, the company must send the winding-up order to
the Registrar 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?
The Official Receiver
becomes liquidator on the making of a winding-up order against
a company, unless the court orders otherwise.
6. What are the
duties of the Official Receiver as liquidator?
The Official Receiver
has a duty to investigate the company's affairs and the causes
of its failure.
He also decides whether
to call meetings of the creditors and contributories (that
is, those people liable to contribute to the assets of the
company if it is wound up) for the purpose of appointing a
liquidator in his place.
If he decides not
to call meetings, he must notify the creditors, contributories
and the court of his decision.
On the other hand,
if he decides to call meetings, a liquidator may then be appointed
in place of the Official Receiver. The liquidator must notify
the Registrar of his or her appointment immediately.
If the position of
liquidator becomes vacant at any time, the Official Receiver
becomes the liquidator for the duration of the vacancy.
7. What happens
when the winding-up is complete?
When the Registrar
receives notice from the liquidator of the final meeting of
creditors or notice from the Official Receiver that winding-up
is complete, he will register it and publish its receipt in
the Gazette.
Unless the Secretary
of State directs otherwise, the company will be dissolved
3 months after the notice was registered at Companies House.
| If the Official
Receiver, acting as 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. |
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CHAPTER 7
Further information
1. Where can I
go for help?
Staff at Companies
House in Cardiff 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.
The following forms
(mentioned in this booklet) are available from Companies House.
- 405(1) notice of
appointment of receiver or manager;
- 405(2) notice of
ceasing to act as receiver or manager; and
- 600 notice of appointment
of liquidator voluntary winding up (members or creditors).
All the other forms mentioned
in this booklet are insolvency forms and can only be obtained
from legal stationers, not Companies House. A list of legal
stationers can usually be found in 'Yellow Pages'.
Statutory forms and guidance booklets are available, free
of charge from Companies House. The quickest way to get them
is through this website or by telephoning 0870 3333636.
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.
If you send insolvency documents by post, you should address
them to:
The Liquidation Department
Companies House
Crown Way
Cardiff CF14 3UZ
DX33050 Cardiff
During office hours
you can deliver documents by hand (personally or by courier)
to Companies House in Cardiff, London, Manchester, Birmingham
and Leeds for English and Welsh companies.Outside office hours,
(including Bank Holidays and weekends) documents can be delivered
by hand to Cardiff and London.
| Please
note: Companies House does not accept accounts or any
other statutory documents by fax. |
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