No director should be hurried into putting their limited company into liquidation before a pre-liquidation review and comprehensive planning has been carried out. It is important the director has sufficient understanding and is in agreement with the perceived outcome of the liquidation so a professional review before placing the company in liquidation can prove very valuable.
Prior to any Creditors Voluntary Liquidation (CVL) action being carried out, a professional but brief review of the firm’s finances should be conducted.
This review is simply a ‘fact finding’ exercise, usually done face to face with one of our experienced insolvency consultants. It is important to note that the pre-liquidation review may comprise of recommendations other than a CVL for the business.
At the meeting the following may be reviewed:
- The expectations shareholders and directors? Do they want to rescue the business or simply walk away and ‘shut up shop’.
- The company accounts if necessary
- Details of charges over any company assets
- The outcome if the company enters an alternative insolvency procedure and whether or not one or more of these would be more suitable.
It is important that in order to secure the optimum outcome for the business and its creditors, a pre-liquidation review takes place. Wilson Field do not charge for this initial review and will come to meet you at your place or work, your home or anywhere that is convenient.
The meeting of shareholders
Shareholder agreement of a CVL must be shown officially by holding a shareholders meeting and passing the appropriate resolutions.
Directors must usually give shareholders 14 days’ notice of an extraordinary general meeting in writing and by placing an advert in the London Gazette. The notice period can be different depending on the company’s articles of association but 14 days is standard. At the meeting a special resolution to wind up the company must be passed by at least 75% (by value) of voting shareholders.
The resolution will also highlight the following:
- The winding up of the company via a CVL is the best course of action for both the company and its creditors.
- The firm of Insolvency Practitioners that will be appointed to act on the company’s behalf.
Once passed the resolution must be filed with the Registrar of Companies at Companies House within 15 days from the date it was passed.
The shareholders meeting may take place up to 14 days prior to a meeting of creditors but can also (with majority shareholder consent) take place on the same day as the creditors meeting. The powers of the insolvency practitioner, who was appointed at the shareholders meeting are limited until the creditors meeting where he/she will be officially appointed as liquidator.#
The 1986 Insolvency act
The 1986 Insolvency act states that powers can only be exercised by the insolvency practitioner appointed at the shareholders meeting under the following circumstances:
- Taking control of assets where it is necessary to do so in order to protect their value for the benefit of creditors.
- The disposal of assets that are perishable (such as food).
- The disposal of livestock to protect the welfare of the animals (such as animals in a pet shop)
- The shareholder appointed insolvency practitioner may sell non-perishable assets before being appointed as liquidator at the creditors meeting. However, their actions must be justified and the sale must be done at market value. It is a requirement that the Insolvency Practitioner attend the creditors meeting to report on his/her actions showing justification where needed.
The Creditors Meeting
The insolvency practitioner acting on the company’s behalf is required to notify creditors a minimum of seven days’ before the creditors meeting takes place. An advertisement of the meeting must be advertised in the London Gazette. Although it is not a requirement, the Insolvency Practitioner may also choose to advertise in one or more newspapers if they feel that a full list of creditors has not been given to them by the directors.
London Gazette advert
The following details must be included in the London Gazette creditors meeting advert:
- Company details:
- Company name.
- Company number.
- Trading name (if any).
- Registered office.
- Principal trading address.
- Nature of business.
- Proposed liquidators name and address.
- Venue, time and date of meeting.
- Creditors have the opportunity to vote by proxy which means they can vote by post or through a third party. An indication of this right is highlighted in the Gazette along deadlines for sending etc, advert but the actual proxy form is sent out by the insolvency practitioner when notice are sent to creditors.
- Information about creditors rights to certain information.
Notices sent to creditors
The following details must be included in the notices sent to creditors:
- All the details that are included in the London Gazette advert.
- A Notice to creditors must also include a proxy form and details of how they can vote by this method.
The creditors meeting must take place within 14 days of the shareholders meeting. However, it is possible and usually practical that both happen on the same day. A Company director must attend the meeting and act as chairman, however, the Insolvency Practitioner will usually take the lead.
At the meeting the creditors will vote either in favour or against the director’s choice of liquidator. Meetings are rarely attended these days by the actual creditors themselves.
Report given to attendees
A report on the company given to attendees contains (but is not limited to):
- Details of any involvement the liquidators have had with the directors prior to them being appointed at the shareholders meeting.
- The Insolvency Practitioners costs relating to the preparation of the Statement of Affairs and organisation of the creditors meeting.
- A summary report of the company’s trading history and the reasons for failure. The director’s conduct whilst running the company will also be highlighted.
- Extracts of either audited or draft accounts for the previous three years.
- A list of assets and the plans for how the liquidator plans on realising money
- List of creditors and total debt owed.
- A statement of affairs, listing the company’s assets, liabilities and the overall deficiency of the company.
The appointment of the liquidator
Whether the creditors vote by proxy, in attendance at the meeting or through a third party, 50% or more of voting creditors (some creditors choose not to vote) must agree to the appointment of the company’s choice of liquidator. As mentioned previously in this article, it is unusual for creditors to turn up at all. And rare for the company’s choice of liquidator to be replaced.
The liquidator’s appointment
During the shareholders’ meeting, the shareholders nominate the Insolvency Practitioners that they would like to be appointed as liquidator. Unless the creditors vote against the shareholders choice and by majority vote (51% or more) nominate an alternative liquidator, the company’s choice of liquidator will stand.
Creditors who have a debenture or security against company assets cannot vote unless they value their security. Secured creditors are on the whole (but not limited to) organisations such as banks, factoring companies and hire purchase companies.
If secured creditors are only secured for part of the debt owing. They have the right to vote for the unsecured balance.