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Creditors' Voluntary Liquidation

  1. 1 Overview
  2. Occurs when a company is insolvent i.e. it cannot pay all its liabilities in full.
  1. 1.1 The directors initiate voluntary proceedings but the liquidation is under the control of the creditors.
  2. 1.2 The shareholders/members have no influence over the proceedings- their only role is to approve putting the company into liquidation at the outset.
  3. 1.3 The meetings of creditors and members is convened to consider the financial position (as disclosed in the Statement of Affairs) and to appoint a liquidator.
  4. 1.4 The liquidation commences from the time of the shareholders’ meeting.
  5. 1.5 The liquidator displaces the directors on appointment.
  6. 1.6 IThe liquidator realises assets and distributes the funds to all classes of creditors as far as funds permit.
  1. 2 Procedure
  1. 2.1 Directors' Meeting
  1. This is called to consider the company’s financial position and to resolve to hold a meeting of shareholders ("EGM") and creditors.
  1. 2.2 Shareholders' Meeting
  1. The meeting must be convened in accordance with the memorandum and articles of association and the Companies Act 1985.
  2. Called with at least 14 days notice unless shorter notice agreed by 95%.
  3. The meeting is called to pass the following resolutions:-
    1. an extraordinary resolution to wind the company up; 75% majority required,
    2. an ordinary resolution to appoint a liquidator; > 50% majority required.
  4. For the meeting to be quorate there must be two shareholders present either in person or by proxy.
  1. 2.3 Creditors' Meeting
  1. The meeting is governed by the provisions of the Insolvency Act 1986 (sec.98).
  2. At least 7 days’ notice of the meeting must be given to the creditors.
  3. The meeting must be held not more than 14 days after the shareholders’ meeting (sec 98(1)) though both meetings are usually held on the same day.
  4. The meeting must also be advertised in the London Gazette and two local papers.
  5. A list of creditors must be available for inspection at a place in the locality where the company operated or an insolvency practitioner must be named who must provide information and/or answer queries on request (sec 98(2)).
  6. The notice of the meeting must state a time for the lodging of proxies in order to entitle the creditors to vote at the meeting. The latest time for the lodging of a proxy is not earlier than 12 noon on the business day before the meeting.
  7. Creditors can vote provided that they are not secured, their claim is not unliquidated and a proof has been lodged. (Rule 4.67(2)).
  8. The venue must be fixed having regard to the convenience of those attending and should be held between 10 a.m. and 4 p.m. on a business day. (Rule 4.69).
  1. 2.4 Purpose of Creditors' Meeting
  1. The following resolutions are taken (sec 100 and 101):-
    1. to appoint a liquidator,
    2. to appoint a liquidation committee.
  2. The voting is determined by the value of claims lodged and preset either in person or by proxy.
  3. To be quorate there must be at least one creditor present in person or by proxy.
  1. 2.5 Business at Metting
  1. One of the directors is nominated to act as Chairman and must lay before the meeting a statement of affairs (sec99).
  2. The statement of affairs must be as up to date as possible. It is the directors' statement and must be delivered to the liquidator at the end of the meeting.
  3. At the shareholders’ meeting there will have been a resolution passed nominating a person to be liquidator. If at the creditors’ meeting there are no other nominations, then the shareholders' choice is confirmed in office.
  4. A report is also presented to the meeting which will include the following information:-
    1. details of company assets with book and realisable values together with a description of any fixed charges or HP commitments;
    2. details of the company’s liabilities by category i.e. preferential, floating charge, unsecured, deferred creditors and share capital;
    3. statutory information as lodged at Companies House;
    4. a brief history of the business and the reasons for its demise;
    5. a Deficiency Account showing the trading results from the finalisation of the last set of audited accounts to the date of the insolvency;
    6. details of financing/charges on assets/loans/guarantees;
    7. any other relevant information.
  5. If the chairman is aware that certain creditors intend to attend the meeting but they are not present at the time for the beginning of the meeting, he must not commence the meeting for 15 minutes to allow for late-comers to arrive (rule 12.4A).
  1. 2.6 Post Meeting Duties
  1. The liquidator must advertise his/her appointment in a local paper (rule 4.106) and also lodge a notice of appointment with the Registrar of Companies.
  2. A copy of the statement of affairs and a report of what took place at the meeting should be circulated to all creditors and shareholders.
  3. Following the meeting the directors’ powers cease and only the liquidator has the power to act in the name of the company.
  4. The liquidator must call annual meetings of shareholders and creditors to inform them as to the progress of the liquidation (sec. 105) and must call a final meeting to approve his account before the company can be dissolved (sec. 106).
  5. Meetings must be called to determine the wishes of creditors if the liquidator believes it to be necessary (rule 4.54) and must convene a meeting if requested to do so by 10% in value of the creditors (sec 168).
  6. The liquidator has full powers to do all things necessary but requires the sanction of the liquidation committee for the agreement of fees and the payment of any class of creditors in full.
  7. The liquidator must also:-
    1. realise assets at the optimum price
    2. agree creditors’ claims
    3. report on the conduct of the directors and submit such reports to the DTI within 6 months of appointment
    4. pay creditors in accordance with the prescribed order of priorities
    5. hold annual meetings and submit annual reports
    6. hold final meetings
    7. submit annual Receipts and Payments to the Registrar of Companies.
  8. The liquidator is released at a final meeting of creditors.