Part 5 – Compulsory liquidation following voluntary liquidation
January 2014
In a voluntary liquidation the creditors and members retain the right to petition the court for a winding-up order. The court will usually wish to be satisfied that there is some advantage in making a winding-up order or that the rights of creditors will be better served by the conversion of the voluntary liquidation into a compulsory lliquidation [Note 1].
56.3.81 Petition presented by contributory
If a contributory presents the petition, the court will need to be satisfied that the rights of the members are being prejudiced by the continuation of the voluntary liquidation [Note 2].
56.3.82 Petition presented by a creditor
In the case of a creditor’s petition, the court will make a winding-up order against the wishes of the majority of creditors only if there is some special reason to override their wishes [Note 3]. The court may disregard the wishes of any opposing creditor who is closely associated with the management of the company [Note 4]. If the creditors wish to continue the voluntary liquidation and no valid reason is shown why a winding-up order should be made, the court will not make a winding-up order [Note 5]. Whilst the voluntary liquidator may make representations to the court by way of witness statement to inform the court of relevant matters, he should not attempt to oppose the petitioner. The court has discretion to award costs to the voluntary liquidator if he/she appears on the petition.
56.3.83 Petition by the official receiver
The official receiver can petition for a winding-up order where a company is in voluntary liquidation. The official receiver, although the petitioner, is subject to the directions of the Secretary of State (SoS) (the Insolvency Service's Insolvency Practitioner Services has delegated SoS authority). In practice such a petition is made in the public interest, for example where the voluntary liquidation has not been conducted in the best interests of the creditors or when the actions of the voluntary liquidator have contravened the Insolvency Practitioners Regulations 1990 [Note 6]. On the presentation of the petition the court may appoint the official receiver as provisional liquidator [Note 7]. Further information on provisional liquidators is contained in Chapter 2.
56.3.84 Effect of the winding-up order
On the making of the winding-up order the voluntary liquidator vacates office and the official receiver becomes liquidator. The voluntary liquidator must apply to the Secretary of State for his release [Note 8]. The voluntary liquidation and compulsory liquidation form one continuous proceeding with the date of the resolution for voluntary liquidation remaining the date of commencement of the winding up. All "proceedings" taken in the voluntary liquidation are deemed to be valid unless the court, on proof of fraud or mistake, directs otherwise [Note 9].
56.3.85 Initial action by the official receiver on the making of a winding-up order
The official receiver should contact the voluntary liquidator and inform him of the making of the winding-up order. Chapter 3 provides guidance on initial enquiries in general. The official receiver should also obtain from the voluntary liquidator:
56.3.86 Initial action re company funds and assets held by the former liquidator
The official receiver should arrange with the voluntary liquidator for the handing over of the company’s assets including any realisations which have not been paid into the Insolvency Services Account. Often the funds held will be net of expenses and remuneration paid but "net" assets should not be accepted where the approval of the court is required (see paragraph 56.3.89) [Note 11].
56.3.87 Preferential creditors – the relevant date
Where a winding-up order is made against a company in voluntary liquidation the relevant date for the calculation of preferential claims is the date of the resolution for voluntary winding up was passed [Note 12].
56.1.88 Preferences and transactions at an undervalue – the relevant date
The relevant date from which the official receiver may investigate preferences and transactions at an undervalue is the date of the resolution for voluntary winding up is passed [Note 13]. This enables the official receiver to investigate the disposal of assets by the company prior to the appointment of the voluntary liquidator. Further information on preferences and transactions at an undervalue can be found in Chapter 31.4A.
56.3.89 Payment of the voluntary liquidator's remuneration after a winding-up order
Where the former voluntary liquidator is, or claims to be, entitled to any unpaid remuneration after the presentation of the petition, he should make an application to the court to determine:
56.3.90 The voluntary liquidator's application to court and the official receiver's report
The former voluntary liquidator will apply to the court by claim form in which the official receiver or outside liquidator is made the respondent. The claim form should be supported by a witness statement setting out the former voluntary liquidator’s claim for remuneration and expenses. The official receiver should file a report in court prior to the hearing which should include a brief summary of the events from the passing of the resolution for voluntary liquidation to the making of the winding-up order. The official receiver should compare the amount of remuneration (if any) already paid to the voluntary liquidator and the authority under which it was paid with the amount which would have been charged by him/her. If there is a substantial difference, this fact should be included in his/her report to court. The official receiver should also consider whether there were any special circumstances arising in the voluntary liquidation which would have warranted a higher level of remuneration being charged [Note 15].
56.3.91 The official receiver report to court and the voluntary liquidator's expenses
The official receiver should confirm that the expenses incurred in the preparation of a statement of affairs and convening meetings were reasonable and necessary and that other expenses (e.g. agent’s and legal fees) were properly incurred. If the expenses charged were unreasonable, or if unnecessary work has been done, the official receiver should make such comment in his/her report to court.
56.3.92 Priority of voluntary liquidator's post petition remuneration and expenses
The voluntary liquidator's post petition remuneration and expenses approved by the court will rank in priority with the expenses as specified in paragraph 36.51 [Note 16]. Where a winding-up order is made immediately after a voluntary liquidation, the remuneration and expenses of the voluntary liquidator allowed by the court are payable in priority with (i.e. on a par with) the expenses properly incurred by the official receiver or the liquidator in preserving, realising or getting in the company’s assets.
56.3.93 The official receiver and the voluntary liquidator's remuneration
Where the official receiver is concerned, for whatever reason, at the deductions already made from the assets of the company by way of remuneration, he/she may make an application to the court.
56.3.94 Appointment of former voluntary liquidator as liquidator
A former voluntary liquidator may accept nomination as liquidator of the company when a winding-up order is made. The former voluntary liquidator should take into account any conflict of interest or other difficulties before accepting the nomination. The official receiver should bring to the attention of the meetings any complaints he/she has received relating to the administration of the voluntary liquidation and whether an objection might be made to the nomination of the former voluntary liquidator (see paragraphs 16.80 and 16.81 for further details). Where a former voluntary liquidator is subsequently appointed to be liquidator of the company, it is not necessary for a further certificate of specific penalty (security) to be issued in respect of the later appointment [Note 17].
56.3.95 Disqualification information
Where a winding-up order follows a creditors’ voluntary liquidation any disqualification return (titled D1 Full Report) submitted by the voluntary liquidator may be found on ISCIS. The official receiver should bear in mind that an application for a disqualification order should be made within 2 years of the date of the company going into voluntary liquidation at a time when it was insolvent. The leave of the court is required to bring proceedings outside this period [Note 18].
[Back to Part 4 Creditor's voluntary liquidation]