Part 4 – Creditors’ voluntary liquidation
January 2014
Where the members are of the opinion that the company cannot due to its debts continue its business, and that it is advisable to wind it up they can initiate this by special resolution [Note 1]. Within 14 days of passing the resolution a meeting of creditors must be held [Note 2].
56.3.54 Duty to call the meeting of creditors
The duty to call the meeting of creditors remains with the company [Note 3]. The meeting may be called by the liquidator appointed by the members, if any, a director, or the secretary (see paragraph 56.3.55). It is common practice for the meetings of members and creditors to be held on the same day but the provision of the 14 day period is to ensure the directors have time to prepare the information to be provided to the meeting (see paragraph 56.3.61). The creditors’ interests are protected during the 14 day period by the limited powers of the liquidator or directors once the resolution has been passed (see paragraph 56.3.55).
56.3.55 Powers of the liquidator, if appointed, up to meeting of creditors
Where a liquidator is appointed at the members’ meeting his powers are limited to taking custody or control of all property to which the company appears entitled, protecting the assets of the company and disposing of perishable goods or other goods whose value is likely to diminish if not immediately disposed of, until the creditors’ meeting. If the liquidator wishes to exceed these restrictions he/she must obtain the leave of court [Note 4].
56.3.56 Powers of the directors up to the meeting of creditors
If the members do not nominate a liquidator, the company remains in the control of its directors pending the creditors’ meeting. The resolution to wind up the company voluntarily restricts the directors’ powers to protecting the assets and disposing of perishable goods and to calling the meeting of creditors and preparing the statement of affairs. Any other actions require the leave of the court [Note 5].
56.3.57 Notice of the meeting of creditors
The notice of the meeting must be sent to every known creditor not less than seven days before the day on which the meeting is to be held. The notice must be advertised in the London Gazette and may be advertised in such other manner as the directors think fit [Note 6].
56.3.58 Contents of the notice of meeting of creditors
Any notices must contain the venue fixed for the meeting and its purpose [Note 7]. The Gazette notice must contain, if practicable, the following:
Any other notice must include similar information as above [Note 10].
56.3.59 Notice of meeting must contain contact for further information
The notice of the meeting of creditors must contain, either the name and address of an insolvency practitioner who will provide the creditors with information regarding the company’s affairs, or details of an address near the company’s principal place of business where a full list of creditors can be inspected two days prior to the creditors’ meeting. This information must be provided free of charge [Note 11].
56.3.60 The time and place for the meeting
The creditors’ and members’ meetings must be held on a business day. The meeting must commence between 10am and 4pm at a place convenient for the creditors to attend [Note 12].
56.3.61 Statement of affairs - contents
The directors must prepare a statement of affairs in the prescribed form and produce it at the meeting of creditors. The statement of affairs must be verified by a statement of truth by some or all of the directors and show:
56.3.62 Date of the statement of affairs
The statement of affairs must be prepared up to a date not more than 14 days before the meeting at which the winding up resolution is to be proposed. If the statement of affairs does not cover the period up to the meeting of creditors the directors must make a report of any material transaction between the date of the statement of affairs and the meeting which affects the company [Note 14].
56.3.63 Statement of affairs – filing duties
Following the creditors' meeting the directors must deliver the statement of affairs to the liquidator in office. The liquidator must file it with the registrar of companies within 5 business days of receipt [Note 15]. Any director or directors who fail to provide a sworn statement of affairs to the creditors' meeting is guilty of an offence and liable to a fine. A director’s failure to prepare or provide a statement of affairs before the meeting may be seen as unfit conduct during the management of the company for any disqualification proceedings (see paragraph 56.3.78). The failure does not invalidate the proceedings.
56.3.64 A director to preside over the meeting of creditors
A director must be appointed to attend and preside over the creditors’ meeting [Note 16]. If he/she fails to attend the creditors can appoint someone else to preside and the meeting will be valid [Note 17]. If a liquidator has been nominated by the company at the members’ meeting, he/she is required to attend the creditors’ meeting and report on any action taken by him/her in the period between the meetings [Note 18].
56.3.65 Business to be conducted at the first meeting
The business that can be transacted at the first meeting of creditors is restricted to [Note 19]:
Voting at the meeting of creditors is by a simple majority in value of the creditors entitled to vote [Note 24]. The creditors are required to prove their entitlement to vote, which may be in any form, and submit any proxy required to support that entitlement prior to the meeting [Note 25]. The liquidator may require a person claiming to be a creditor of the company to provide documentary evidence of his/her claim and has the power to admit or reject that claim [Note 26]. A creditor for an unliquidated debt or the value of whose debt is unascertained must not vote unless the chairman agrees an estimated value of the debt for voting purposes and admits the creditors’ proof. A secured creditor may vote in respect of any unsecured portion of his debt [Note 27].
56.3.67 Powers and duties of the liquidator
The liquidator’s role is to realise the assets and distribute the funds to the creditors and shareholders. In order to achieve this role the liquidator has the powers and duties outlined in paragraphs 56.3.15 to 56.3.17. Where he/she requires permission (referred to as sanction in the Act) to carry out of his/her duties, this will be given by a special resolution of the company.
The powers of the directors cease on the appointment of the liquidator at the meeting of creditors. The liquidation committee (or the creditors if there is no committee) may, however sanction their continuance [Note 28].
56.3.69 How the liquidator’s remuneration is fixed
The method of calculating the liquidator’s remuneration (generally referred to as the basis) is fixed by the liquidation committee or, if there is no liquidation committee, by a resolution of a meeting of creditors, usually when he/she is appointed.
56.3.70 How the liquidator’s remuneration is fixed – pre 6 April 2010
Where the liquidation commenced before 6 April 2010 the basis of the remuneration is fixed either:
56.3.71 How the liquidator’s remuneration is fixed – post 6 April 2010
Where the liquidation commenced on or after 6 April 2010 the basis of the remuneration may be fixed as any one or more of the three bases set out above paragraph 56.3.71. The remuneration may be set for different activities carried out by the liquidator using different bases and/or percentages [Note 30].
56.3.72 Where the liquidator’s remuneration has not been fixed – pre 6 April 2010
Where a creditors’ voluntary liquidation commenced before 6 April 2010, and the liquidator’s remuneration has not been fixed by the liquidation committee or a meeting of creditors, he/she is entitled to remuneration calculated in accordance with the scales set out in Schedule 6 to the Rules [Note 31]. If the liquidator considers that his/her remuneration is insufficient, he/she may apply to the creditors and ultimately to the court for it to be increased [Note 32].
56.3.73 Where the liquidator’s remuneration has not been fixed – post 6 April 2010
Where a creditors’ voluntary liquidation commenced on or after 6 April 2010 and the liquidator has been unable to secure the fixing of the basis of his/her remuneration by the liquidation committee or a meeting of creditors, he/she must apply to the court to fix it. Such an application must be made within 18 months of the liquidator’s appointment [Note 33].
56.3.74 Liquidator considers his/her remuneration inadequate
Where the liquidator considers that the basis of remuneration fixed by the liquidation committee is insufficient or inappropriate he/she may apply for a resolution of the creditors to change it [Note 34]. Alternatively he/she may apply to the court to change his/her remuneration. Where, after applying to the liquidation committee for a change, the liquidator still considers his/her remuneration unsatisfactory, he/she may make application for a change to the court [Note 35].
56.3.75 Liquidator’s remuneration from charged or third party assets
The liquidator is entitled to charge remuneration on assets secured by a fixed or floating charge. The level of remuneration charged must be in accordance with Schedule 6 of the Rules [Note 36]. In certain other circumstances where the liquidator deals with property that is not an asset of the company, for example trust property, he/she may be paid remuneration and allowed expenses for work done in respect of dealing with that property. The remuneration and expenses will be paid from the proceeds of the property in question [Note 37].
56.3.76 Creditors’ objection to liquidator’s remuneration – pre 6 April 2010
Where a creditor considers that the remuneration fixed for the voluntary liquidator is excessive (in liquidations commencing before 6 April 2010) he/she may, with the concurrence of 25 per cent of the value of the creditors (including that creditor), apply to the court for a reduction of the remuneration [Note 38].
56.3.77 Creditors’ objection to liquidator’s remuneration – post 6 April 2010
In liquidations commencing on or after 6 April, a secured creditor or unsecured creditor, with the agreement of at least 10% in value of the creditors (including themselves) or permission of the court, may apply to court if they consider that the liquidator’s remuneration and/or expenses are excessive or that the basis of the liquidator’s remuneration is inappropriate. The court may dismiss the application if it considers that no sufficient cause is shown for a reduction. If the court considers the application to be well-founded it must make an order:
56.3.78 Disqualification report
The liquidator, in a creditors’ voluntary liquidation, has a duty to submit a conduct report to the Secretary of State regarding the company’s directors. and shadow directors, which may result in disqualification proceedings [Note 40]. As at 2014 it is unlikely that an official receiver (with the exception of cases dealt with by the public interest units) will be directed to take disqualification proceedings in a voluntary liquidation, as these cases will be dealt with by Investigations and Enforcement Services.
56.3.79 Completion of creditors’ voluntary liquidation
When the affairs of the company have been fully wound up the liquidator must convene final meetings of the company and its creditors to conclude the liquidation [Note 41]. Further details are contained in paragraph 56.3.28.
[Back to Part 3 Members’ voluntary liquidations] [On to Part 5 Compulsory winding up following voluntary liquidation]