Voluntary Liquidation

September 2003

Voluntary Liquidation

 

This part is divided into 5 sections.  

Section 1 - Introduction and definitions (paragraphs 56.134 to 56.135).

Section 2 - Matters applicable to all voluntary liquidations (paragraphs 56.136 to 56.154).

Section 3 - Members’ voluntary liquidation (paragraphs 56.155 to 56.166)

Section 4 - Creditors’ voluntary liquidation (paragraphs 56.167 to 56.178).

Section 5 - Subsequent compulsory liquidation (paragraphs 56.179 to 56.185). 

 

56.133 The Legislative Reform (Insolvency)(Miscellaneous Provisions) Order 2010 and The Insolvency (Amendment) Rules 2010 – Transitional Provisions

(March 2011)

The Legislative Reform (Insolvency)(Miscellaneous Provisions) Order 2010 (LRO 2010) and The Insolvency (Amendment) Rules 2010 (IAR 2010) came into force on 6 April 2010 and made a number of changes in relation to voluntary liquidations. The amendments generally apply only to cases where the resolution for voluntary winding up was passed on or after 6 April 2010 (unless it went into liquidation under Paragraph 83 of Schedule B1 to the Act and the preceding administration commenced before 6 April 2010 or was an administration by virtue of an administration order where the application was made before 6 April 2010).  Full details of the transitional provisions can be found in Article 12 of LRO 2010 and Schedule 4 to IAR 2010. For the purpose of applying the transitional provisions in this part, reference will only be made to the date of the winding up resolution.

 

Section 1 - Introduction And Definitions 

56.134 Introduction  

A company may be wound up voluntarily at the instigation of its members or compulsorily by the court. Any company, (see section 1 of the Companies Act 2006) may consider voluntary liquidation but, subject to what is said below, an unregistered company cannot be wound-up voluntarily under the provisions of the Insolvency Act 1986. The provisions relating to voluntary liquidations are contained in Parts IV (excluding Chapter VI), VI and VII of the Act and Part 4 of the Rules as specified in Rule 4.1. 

The EC Regulation on insolvency proceedings, came into force on 31 May 2002 and it is now considered possible for a company registered in another EU member state to be wound up voluntarily in the UK. Further guidance on these changes will be issued in due course. 

Notes: [Companies Act 2006 s1] [s221(4)] 

 

56.135 Definitions  

Voluntary liquidation is available to the company, acting through its members, if and when they wish to wind up its affairs. There are two types of voluntary liquidation: 

  • A members’ voluntary liquidation (MVL) (see paragraphs 56.155 to 56.164) is possible where the company’s directors are able to make a declaration of solvency (see paragraph 56.156). 
  • A creditors’ voluntary liquidation (CVL) is where the members wish to wind up the company’s affairs but the directors cannot make a declaration of solvency (see paragraphs 56.165 to 56.178). 

Notes: [s73(1)] 

 

Section 2 - Matters Applicable To All Voluntary Liquidations 

56.136 Official receiver’s involvement in voluntary liquidation 

The official receiver will become involved with a company which is in voluntary liquidation due to one of the following circumstances –  

  1. there is a subsequent winding-up order (see paragraphs 56.179 to 56.185),
  2. the official receiver petitions for the winding up of a company that is in voluntary liquidation (see paragraph 56.180); or
  3. the official receiver is directed to take disqualification proceedings based on a voluntary liquidator’s conduct report.  

56.137 Circumstances in which company may be wound up voluntarily (amended March 2009) 

A company may be wound up voluntarily: 

(a)   when any period fixed for the duration of the company by the articles of association expires, or an event occurs on which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution requiring it to be wound up voluntarily;

(b)   if the company resolves by special resolution that it be wound up voluntarily; 

The Companies Act 2006 repealed the provision for a company to resolve by extraordinary resolution that it be wound up. This took effect on 1 October 2007. 

Notes: [s84]

 

56.138 The company meeting (amended March 2009) 

Where a company is to be wound up voluntarily it will call a general meeting at which the resolution for voluntary winding up will be proposed. Notice of the meeting stating the type of resolution proposed must be given to all members entitled to vote at least 14 days prior to the meeting in a private company. The company’s articles may require a longer period of notice. The requirements for the period of notice to be given can be waived by agreement of 90% of the members at the meeting, if held at short notice,  or a higher threshold if specified by the companies articles of association. 

A resolution referred to in paragraph 56.137(a) above requires a simple majority but a special resolution to effect winding up under subsection (b) requires a 75% majority. 

Notes: [Companies Act 2006 sections 282, 283 and 307] [s84(2)] 

 

56.139 Notice of resolution to wind up (amended March 2009) 

A copy of the resolution to wind up the company voluntarily must be forwarded to the Registrar of Companies within 15 days and advertised in the London Gazette within 14 days. 

Notes: [s84(3) and Companies Act 2006 section 30] [s85(1)] 


56.140 Commencement of the winding up  

The winding up of the company commences when a valid resolution for winding up has been passed, irrespective of whether a liquidator has been appointed. This date will be of importance to the official receiver, for example, when considering any potential recoveries from transactions giving a preference or at an undervalue (see Chapters 31.4A and 31.4B) and in determining the two-year period for disqualification proceedings to be commenced. 

Notes: [s86] [s240(3)] [Company Directors Disqualification Act 1986 s7(2)]

  

56.141 Company status whilst in liquidation  

From the commencement of the voluntary winding up, the company will cease to trade, unless the liquidator considers that it would be beneficial for trading to continue for the purpose of the winding up. The corporate status and corporate powers of the company continue until the company is dissolved notwithstanding anything to the contrary in its articles. Any act carried out by the liquidator is done by the liquidator in the name of the company and not in his own name 

Notes: [s87]

 

The liquidator 

56.142 The liquidator’s appointment  

The appointment of any liquidator nominated at the meeting of members or creditors takes effect immediately. The chairman of the meeting must certify the appointment of the liquidator once the liquidator has delivered to him a written statement that he is an insolvency practitioner, duly qualified under the Act to be the liquidator, and that he consents to act as liquidator. He must also satisfy himself that the liquidator has security for the proper performance of his functions (see Chapter 17, paragraph 3, for details of the liquidator’s security requirements). 

The liquidator must within 14 days of his appointment give notice of the appointment to the Register of Companies and advertise the appointment in the London Gazette. 

Notes: [r4.101] [Form 4.27][s109(1)]

 

56.143 Duties of the liquidator 

The liquidator – 

  • must send a summary of the statement of affairs and a report of the creditors’ meeting to the company’s creditors and members within 28 days of the creditors’ meeting;
  • is required within 14 days of the expiry of the period of six months from the date of his appointment and of every period of six months thereafter until he vacates office, to pay any money in his hands into the Insolvency Services Account, except any money which he considers necessary to retain for the immediate purposes of the liquidation;
  • is obliged to maintain records and accounts which can be inspected by the Secretary of State for Business Innovation and Skills and the Secretary of State can request an account for any period;
  • after the making of a winding-up order, the liquidator has a duty to supply information to the official receiver and to co-operate (see Chapter 13). If a former voluntary liquidator fails to co-operate, he can be publicly examined, but in the first instance if difficulties are experienced advice should be sought from Technical Section or Insolvency Practitioners Section.  

Notes: [r4.49][Reg 24] [Reg 5(2)][Regs 10, 12, 14 and 15][s133(1)(b)]  

 

56.144 Powers of the liquidator  

The wide-ranging powers of a liquidator are set out in sections 165 and 166 of and Schedule 4 to the Act. 

Notes: [Schedule 4, s165 & s166] 

 

56.145 Additional powers 

A liquidator is an "office-holder" and as such has the following additional powers:  

  1. to request supplies of services, to ask the court to require delivery of property and to require co-operation;
  2. if any person fails to co-operate, a liquidator may apply to the court for a private examination,;
  3. to apply to the court to have extortionate credit transactions set aside or varied;
  4. with sanction of the court or liquidation committee, to apply to court to have certain antecedent transactions set aside e.g. transactions at an undervalue, preferences and transactions in fraud of creditors;
  5. to apply to set aside certain floating charges;
  6. to disclaim any onerous property without leave of the court. 

Notes: [s233 & s234(1) & (2)][ss236; 237][s244] [Schedule 4, part I para 3A, s238, 239 and 423][s245][ss178 and 179; r4.187 as amended by IAR 2010; Form 4.53A]

  

56.146 Vacancy in office  

Where a vacancy occurs in the office of liquidator, the members in a members’ voluntary liquidation, or the creditors in a creditors’ voluntary liquidation, can fill the vacancy in a general meeting unless the court appointed the liquidator. 

Notes: [s 92, s104] 

 

56.147 Removal  

The liquidator may only be removed from office –  

  1. by an order of the court;
  2. in a members’ voluntary liquidation by a general meeting of the company called for that purpose; or
  3. in a creditors’ voluntary liquidation by a general meeting of the creditors called for that purpose. 

Notes: [s171]

  

56.148 Costs and expenses of liquidation  

Expenses properly incurred by the voluntary liquidator, including his remuneration, are payable out of the company’s assets in priority to all other claims. 

Notes: [s115]

 

56.149 Distribution  

The company’s property must, after payment of the costs and expenses of the liquidation and the preferential debts as set out in section 175, be applied pari passu in satisfaction of all the company’s liabilities. For further details of the order of payment, see Chapter 36

Notes: [s107] [s175] 

 

56.150 Annual meetings of the company and its creditors – cases where  liquidation commenced before 6 April 2010 only

(amended March 2011)  

This paragraph only applies where the resolution for voluntary winding up was passed before 6 April 2010.  

If the voluntary liquidation continues for more than one year the liquidator must summon a meeting of the company, and in a creditors’ voluntary liquidation of the creditors, at the end of that year and any subsequent year and must lay before the meetings an account of his acts and dealings and a report of the conduct of the winding up. 

A requirement of a members’ voluntary liquidation is that all creditors are paid within 12 months of the resolution to wind up (see paragraph 56.156). An annual meeting of the company will only be held where there are matters still outstanding at the end of 12 months, for example, where a tax liability has yet to be ascertained or a return to shareholders has not yet been made.

Notes: [s93and s105 as applied before LRO 2010][s89]

 

56.150A Annual Progress Reports – cases where liquidation commenced on or after 6 April 2010 only

(March 2011) 

The Legislative Reform (Insolvency)(Miscellaneous Provisions) Order 2010 removed the requirement for the liquidator to hold annual meetings of members and creditors and replaced it with a requirement to issue annual progress reports. These changes only apply where the resolution for voluntary winding up was passed on or after 6 April 2010. 

If the voluntary liquidation continues for more than 1 year, the liquidator must produce a progress report for each period of 1 year from the date of appointment until he/she ceases to act.  Within 2 months from the end of the period of the report, the liquidator must send a copy of the progress report to the members, the creditors and the Registrar of Companies.  

The Rules prescribe the contents of the progress report which must include a receipts and payments account and details of the basis fixed for the liquidator’s remuneration together with a statement of the remuneration charged and the expenses incurred. The report must also advise members and creditors of their right to request further information under Rule 4.49E and their right to challenge the remuneration and expenses under Rule 4.148C (MVL) or Rule 4.131 (CVL).  

Notes: [s92A][s104A][r4.49C]

 

56.151 Final meetings  

As soon as the company’s affairs are fully wound up, the liquidator must prepare an account of the winding up, showing how it has been conducted and how the company’s property has been disposed of, and call a general meeting of the company, and in a creditors’ voluntary liquidation, a meeting of the creditors, for the purpose of laying before it the account and giving an explanation of it. 

The general meetings of the company and its creditors must be called by advertisement in the London Gazette, specifying its time, place and object. At least one month’s notice is required. If the liquidator fails to call final meetings as required by sections 94 and 106 he is liable to a fine. 

Within one week after the meeting, the liquidator must send to the Registrar of Companies a copy of the account, and must make a return to him of the holding of the meeting and of its date. If a quorum is not present at the meeting, the liquidator must, in lieu of the return mentioned above, make a return that the meeting was duly summoned and that no quorum was present. If the copy of the account is not sent, or the return is not made in accordance with rule 94(3) or 106(3), the liquidator is liable to a fine and, for continued contravention, to a daily default fine. 

Notes: [s94(1)] [s106(1)] [s94(2) & (4)] [s106(2)][s94(3), (5) & (6)] [s106(3), (4), (5) & (6)]

 

56.151A – Electronic communication and use of websites

(March 2011) 

With effect from 6 April 2010, where a liquidator is required by the Act or the Rules to give, send or deliver any notice or document he/she may use electronic means to do so provided that the intended recipient has consented to such delivery and provided an electronic address for this. A liquidator could, for example, issue the progress report by electronic means. Any document delivered by the liquidator electronically must contain a statement that a hard copy may be requested and give contact details for making such a  request.    

The liquidator may also satisfy his/her statutory requirement to give, deliver or send a notice or document by making the information available for viewing or downloading on a website. The liquidator must notify creditors of the website address and any required password. Again creditors must be advised of their right to request a hard copy and be given contact details for making such a request. Information placed on a website by the liquidator must remain available for a period of at least 3 months from the date of the notice.  

Note [s 436B, r12A.6 – 12A.11] [s246B, r12A.12 -12A.13] 

 

56.152 Release of liquidator

(amended March 2011) 

Following the final meeting(s), the liquidator vacates office and obtains his release at the time he submits his return of the final meeting to the Registrar of Companies unless the creditors have voted against his release, in which case he must apply to the Secretary of State. 

Where a liquidator vacates office as he has ceased to be qualified to act or was removed from office by the court or the creditors (who resolved against his release) he must apply to the Secretary of State for release.  

If a liquidator has died or is removed from office by a general meeting of the company or creditors (with no resolution against his release) he will be released when notice is given to the Registrar of Companies.  

In the case of a liquidator resigning, the rules specify when his release will become effective.  

Notes: [s171(6)] [s173][r 4.122][r4.144] 

 

56.153 Remedy for breach of trust by a liquidator  

The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine the conduct of the voluntary liquidator and if he has misapplied or retained any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company, compel him to repay, restore or account for the money or property, or to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just. 

Notes: [s212]

  

56.154 Dissolution of company  

When the liquidator has sent a copy of his final account and return to the Registrar of Companies (see paragraphs 56.151 and 56.152) the company will be dissolved three months after the return is registered, unless the court makes an order deferring the date of dissolution. 

Notes: [s201]

  

Section 3 - Members’ Voluntary Liquidation 

56.155 Introduction to members voluntary liquidation 

A members’ voluntary liquidation (MVL) is available where the members wish to wind up the company’s affairs and the directors are able to make a declaration of solvency (see paragraph 56.156). This may occur when the period (if any) fixed for the duration of the company by the articles of association expires, or if the members wish to retire and realise their investment in the company. The company in general meeting will resolve that it be wound up voluntarily. 

 

56.156 The declaration of solvency  

To demonstrate that the company can pay its debts in full at the date of the resolution to wind up the directors or where more than two directors a majority of them must make a statutory declaration of solvency.  

The declaration of solvency must be in the prescribed form and state that the directors, having enquired into the company’s affairs, have formed the opinion that the company will be able to pay its debts, together with interest at the official rate, within the stated period, not exceeding 12 months. The declaration of solvency will also include a statement of the company’s assets and liabilities as at the latest practicable date before the making of the declaration. 

Although called a declaration of solvency the directors do not have to state that the company is solvent. If the company is able to pay its debts, for example by the intervention of a third party, the directors could make a declaration of solvency. 

Notes: [s89] [Form 4.70]

 

56.157 Penalty for false or inaccurate declaration of solvency  

The responsibility for inquiring into the company’s affairs, and deciding on the company’s solvency, is placed firmly on the directors. If a director makes a declaration of solvency without having reasonable grounds for the opinion that the company will pay its debts in full, within the specified period, he will be liable, on conviction, to imprisonment of up to two years or a fine, or both. 

Notes: [s89(4)] 

 

56.158 Members meeting  

The declaration of solvency must be made within the five weeks before the company holds a general meeting at which the members will pass a resolution for the winding up of the company. The winding up commences on the passing of the resolution (see paragraph 56.140). 

Notes: [s89(2)] 

 

56.159 The liquidator, his powers and duties (amended March 2009) 

The liquidator of the company will be appointed at the meeting. Any replacement liquidator will also be appointed by the company in general meeting. 

The liquidator’s role is to realise the assets and distribute the funds to the creditors and shareholders. The liquidator’s powers and duties are discussed at paragraphs 56.143 to 56.145. Where he/she requires sanction for the carrying out of his/her duties, this will be given by a special resolution of the company. 

Notes: [s92] [r4.139][s165(2)]

 

56.160 Directors’ powers  

On the appointment of a liquidator, the powers of the directors cease, except so far as the company in general meeting, or the liquidator, sanctions their continuance. 

Notes: [s91(2)] 

 

56.161 Liquidator’s remuneration

(amended March 2011)  

The basis of the liquidator’s remuneration is fixed by the company in general meeting, usually when the resolution for winding up is passed. The basis shall be fixed :- 

  1. as a percentage of the value of assets realised or distributed, or
  2. by reference to the time properly spent by the liquidator and his/her staff, or
  3. as a set amount (for liquidations commencing from 6 April 2010) 

Where the liquidation commenced on or after 6 April 2010, the Rules provide that the basis of remuneration may be fixed as any one or more of the three bases set out above, with different bases and/or varying percentages set for different activities carried out by the liquidator.  

In members’ voluntary liquidations commencing before 6 April 2010, where the liquidator’s remuneration is not fixed by the company in general meeting, the liquidator is entitled to remuneration calculated in accordance with the scales set out  in Schedule 6 to the Rules. If the liquidator considers that his/her remuneration is insufficient, he/she may apply to the court for it to be increased. 

In members’ voluntary liquidations commencing on or after 6 April 2010, where the liquidator has been unable to secure the fixing of the basis of his/her remuneration by the company, he/she must apply to the court to fix it. Such an application must be made within 18 months of the liquidator’s appointment.  If the liquidator considers that the basis of remuneration fixed by the company in general meeting is insufficient or inappropriate he/she may apply to court to change it.  

Notes: [r4.148A as amended by IAR 2010][r4.148B revoked by IAR 2010} 

 

56.161A Members’ claim that remuneration is excessive – cases where liquidation commenced on or after 6 April 2010 only

(March 2011) 

This paragraph only applies where the resolution for voluntary winding up was passed on or after 6 April 2010 (see paragraph 56.133) . 

Members of the company with at least 10% of the total voting rights of those entitled to vote at general meetings, or any member with the permission of the court, may apply to the court on the grounds that the remuneration and/or expenses of the liquidator 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 one of the orders set out in rule 4.148C(6) 

Note: [r4.148C] 

 

56.162 Distribution of assets 

The rules governing the realisation of assets and distributions to creditors in a MVL are discussed at paragraphs 56.148 and 56.149

 

56.163 Successful outcome 

In a members’ voluntary liquidation the assets will be realised, payment in full to the creditors will be made within the specified period and there may be a surplus for distribution amongst the members. The distribution to members will be carried out according to the rights of the various classes of shareholder as set out in the company’s articles of association. There is no statutory procedure for the making of a distribution to members. When the affairs of the company are fully wound up the liquidator will call a final meeting of the company as detailed in paragraph 56.151

 

56.164 Effect of insolvency on MVL  

If, at any stage, the liquidator is of the opinion that the company will be unable to pay its debts in full he must, within 28 days of forming this opinion, call a meeting of creditors. As from the day on which the creditors’ meeting is held the winding up becomes a creditors’ voluntary liquidation although the commencement date remains as the date of the original resolution to wind up. 

It is the duty of the liquidator to deal with the formalities of calling and advertising the meeting, preside at the meeting and prepare the statement of affairs (see paragraphs 56.166 to 56.171). The meeting of creditors will have the same effect as a meeting held under section 98 (see paragraph 56.166). 

Notes: [s95] [s96] [s95] [s102] 

 

Section 4 - Creditors’ Voluntary Liquidation 

56.165 Introduction (amended March 2009) 

Where the members are of the opinion that the company cannot by reason of its liabilities continue its business, and that it is advisable to wind up they can cause the company to resolve by special resolution that it should be wound up voluntarily. 

Notes: [s 84(1)b] 

 

56.166 Calling the creditors’ meeting  

Once the resolution for a winding up has been passed the company must within 14 days hold a meeting of its creditors.  

The duty to call the meeting of creditors is the company’s so it could be called by the liquidator, if any, appointed by the members, a director, or the secretary. It is common practice for the meetings of members and creditors to be held on the same day but the 14-day period is to ensure that the directors have time to prepare the information required by section 99 (see paragraph 56.171) to be laid before the meeting. The creditors’ interests are protected during the 14-day period by the limited powers of a liquidator or the directors once the resolution has been passed (see paragraph 56.168). 

Notes: [s98] [s99] 

 

56.167 The notice of the meeting

(amended March 2011) 

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 also be advertised in the London Gazette and may be advertised in such other manner as the directors think fit. The Rules specify the contents for the gazette and any advertisement. 

The notice must contain either the name and address of an insolvency practitioner who will provide the creditors, free of charge, 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, free of charge, two days prior to the creditors’ meeting. 

Notes: [s98(1A) as amended by LRO 2010][r12A.33 – 12A.41][r 4.53D] [s98(2)] 

 

56.168 Between the members’ and creditors’ meetings  

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. The leave of the court is required before the liquidator can do anything more. 

If the members do not nominate a liquidator, the company remains in the control of its directors pending the creditors’ meeting but their powers are also limited to protecting the assets and disposing of perishable goods and to taking certain steps concerning the voluntary liquidation proceedings. Any other actions require the leave of the court. 

Notes: [s166(2)][s114]

  

56.169 Proceedings at the meetings  

The creditors’ and members’ meetings must be held on a business day, commencing between 10am and 4pm and at a place convenient for the creditors to attend. 

Notes: [r4.60] 

 

56.170 Attendance by officers  

The directors must appoint one of their number to attend the creditors’ meeting and preside over it. If he fails to attend the creditors can appoint someone else to preside and the meeting will be valid (Re Salcombe Hotel Development Co Ltd (1989) 5 BCC 807). If a liquidator has been nominated by the company at its meeting, he is required to attend the creditors’ meeting and report on any action he has taken in the period between the meetings. 

Notes: [s99(1)(c)] [s166(4)]

 

56.171 Statement of affairs

(amended March 2011)  

The directors are required to 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: 

  1. particulars of the company's assets, debts and liabilities;
  2. the names and addresses of the company's creditors;
  3. the securities held by them respectively;
  4. the dates when the securities were respectively given; and
  5. such further or other information as may be prescribed.  

The statement of affairs must be made up to a date not more than 14 days before the meeting at which the winding up resolution is proposed. Where the statement of affairs does not cover the period up to the meeting of creditors, a report is required of any material transaction relating to the company which has occurred between the date of the making of the statement of affairs and that of the meeting. 

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. Failure to lay a sworn statement of affairs before the creditors' meeting does not invalidate the proceedings but is a matter the court may take into account when deciding whether or not the directors are unfit to be concerned in the management of a company (see paragraph 56.176). 

Notes: [s99 as amended by LRO 2010] [r4.34 as amended by IAR 2010] [Form 4.19][r4.34(4)][r4.53B][r4.34(3) as amended by IAR 2010] 

 

56.172 Voting at meetings  

Voting at the meeting of creditors is by a simple majority in value of the creditors entitled to vote. The creditors are required to prove their entitlement to vote, which may be in any form, and submit any proxy requisite for that entitlement prior to the meeting. The liquidator may require a person claiming to be a creditor of the company to provide documentary evidence of his claim and has the power to admit or reject that claim. A creditor for an unliquidated debt or the value of whose debt is unascertained must not vote unless the chairman agrees an estimated value on the debt for voting purposes and admits the creditors’ proof. A secured creditor may vote in respect of any unsecured portion of his debt. 

Notes: [r4.63] [r4.67 and r4.73(6)] [r4.70(1)] [r4.67(3)] [r4.67(4)] 

 

56.173 Business of the meeting

(amended March 2011) 

The business that can be transacted at the first meeting of creditors (the meeting under section 98) is restricted to:  

  • the appointment of a liquidator or joint liquidators. The creditors may either confirm the appointment of the members’ nominee or nominate a liquidator of their choice. The creditors’ nomination prevails over any liquidator appointed by the members but any director, member or creditor may apply to the court within 7 days of the creditors’ meeting for an order appointing the liquidator nominated by the members instead of, or jointly with, the creditors’ nominee or appointing some other person;
  • determining the terms of appointment if joint liquidators are appointed;
  • the appointment of a liquidation committee of between three and five creditors;
  • how the liquidator is to be remunerated, unless a liquidation committee is to be established (see paragraph 56.175);
  • the adjournment of the meeting for not more than 14 days;
  • passing any other resolution the chairman thinks it right to allow for special reasons. 

Notes: [r4.53][r4.52(1)][s100][r4.152(2)][s101][r4.65] 

 

56.174 The liquidator’s powers and duties

 The liquidator’s role is to realise the assets and distribute the funds to the creditors and shareholders. His powers and duties are discussed at paragraphs 56.143 and 56.145. Where he requires sanction for the carrying out of those duties this will be given by the court, the liquidation committee or, where there is no committee, by the creditors in general meeting. 

Notes: [s165] 

 

56.175 Liquidator’s remuneration

(amended March 2011)  

The basis of the liquidator’s remuneration 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. The basis shall be fixed :-

a.      as a percentage of the value of assets realised or distributed, or

b.      by reference to the time properly spent by the liquidator and his/her staff, or

c.      as a set amount (for liquidations commencing from 6 April 2010) 

 Where the liquidation commenced on or after 6 April 2010, the Rules provide that the basis of remuneration may be fixed as any one or more of the three bases set out above, with different bases and/or varying percentages set for different activities carried out by the liquidator.  

In creditors’ voluntary liquidations commencing before 6 April 2010, where  the liquidator’s remuneration is not fixed by the liquidation committee or a meeting of creditors, the liquidator is entitled to remuneration calculated in accordance with the scales set out  in Schedule 6 to the Rules. 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. 

In creditors’ voluntary liquidations commencing on or after 6 April 2010, where 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.  If 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 and if this is still unsatisfactory, he/she may make application to the court. 

In certain circumstances, a liquidator may be paid remuneration and allowed expenses for work done in respect of dealing with property which is not part of the assets of the company, with such remuneration being paid out of the property in question (Re Berkeley Applegate (Investment Consultants) Ltd (No 2) (1988) 4 BCC 279 and Berkeley Applegate (Investment Consultants) Ltd (No 3) (1989) 5 BCC 803). 

Notes: [r4.127 as amended by IAR 2010][ r4.127A for pre 6.4.10 CVAs only] [r4.129A][r4.130] 

 

56.175A Creditors’ claim that remuneration is excessive

(March 2011)  

In liquidations commencing before 6 April 2010, if a creditor considers that the remuneration fixed for the voluntary liquidator is excessive, 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.  

In liquidations commencing on or after 6 April 2010, any secured creditor, or any unsecured creditor with either the concurrence of at least 10% in value of the creditors (including that creditor) or the permission of the court, may apply to the court on the grounds that the remuneration and/or expenses of the liquidator 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 one of the orders set out in rule 4.131(4) 

Note: [r4.131 as amended by IAR 2010]

  

56.176 Disqualification reports  

In a creditors’ voluntary liquidation, a liquidator has a duty to submit a conduct report to the Secretary of State on the company’s directors and shadow directors. If the case is considered suitable for disqualification proceedings, the matter might be referred to the official receiver. Further details are contained in the Enforcement Investigation Guide . 

Notes: [s7(3) Company Directors Disqualification Act 1986; Forms D1, D3 and D4] 

 

56.177 Directors’ powers  

On the appointment of a liquidator at the meeting of creditors, the powers of the directors cease, unless the liquidation committee (or the creditors if there is no committee) sanction their continuance. 

Notes: [s103] 

 

56.178 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 as detailed in paragraph 56.151.  

Notes: [s106] 

 

Section 5 - Subsequent Compulsory Winding Up  

56.179 Subsequent petition to wind up the company  

If a company is in voluntary liquidation, 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 will be some advantage in having a winding-up order made or that the rights of creditors would be better served by the conversion of the winding up to a compulsory one.  

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.  

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 (Re Lubin, Rosen and Associates Ltd (1975) 1 AELR 577). The court may disregard the wishes of opposing creditors who are closely associated with the management of the company (Re Falcon R J Developments (1987) 3 BCC 146). 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 (Re Rhine Film Corporation Limited (1986) 2 BCC 98949). Whilst the voluntary liquidator may make representations to the court by way of witness statement to acquaint the court with relevant matters, he should not attempt to oppose the petitioner. The court has discretion on the award of costs to a voluntary liquidator who appears on the petition. 

Notes: [s116] 

 

56.180 Petition by the official receiver  

The official receiver has the power to petition for a winding-up order when a company is in voluntary liquidation. Although the official receiver is the petitioner, he is subject to the directions of the Secretary of State (specifically Insolvency Practitioners Section) and essentially it is a public interest petition. Such petitions may occur when voluntary liquidations have not been conducted in the best interests of the creditors or when the actions of a voluntary liquidator have contravened the Insolvency Practitioners Regulations 1990. 

Notes: [s124(5)] 

 

56.181 Effect of winding-up order  

A voluntary liquidator vacates office on the making of the winding-up order, as the official receiver becomes liquidator, but he must apply to the Secretary of State for his release. As voluntary and court winding up form one continuous proceeding, the commencement of the winding up remains the date of the resolution for voluntary winding up. All "proceedings" taken in the voluntary liquidation are deemed to have been validly taken unless the court, on proof of fraud or mistake, directs otherwise. 

Notes: [s136 and r4.136; r4.122] [s129(1)] 

 

56.182 Action by official receiver on making of winding-up order  

The official receiver should contact the voluntary liquidator and inform him of the making of the winding-up order. Reference should be made to Chapter 3 of this manual for details of initial enquiries to be made where a company has been in voluntary liquidation. In addition, it is useful to obtain details of the former voluntary liquidator’s receipts and payments, of any unrealised assets and details regarding the company’s affairs and the directors’ conduct. 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 56.183 below). 

Notes: [Form NTVL] [r4.138(1)] [r4.219] 

 

56.183 Fixing of voluntary liquidator’s remuneration after winding-up order  

Any remuneration paid to the voluntary liquidator prior to the presentation of the petition for winding up does not need to be approved by the court. However, where a voluntary liquidator claims to be entitled to remuneration but has not been paid prior to the presentation of the petition, he should make an application to the court under rule 4.219 to determine –  

  1. how much remuneration he is to be allowed, and
  2. what expenses incurred by him are to be allowed.  

These items will rank in priority with the expenses specified in rule 4.218(3)(a) (see Chapter 36 for further details of priority of payment of expenses). If the former voluntary liquidator does not make such an application the official receiver should draw this omission to the court’s attention. If the official receiver is concerned, for whatever reason, at the deduction already made from the assets of the company, he may make an application to the court. Generally, the voluntary liquidator will apply to the court by claim form in which the official receiver or liquidator is made the respondent. The claim form should be supported by a witness statement setting out the former voluntary liquidator’s remuneration and expenses. The official receiver’s report should be filed in court prior to the hearing and should include a brief summary of the events leading from the passing of the resolution for voluntary liquidation to the making of the winding-up order. The official receiver should consider the amount of remuneration (if any) already paid to the voluntary liquidator, the authority under which it was paid and if this amount is comparable to the rate which would have been charged by the official receiver. If there is a substantial difference, this fact should be included in the report to the 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.  

The official receiver will need to confirm that the expenses incurred in the preparation of a statement of affairs and convening meetings were reasonable and necessary and also that other expenses (e.g. agents’ and legal fees) were properly incurred. If the expenses are unreasonable, or if unnecessary work has been done, the official receiver should comment in his report to the court. 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. 

Notes: [r4.219][r4.218(1)(a)] 

 

56.184 Appointment of former voluntary liquidator as liquidator  

There is no statutory provision to prevent a former voluntary liquidator accepting nomination as liquidator of the company when a winding-up order is made, but he will need to consider whether there would be any conflict of interest or other difficulties in accepting the nomination. The official receiver should consider whether any complaints have been received relating to the administration of the voluntary liquidation and whether some objection might be made to the nomination of the former voluntary liquidator and, if so, bring these matters to the attention of the meetings (see paragraphs 16.80 and 16.81). 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. 

Notes: [Reg 13 IPR] 

 

56.185 Disqualification  

If a winding-up order follows a creditors’ voluntary liquidation, any disqualification report submitted by the voluntary liquidator will be noted on ISCIS  and Intelligence Directorate will, on request, forward a copy of any conduct report to the official receiver, on a confidential basis. 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 liquidation at a time when it was insolvent (see Enforcement Investigation Guide). The leave of the court is required for the bringing of proceedings outside this period. 

Notes: [s6 Company Directors Disqualification Act 1986]  


 

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