The Process of Placing a Company into Liquidation

22nd June 2020

placing a company into liquidation

The Process of Placing a Company into Liquidation

22nd June 2020

Hasib Howlader

During the current climate where businesses have been forced to shut down with certain costs and expenses continuing to rise, there does not appear to be any way for suppliers to be paid.

Questions many directors are asking themselves are;

1. “Will my business survive?” 

2. “Can I continue to trade in the future?” 

Unfortunately, for some, this may not be the case, and you will need to consider approaching an insolvency practitioner to discuss your financial position. 

One of the most common options available is to take the necessary steps to place the company into a Creditors’ Voluntary Liquidation. In this blog post, we will explain the timeline of how to put a company into liquidation, covering many questions business owners are currently facing.

 

What is a Creditors’ Voluntary Liquidation (CVL)?

A CVL is an insolvent liquidation, where a company’s liabilities outweigh its assets or a company is unable to pay its debts as and when they fall due.

 

How to place a company into CVL

A CVL happens when the shareholders choose to place the company into liquidation, following the board resolving to do so.

This must be agreed by 75% or more of the shareholders (called a special resolution).

Then, a simple majority decide which liquidator will be appointed (ordinary resolution).

The notice period shareholders are typically given for placing a company into liquidation is 14 or 21 days, depending on the age of your company, and you will need to check the company’s articles on Companies House. However, if 90% of shareholders are in agreement you can bring the date forward to as soon as possible (theoretically the next day, however, this rarely takes place).

The two main ways of considering the above are by written resolution or by calling a general meeting. The technicalities of these options are discussed in Appendix 1 below.

 

What else is needed?

Even though the shareholders have appointed a liquidator, they cannot do much until appointed by creditors. They only have powers to protect, secure and sell (if urgent) assets.

Like the members, creditors must be given enough notice of the proposal when considering placing a company into liquidation. This is discussed in more detail below, but they are generally given 9 calendar days. In all cases, creditors are entitled to 7 clear days plus days delivery. Variations are outlined in Appendix 3 below.

In practice, the members’ and creditors’ decisions are held on the same day.

 

Key points of creditors’ decision

1. To allow the creditors to make an informed decision, they must be given specific information, being:

a) Statement of Affairs – a document providing details of the company’s assets and liabilities, which also contains a list of the company’s creditors and shareholders; and

b) SIP 6 report – a report detailing the company’s background and trading history, the directors’ reasons for failure, comments on the Statement of Affairs, and details of work undertaken by the proposed liquidator in the pre-appointment period.

2. Depending upon the method used, the decision to approve the appointment of the liquidator chosen by the members is approved by a simple majority of creditors in value to decide the nomination of the liquidation. 

3. If the creditors choose to appoint a different Liquidator, this overrules the appointment of the members’ liquidator, and they must immediately provide all their files to the new liquidator.

 

Mechanics of the creditors’ decision

In Appendix 2, we go into more detail on various mechanisms for creditors to make their decisions, called Qualifying Decision Procedures. A brief explanation of them is provided below:

Decision by deemed consent – the decision for the choice for liquidator continues as per shareholders’ decision unless a certain proportion of creditors disagree.

Decision by correspondence – similar to a shareholders’ written resolution, creditors send in their votes by post, email or fax.

Remote/Virtual meetings – a meeting held by remote attendance, either through Skype, Zoom or similar software.

Physical meetings – a meeting where creditors are invited to attend in person at a venue convenient to them between the hours of 10:00am and 4:00pm on a business day.

 

Other points directors need to know

There are certain points that directors should be made aware of once the steps have been taken to place their company into liquidation, they must:

  • Be on guard to protect the company’s assets
  • Ensure that all insurance policies are maintained
  • Cancel all non-essential direct debits
  • Not pay for things that do not enhance the value of the business
  • Not make any orders on credit 

If you have any doubt regarding the above, please contact your proposed liquidator.

 

After liquidation

After the commencement of liquidation, your powers as a director cease; however, you still have responsibilities to the company and liquidator, namely, to cooperate with the liquidator’s requests. This means assisting with all of the liquidator’s queries, as and when raised.

In general, liquidation is not complete until the liquidator has sold all assets, agreed the creditors’ claims, paid any dividends to creditors and completed all their investigations, if possible, depending upon the circumstances. 

Unfortunately, there is no fixed timeline to complete a liquidation as the length is always based on the circumstances arising, which affects how quickly the above can be completed.

The liquidator will then issue their final account to the members and creditors of the company and later, Companies House. Once received by Companies House, the company will be dissolved 3 months thereafter.

If you provide us with your specific circumstances, we shall be able to give you the best estimate on completion.

 

Placing a company into liquidation – contact

The above is a complex process which we have tried to simplify, however, should you have any queries regard any specific section, or the liquidation process as a whole, please contact Hudson Weir Limited by:

Email: info@hudsonweir.co.uk

Telephone: 020 7099 6086

Fax: 0207 681 2856

Post: Hudson Weir Limited, Third Floor, 112 Clerkenwell Road, London, EC1M 5SA

We can guide you through the process of how to put a company into liquidation, with impartial advice and recommendations, allowing you to resolve financial worries.

 


Appendix 1 – methods of seeking shareholder resolutions to commence the liquidation

The two most common options in which you can seek to pass these resolutions:

Option 1 – notice of a general meeting of membersOption 2 – notice of a written resolution
21 days’ notice (Companies Act 1985); or 

14 days’ notice (Companies Act 2006)

Whatever period is given in the company’s articles; or if no period is given,

28 days’ notice (Companies Act 2006)

*The resolutions are passed once 75% (special resolution) and 50% (ordinary resolution) of the voting shareholders have voted to approve the resolution.*The written resolution is deemed approved once the sufficient number of voting members have agreed, being 75% (special resolution) and 50% (ordinary resolution) voting shareholders.
**The above periods can be waived if 90% of the voting members complete a form provided by the proposed liquidator called a Consent to Short Notice which means that the meeting can be held on a shorter period.**Please note that once you have voted to approve a written resolution, you cannot withdraw this vote.

 

Appendix 2 – the different qualifying decision procedures

1. Decision by deemed consent;

Creditors are delivered notice of the decision to place the company into liquidation and are informed that the liquidation will proceed on the prescribed decision date without any further correspondence from proposed liquidator unless sufficient creditors (passing the statutory thresholds of 10 creditors in number or 10% of the total number of creditors or 10% of the total value of creditors entitled to make a decision) confirm in writing that they object to the decision procedure.

In the event that any of the above statutory thresholds are met, the proposed liquidator then has 3 business days within which to circulate to all known creditors notice of a physical meeting of creditors. At this point the process will continue as a normal meeting of creditors, as explained below.

2. Decision by correspondence

Creditors are delivered notice of the decision to place the company into liquidation and are provided with a decision voting form requesting that they indicate their acceptance or rejection of the appointment of the members’ liquidator. 

3. Virtual/ Remote meeting

This is similar to a physical meeting expect that creditors will be given access to software or be asked to dial into a “virtual meeting” where a resolution will be considered to approve or reject the members’ appointed liquidator.

4. Physical meeting

Please note it is best practice that a proposed liquidator uses a physical meeting of creditors to ratify their appointment, as a last resort or is requisition by one of the methods referred to above.

At a physical meeting of creditors, creditors will be asked to either attend in person or submit a proxy form entitling a nominated representative (a duly authorised party if a corporate creditor) to vote on the creditor’s behalf.

Appendix 3 – delivery methods and associated creditor notice periods

The above methods all have the same notice period which creditors must be given, being 7 clear days. Clear days means 7 days, plus the number of days it takes to deliver the notice. You may ask asking how can you know how long exactly it takes to deliver something. This has been clarified by insolvency legislation and is as follows:

Delivery MethodNumber of days to be deliveredTotal Notice Period to give creditors
1st class post2 days after postage9 days
2nd class post*4 days after postage11 days
Email**9am the next day8 days

*It is unlikely that 2nd class post will be used.

**Notice can only be sent by email if each individual creditor gives explicit consent to receive correspondence by email

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Hudson Weir are an established firm of Insolvency Practitioners who specialise in business recovery and corporate financial solutions. Hudson Weir provides industry leading, nationwide services for its clients with the intention of easing financial pressures and providing recovery strategies for struggling businesses.

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