Liquidation and Insolvency Proceedings

An insolvency proceeding is a process taken when an organisation or individual are no longer able to meet their financial obligations and pay their creditors when debts are due.

Insolvency proceedings usually take place after less formal arrangements have failed and can be the result of bad financial management, changing market trends, heightened expenses, and reduced income.

Compulsory and voluntary liquidations

If the debtor company owes more than £750 and is not disputing the amount, insolvency proceedings might be initiated. Compulsory liquidation is the name given to the procedure that begins when a statutory claim is issued against you. After that, there will be a petition to wrap things up. If creditors prevail, your firm will be closed, and your name will be removed from the register after 8-12 weeks.

If you anticipate compulsory liquidation, you may decide that voluntary liquidation is the best option for you. If you’re a corporate director and believe you can’t fix the problem, you may elect to start liquidation proceedings on your own, with the support of shareholders.

However, whilst tempting to allow the company to go into compulsory liquidation, the risks attached can include damage to your reputation and to the trust of solicitors and accountants whose services you may require in the future.

The Insolvency (England and Wales) Rules 2016 require you to provide certain documents to Companies House. This article gives a general overview of insolvency proceedings as well as more extensive information regarding the documents you must deliver to Companies House.

It summarises some of the rules that apply to |

• company voluntary arrangements
• moratoria
• administrations
• receivers
• voluntary liquidations
• compulsory liquidations

If you believe your company is bankrupt or is soon to become so, you should obtain independent professional assistance. In addition, you should contact the Insolvency Service.

We can assist you with any questions you have regarding what paperwork you need to send to Companies House, such as what notification to file when an administrator is appointed.

What are Insolvency Proceedings?

Insolvency proceedings are legal procedures for dealing with a company’s debt.

There are many distinct sorts of insolvency proceedings for businesses. In this guide, we go over all of them. It’s crucial to remember that not all businesses in insolvency procedures are bankrupt.

1.1 Companies can be dissolved without going through insolvency proceedings

If we have cause to think that a company is not doing business or is not operating, its name may be struck from the register and liquidated without having to go through the process of liquidation.

A private company that is no longer in business can apply to have its name removed from the Companies House registry. This is not a replacement for proper insolvency proceedings.

1.2 Supervising insolvency procedures

Authorized insolvency practitioners must be appointed as liquidators, administrators, administrative receivers, and supervisors.

No authorization is required for receiver managers, Law of Property Act (LPA) receivers, or nominees designated to run a company voluntary arrangement moratorium.

Insolvency practitioners may be authorised by the |

• Association of Chartered Certified Accountants
• Insolvency Practitioners’ Association
• Institute of Chartered Accountants of England and Wales
• Institute of Chartered Accountants in Ireland
• Institute of Chartered Accountants in Scotland

1.3 Directors of an insolvent company

A report on the behaviour of all directors who were in office in the past three years of the company’s trading must be sent to the Secretary of State for Business, Energy & Industrial Strategy by the liquidator, administrative receiver, administrator, or Official Receiver.

The Secretary of State must assess whether seeking a disqualification order against a director is in the public interest.

Examples of the most commonly reported conduct are:

• continuing the company’s trading when the company was insolvent
• failing to keep proper accounting records
• failing to send in returns or pay any tax that is due
• disqualification for persistent breaches of company’s legislation
• disqualification of unfit directors of insolvent companies
• disqualification following investigation of companies
• disqualification for wrongful trading

2. Company voluntary arrangements (CVA) including CVA moratoria

When a company proposes a creditor agreement, it is known as a CVA. This arrangement, in which the company has formally accepted terms with its creditors for the payment of its obligations, must be approved by the court.

2.1 Proposing a CVA

A CVA may be proposed by the |

• administrator where the company is in administration
• liquidator where the company is being wound up
• directors, in other circumstances

2.2 Considering the proposal

If the nominee is not the administrator or liquidator, they must notify the proposer of their decision as quickly as feasible after receiving the proposal. The candidate must provide a report to the court within 28 days of receiving it.

2.3 Approving a proposal for a CVA

By calling a meeting, the nominee must invite members of the company to examine a proposal, and creditors must consider the proposal through a decision method.

2.4 Once the CVA is approved

The nominee or his replacement becomes the supervisor of the arrangement if the members and creditors approve it.

2.5 What we need

A copy of the convener’s or chair’s report must be sent to us by the supervisor.

Every 12 months, commencing from the day the CVA was approved, the supervisor must make updates to all relevant parties, including Companies House, on the progress and prospects for full execution of the voluntary arrangement.

2.6 Termination or full implementation

When the voluntary arrangement is finished, the supervisor must deliver a copy of the notification to creditors and the supervisor’s report to us within 28 days of the voluntary arrangement’s final completion or termination.

You must notify us if the agreement is suspended or revoked.

2.7 CVA moratorium

A moratorium gives a company’s directors some breathing room to present CVA plans to creditors. It precludes the company’s creditors from taking legal action against it during this time.

2.8 Obtaining a moratorium

A court-ordered moratorium must be requested by the directors. The moratorium will typically last 28 days and will be overseen by a nominee, who may or may not be a licenced insolvency practitioner.

2.9 What we need

The nominee must deliver notice of the moratorium to Companies House. You must notify us if the moratorium ends, or is:

• extended
• further extended
• renewed
• being continued

At the end of a moratorium, a company may (or may not) proceed to a CVA.

3. Administration

Administration creates breathing room so that a rescue package or more beneficial asset realisation can be implemented. A company’s affairs, business, and property are managed by an administrator for the benefit of creditors.

The person nominated must be an insolvency practitioner and an officer of the court (whether or not they were appointed by the court).

The objective of administration is to |

• rescue a company as a going concern
• achieve a better price for the company’s assets or otherwise realise their value more favourably for the creditors as a whole than would be likely if the company were wound up (without first being in administration)
• in certain circumstances, realise the value of property in order to make a distribution to one or more preferential creditors

3.1 Companies entering administration

When the appointment of an administrator takes effect, the company enters administration. The governor may designate an administrator.

• an administration order made by the court
• the holder of a floating charge
• the company or its directors
• the liquidator of a company
• the supervisor of a CVA
• a designated office of a magistrates’ court

3.2 Notification when a company is in administration

An administrator must submit a notice of their appointment to the company and each of its creditors as soon as practically possible, as well as publish notice of their appointment.

We must also receive notice of the administrator’s appointment from them.

3.3 The process of administration

The administrator will request a statement of the company’s affairs from relevant personnel – such as a corporate officer or employee – shortly after their appointment.

The administrator must make a statement as soon as possible, but no later than 8 weeks after the firm enters administration, outlining recommendations for attaining the administration’s goals or explaining why they cannot be met. A voluntary solution, a compromise, or an agreement with creditors or members may be included in the proposals.

The statement setting out the proposals must be sent to:

• Companies House
• every creditor of the company whose claim and address they’re aware of
• every member of the company whose address they’re aware of

Creditors will be asked to endorse the statement of plans (with or without changes). The administrator may convene a creditors committee following the initial meeting. Any changes to the proposals must be communicated to creditors by the administrator.

We must be informed of any decisions made by creditors. The administrator must perform their functions as quickly and efficiently as reasonably practicable in the best interests of the creditors as a whole.

Role of the administrator in the disposal of assets

Within the first eight weeks of administration, an administrator may not make significant disposal to a linked person unless they either |

• obtain approval of the transaction from creditors
• have received and considered a report obtained by the connected person from an evaluator on the reasonableness of the proposed disposal

At the same time as they deliver the administrator’s proposals, the administrator must send a copy of the report to the creditors and Companies House.

If the report or any previous reports found that the disposal is not reasonable in the circumstances, the administrator must additionally issue a statement explaining why the disposal is proceeding.

You must transmit a copy of the report, as well as the statement, if necessary, to Companies House, along with the administrator’s recommendations.

3.4 Approval of statement of proposals

The administrator will be able to adopt a presumed consent method in which they send a proposal to creditors. The proposal will be regarded authorised if they do not receive objections from 10% or more of creditors. If 10% or more creditors disagree, the office holder will adopt a different decision-making process, such as mediation |

• a virtual meeting
• correspondence
• electronic voting

If the proposal is regarded to have been authorised, the administrator shall notify us as soon as reasonably possible of the date of deemed approval.

3.5 When administration ends

Administration can come to an end in a variety of ways.

One year after the administration began, the administration can be automatically terminated. You must inform us. However, with the approval of creditors or the court, the administration may be extended.

Any extensions must be communicated to us. If an administrator believes the administration’s goal has been met, he or she must file a notice with the court and Companies House.

If an administrator appointed by a court order believes the administration’s goal can’t be met, the firm shouldn’t have gone into administration, or a creditors’ decision requires them to submit an application, they can ask the court to stop it. The administration order will be lifted by the court, and the administrator will be required to tell us.

When the aim of administration has been sufficiently achieved, an administrator appointed by the holders of a floating charge or by the firm or its directors may stop administration. The notice must be filed with the court as well as with Companies House.

On a creditor’s request to the court, the administration may be terminated. If the application is authorised, the administrator is required to submit us a copy of the order together with the application form.

The administration may come to an end and the company may dissolve. If the administrator believes a corporation has no assets with which to make a distribution to its creditors, this can happen.

We must be notified by the administrator. Unless an order is issued to delay, halt, or stop the dissolution, the business will be dissolved 3 months after the date we register the form. Any order you place must be communicated to us.

3.6 Creditors’ voluntary liquidation can be converted from administration (CVL)

When the administrator of a firm believes that the complete amount each secured creditor is likely to receive has been paid to them or set aside for them and that a distribution will be made to any unsecured creditors of the company, the administration can be converted to CVL.

Companies House must receive form AM22 (Notice of transfer from administration to creditors’ voluntary liquidation). On the date of registration of form AM22, the firm changes from administration to CVL. You must also file Form 600 after we register the form (Notice of appointment of liquidator).

The liquidator must be appointed no earlier than the date the company went into liquidation, which is the date of registration of form AM22.

4. Receivers

Receivers come in a variety of shapes and sizes, and their powers vary depending on the terms of their appointment. A receiver or manager of all, or nearly all, of a company’s assets, is known as an administrative receiver. They’re chosen by or on behalf of the holders of the company’s debentures secured by a floating charge. They have the authority to sell (or otherwise realise) the assets subject to the floating charge and apply the revenues to the charge-debt holder’s.

In some cases, receivers who are not administrative receivers may be appointed. A receiver or manager may be appointed until the debt is collected, for example, using the authority contained in an instrument or agreement placing a charge over a company’s property. The Law of Property Act of 1925 allows for the appointment of receivers.

4.1 Notice of the receiver’s appointment

The person who appoints the administrative receiver, receiver, or manager, or has them appointed under the powers of an instrument, must notify us within 7 days of the appointment. Each separate charge lodged at Companies House over which the receiver is appointed, whether the appointment is over part of the property or all of the company’s assets, necessitates the filing of Form RM01.

When the administrative receiver, receiver, or manager stops acting, they must submit a form RM02 to us.

4.2 What the receiver sends to Companies House

Within 3 months of appointment, an administrative receiver must make a report to:

• Companies House
• the company’s creditors, including unsecured creditors
• the holders of a floating charge
• any trustees for secured creditors of the company

The report must detail the facts surrounding the appointment as well as the actions taken by the administrative receiver.

A summary of any ‘statement of affairs made for the receiver by the company’s executives or employees must also be included in the report.

Statement of affairs

The assets, liabilities, and creditors of the corporation are listed here. The administrative receiver determines if it is necessary and who is responsible for preparing it.

Receipts and payments

Companies House requires all receivers to send an account of receipts and payments for the first 12 months of receivership, as well as:

• for administrative receivers, at 12 monthly intervals thereafter
• for receivers and managers, at 6 monthly intervals thereafter

5. Voluntary liquidation

There are 2 kinds of voluntary liquidation:

Members’ voluntary liquidation (MVL) | which means the directors have made a statutory declaration of solvency

Creditors’ voluntary liquidation (CVL) | which means that the directors have not made such a declaration

5.1 When a company can go into MVL

When a business’s directors believe the company is solvent, it might enter MVL.

In the five weeks before a resolution to wind up the company is enacted, a majority of the company’s directors must make a statutory statement of solvency.

5.2 The statutory declaration

The statutory declaration will say that the directors have conducted a thorough investigation into the business’s operations and that, based on their findings, they believe the firm will be able to pay its debts in full within 12 months of the winding-up date.

A statement of the company’s assets and liabilities as of the latest possible date prior to filing the declaration shall be included in the declaration.

5.3 The start of liquidation

The liquidation process begins when the members vote in a general meeting to voluntarily wind up the firm.

5.4 Giving notice of voluntary liquidation

Within 14 days of the company’s special resolution being passed, a notice of the resolution must be published in the London Gazette. Within 15 days, the firm must also transmit a copy of the declaration and special resolution to Companies House.

5.5 When a CVL is appropriate

A company may go into CVL when it cannot pay its debts.

5.6 What the company must do

The company passes a special resolution declaring that it can no longer operate due to its liabilities and that it is best to close down.

The resolution must be |

• advertised in the London Gazette within 14 days
• sent to Companies House within 15 days

The board of directors must draft a statement of affairs and deliver it to the creditors for approval. When liquidation is appointed, the directors must furnish a statement of affairs to the liquidator and otherwise cooperate with him.

5.7 The main duties of a liquidator

The company’s affairs are wound up by the liquidator. This is accomplished by the liquidator collecting all of the company’s assets and distributing them to creditors and shareholders.

5.8 Notification of a liquidator’s appointment

A liquidator must issue a notice of appointment in the London Gazette and notify us within 14 days of being appointed.

If the liquidation is voluntary, the liquidator may choose to give notice in a different manner if they believe it is necessary.

5.9 What the liquidator has to send to Companies House

After the decision procedure or deemed consent procedure is completed, the liquidator must provide us with a statement of affairs along with the necessary paperwork within 5 working days.

Every 12 months, the liquidator must provide us with a progress report. The progress report must cover a 12-month period beginning on the date the liquidator is appointed and each following 12-month period in CVL cases.

5.10 Converting an MVL into a CVL

If the liquidator decides that the company will not be able to pay its debts in full in the period stated in the directors’ statutory declaration of solvency, the liquidation becomes a CVL.

5.11 What happens when the company’s affairs are fully wound up

When a company’s affairs are fully wound up, the liquidator must send a copy of the final account to us.

Unless the court makes an order to defer the dissolution of the company, it is dissolved 3 months after the notice of final account is registered at Companies House.

5.12 Filing an Order to stay a liquidation

Under Sections 112 and 147 of the Insolvency Act 1986, the Court may make an Order halting or sisting (meaning stopping) winding-up proceedings, either entirely or for a limited length of time.

You are responsible for delivering the Order to us. After that, we’ll make it available for public scrutiny.

You must file any outstanding accounts, confirmation statements, or old annual reports once we record the Order, just like any other live and operational company. If you do not comply, the company may be struck from the Companies House registry.

6. Compulsory liquidation

Compulsory liquidation of a company is when a court orders a company to be wound up.

6.1 Courts that can order a compulsory liquidation

A company’s winding-up may be ordered by the High Court or a local court having the proper jurisdiction. This could be in response to a creditor or creditors’ petition alleging that the corporation is unable to pay its debts.

A company is regarded as not able to pay its debts if, for example, a creditor:

• is owed more than £750
• can prove the company cannot pay the debt

There are other situations where a company is deemed not able to pay its debts.

The court may also order the company to be wound up on the petition of:

• the company itself
• the company’s directors
• any creditor or creditors
• a contributory or contributories
• the clerk of a magistrates’ court in the exercise of the power contained by section 87A of the Magistrates Court Act 1980
• the Secretary of State for Business, Energy & Industrial Strategy
• the Financial Conduct Authority (formerly the Financial Service Authority)
• the Official Receiver
• an administrative receiver, administrator, or supervisor

6.2 Information on the public record

If the petition is approved, the Official Receiver is required to send us a copy of the winding-up order. We’ll record it in the company’s public files.

We were not given a copy of the petition, and it is not on the public record.

6.3 When the official receiver becomes a liquidator

Unless the court directs otherwise, the Official Receiver becomes liquidator when a winding-up order is issued against a firm.

6.4 The duties of the Official Receiver

Unless and until an insolvency practitioner is appointed in their place, the Official Receiver becomes liquidator when a winding-up order is issued. The only exception is if the court has appointed a former administrator or supervisor as liquidator as part of a voluntary arrangement at the time of the winding-up.

The Official Receiver retains their duty to:

• investigate
• report to creditors
• report on the company officers’ conduct

Until a liquidation is appointed, the Official Receiver’s initial tasks as liquidator include locating, collecting, safeguarding, and protecting the company’s assets.

The Official Receiver may decide to appoint a liquidator by requesting nominations from creditors or contributors. If they do not nominate a liquidator after being given notice, the Official Receiver may seek to the Secretary of State to appoint an insolvency practitioner. The Official Receiver may also ask creditors or contributories for their input on whether a creditors committee should be formed.

If the position of liquidator becomes empty at any moment, the Official Receiver takes over as liquidator for the time being.

6.5 What needs to be sent to Companies House

A copy of the winding up the order must be sent to us by the Official Receiver or another person appointed as interim liquidator.

Companies House must receive a copy of the statement of affairs and any statement of concurrence, as well as information about the formation of, and any changes to, a creditors committee.

From the date of appointment until the winding up is completed, the liquidator or Official Receiver must give progress reports every 12 months.

6.6 When the winding-up is complete

We will register it after we get notice that the winding-up is complete and the final account from the liquidator or Official Receiver.

The company will be dissolved three months after the notice is registered with us, unless the Secretary of State instructs otherwise.

If the Official Receiver, acting as liquidator, determines that the company’s realisable assets (assets that can be sold or disposed of to raise money) will not cover the costs of winding up and that no further investigation of the company’s affairs is required, they may apply for the company’s early dissolution. The corporation will be dissolved three months after we receive the application.

7. UK Societas

Insolvency proceedings that apply to a PLC also apply to UK Societas.

Summing-up

If your debtor is going through a cash crunch or is insolvent, then we’re the people you need to contact to recover your money. Contact Shergroup and one of our business solutions advisors will help you through your situation.

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