This information is a simple guide to liquidation and other insolvency procedures. It summarises some of the rules that apply to corporate voluntary arrangements, moratoria, administrations, receivers, voluntary liquidations, compulsory liquidations and EC regulations. Please also refer to the relevant legislation, which you will find in the Companies Act 1985 (as amended in 1989 and later), the Insolvency Act 1986, the Insolvency Rules 1986, the Insolvency Act 2000, the Insolvency (Amendment) (No 2) Rules 2002, Council Regulation (EC) No 1346/2000, the Insolvency (Amendment) (No2) Regulations 2002, the Enterprise Act 2002, and the Insolvency (Amendment) Rules 2003 (SI 1730/2003).

The winding up, liquidation, insolvency, cessation of payments and similar procedures that apply to a PLC also apply to a European company, ‘Societas Europaea’ (SE) registered in GB. For general information on SEs, please see our information, ‘The European Company: Societas Europaea (SE)’.

CHAPTER 1 General information

1. What are insolvency proceedings?

These are formal measures taken to deal with company debt. There are many different types of company insolvency proceedings. All are covered in this information.

2. Do insolvency proceedings apply to all types of companies?

The parts of this information covering compulsory winding-up and receivers (including administrative receivers) apply to registered and unregistered companies (including oversea companies).

The parts of this information covering voluntary winding-up and administration orders do not apply to unregistered companies, which cannot be wound up by these methods.

If the liquidation or receivership began before 29 December 1986, then the law in force at that time will continue to apply.

Remember: Not all companies in liquidation are insolvent.

3. Do all companies have to go through insolvency proceedings before being dissolved?

No. If the Registrar has reason to believe that a company is not carrying on business or is not in operation, its name may be struck off the register and dissolved without going through liquidation. A private company that is not trading may apply to the Registrar to be struck off the register. This procedure is not an alternative to formal insolvency proceedings.

4. Can anyone supervise insolvency procedures?

All liquidators, administrators, administrative receivers and supervisors taking office on or after 29 December 1986 must be authorised insolvency practitioners.

Receiver managers, Law of Property Act (LPA) receivers and nominees appointed to manage a corporate voluntary arrangement moratorium do not have to be authorised.

Insolvency practitioners may be authorised by:

1. the Chartered Association of Certified Accountants;
2. the Insolvency Practitioners’ Association;
3. the Institute of Chartered Accountants in England and Wales;
4. the Institute of Chartered Accountants in Ireland;
5. the Institute of Chartered Accountants of Scotland;
6. the Law Society;
7. the Law Society of Scotland; or
8. the Secretary of State for Trade and Industry.

5. What happens to the directors of an insolvent company?

The liquidator, administrative receiver, administrator or Official Receiver has a duty to send the Secretary of State a report on the conduct of all directors who were in office in the last 3 years of the company’s trading. The Secretary of State has to decide whether it is in the public interest to seek a disqualification order against a director.

Examples of the most commonly reported conduct are:

1. continuing the company’s trading when the company was insolvent;
2. failing to keep proper accounting records;
3. failing to prepare and file accounts or make returns to Companies House; and
4. failing to send in returns or pay to the Crown any tax that is due.

CHAPTER 2 Corporate voluntary arrangements (CVA) including CVA moratoria

1. What is a voluntary arrangement?

A corporate voluntary arrangement is when a company makes an agreement with its creditors by proposing a ‘composition in satisfaction of its debt’ or a ’scheme of arrangement of its affairs’. This means an arrangement, approved by the court, in which the company has formally agreed terms with its creditors for the settlement of its debts.

2. Who may propose a voluntary arrangement?

A corporate voluntary arrangement may be proposed by:

1. the administrator, if there is an administration order;
2. the liquidator, if the company is being wound up; or
3. the directors, in other circumstances.

3. Who considers the proposal?

When the directors have proposed the arrangement, the nominee appointed to supervise its implementation reports to the court within 28 days on whether, in his or her opinion, meetings of the company and of its creditors should be called.

4. How is a proposed voluntary arrangement approved?

The meetings summoned by the nominee decide whether to approve the arrangement which, subject to certain restrictions, may be approved with or without modifications. It is then binding on all creditors who had notice of the meeting and were entitled to vote. All creditors who had notice of the meeting are bound by the terms of the arrangement.

5. What happens when the arrangement is approved?

If the meetings of members and creditors approve the arrangement, then the nominee or his replacement becomes the supervisor of the arrangement.

6. What needs to be sent to Companies House?

The supervisor must send a copy of the chairman’s report of the meeting.

At least once every 12 months, the supervisor must send an account of receipts and payments, together with a progress report, to all interested parties including the Registrar.

When the arrangement is completed, the supervisor must notify the Registrar within 28 days after final completion. If the arrangement is suspended or revoked, the Registrar must be notified.

The courts decide whether a company is eligible for a moratorium. The moratorium will normally last for a period of 28 days and will be managed by a nominee, who may or may not be a registered insolvency practitioner.

At the end of a moratorium a company may (or may not) proceed to a corporate voluntary arrangement.

CHAPTER 3 ‘In administration’ and ‘administration orders’

The current law concerning administration was introduced with effect from 15 September 2003. For details of the previous law, see Part 2 of this chapter. Under the new regime, a company will usually be described as being ‘in administration’ – under the old regime a company would be described as subject to an ‘administration order’. We have used these two terms to describe the different regimes.

What follows is a brief outline of the process of administration: it is not a complete statement of the law.

Part 1: Cases beginning on or after 15 September 2003: ‘In administration’

1. What is ‘in administration’?

Administration is when a person, ‘the administrator’, is appointed to manage a company’s affairs, business and property for the benefit of the creditors. The person appointed must be an insolvency practitioner and has the status of an officer of the court (whether or not he or she is appointed by the court).

The objective of administration is to:

1. rescue a company as a going concern;
2. 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); or
3. in certain circumstances, realise the value of property in order to make a distribution to one or more preferential creditors.

2. How does a company enter administration?

A company enters administration when the appointment of an administrator takes effect. An administrator may be appointed by:

1. an administration order made by the court;
2. the holder of a floating charge; or
3. the company or its directors.

The administrator must perform his or her functions as quickly and efficiently as reasonably practicable.

3. What are the effects on a company of being in administration?

When a company enters administration:

1. any pending winding-up petitions will be dismissed or suspended;
2. there will be a moratorium on insolvency and on other legal proceedings;
3. if an administrative receiver has been appointed, he or she must vacate office;
4. if a receiver of part of the company’s property has been appointed, he or she must vacate office (if the administrator requires this).

4. Who must be told that a company is in administration?

As soon as reasonably practicable, an administrator must send a notice of his or her appointment to the company and each of its creditors and publish notice of his or her appointment in the Gazette and in a newspaper in the area where the company has its principal place of business.

The administrator must send a notice of his or her appointment to the Registrar on Form 2.12B.

While a company is in administration, every business document issued by or on behalf of the company or the administrator must state the name of the administrator and that he or she is managing the affairs, business and property of the company.

5. What does the process of administration involve?

The administrator will request a statement of the company’s affairs from relevant people (e.g. an officer or employee of the company).

No later than 8 weeks after the company enters administration, the administrator must make a statement setting out proposals for achieving the purpose of the administration or explaining why they cannot be achieved. The proposals may include a voluntary arrangement or a compromise or arrangement with creditors or members.

The statement setting out the proposals must be sent to:

1. the Registrar of Companies;
2. every creditor of the company with an invitation to an initial creditors’ meeting, if one is to be held. The business of the initial creditors meeting will be to approve (with or without modifications) the statement of proposals. Following the initial meeting, the administrator;
3. may hold further creditors’ meetings, form a creditors committee, or deal with matters in correspondence between the administrator and creditors;
4. every member of the company unless the administrator undertakes to provide a copy free of charge to any member of the company who applies in writing for a copy. Any revisions to the proposals following a creditors’ meeting must, likewise, be notified to members.

Decisions taken at creditors’ meetings must be reported to the Register of Companies on Form 2.23B and to the court.

6. When does administration end?

There are several ways in which administration can come to an end.

Administration can end automatically when the administrator’s term of office expires. The appointment of an administrator expires after 1 year. However, this may be extended with the consent of creditors or the court. Any extension must be notified to the Registrar on Form 2.18B.

An administrator appointed under a court order may apply to the court to end administration if he or she thinks that the purpose of the administration cannot be achieved or the company should not have entered administration, or a creditors’ meeting requires the application. The court will discharge the administration order and the administrator must notify the Registrar on Form 2.33B.

An administrator appointed by the holders of a floating charge or by the company or its directors may end administration when the purpose of administration has been sufficiently achieved. The administrator must file notice with the court and with the Registrar on Form 2.32B.

Administration may end on the application of a creditor to the court alleging an improper motive on the part of the person who appointed the administrator or applied to the court for an administration order. The administrator must send a copy of the order with Form 2.33B to the Registrar within 14 days of the order being made.

Administration may end when the company moves into creditors’ voluntary winding up. This can happen where the administrator thinks that each secured creditor is likely to be paid and a distribution will be made to unsecured creditors, if there are any. The administrator must notify the Registrar on Form 2.34B and send copies to the court and each creditor. The company will then be wound up as if a resolution for voluntary winding up had been passed on the day on which notice is registered with the Registrar.

Administration may end when the company moves into dissolution. This can happen if the administrator thinks that a company has no property with which to make a distribution to its creditors. The administrator must send notice to the Registrar on Form 2.35B and send copies to the court and each creditor. 3 months after the date the form is registered with the Registrar, the company will be dissolved unless, on application to the court, an order is made to extend or suspend the period or stop the dissolution. Notice of the order must be notified to the Registrar on Form 2.36B.

7. What are the administrator’s duties?

The Insolvency (Amendment) Rules 2003 came into force on 15 September 2003, and introduced new statutory forms for filing with the Registrar.

Please note: These forms are not available from Companies House. They can be obtained from legal stationers.

‘In administration’ does not apply to Limited Liability Partnerships (LLP’s). LLP’s will enter administration under the old style administration order (see part 2)

Part 2: Cases that began before 15 September 2003: Administration orders

Before 15 September 2003, the only way into administration was by court order to appoint an administrator. Where a petition for an administration order had been presented before 15 September 2003 the old law continues to apply.

1. What was the purpose of the administration order?

Its purpose may have been to:

1. save the whole or any part of the company as a going concern; or
2. approve a corporate voluntary arrangement; or
3. sanction (agree to) a compromise or arrangement; or
4. get a better price for the company’s assets or otherwise realise their value more favourably than in a winding up.

2. What are the administrator’s duties?

As with the current law, the administrator would take control of all the property to which the company was, or appeared to be entitled. He or she would have prepared proposals for achieving the purpose for which the administration order was made and called a meeting of creditors to consider those proposals. If the majority of creditors approved the proposals, the administrator would then manage the affairs, business and property of the company in accordance with the proposals.

3. Would the administrator send anything else to Companies House?

Yes, as now, the administrator would have sent details of the proposals to the Registrar. This would have been done within 3 months after the administration order was made. Then, every 6 months, the administrator must send an account of receipts and payments.

4. When does administration end?

It continues until the court discharges the administration order - in other words, decides that the order is no longer needed. If there is a court order to discharge the order, or to vary its terms, the administrator must send a copy to the Registrar within 14 days after the order was made.

CHAPTER 4 Receivers

1. What is a receiver?

There are many different kinds of receiver and their powers vary according to the terms of their appointment.

An administrative receiver is a receiver or manager of the whole, or substantially the whole, of a company’s property who is appointed by or on behalf of the holders of any debentures of the company secured by a floating charge. He or she has the power to sell (or otherwise realise) the assets covered by the floating charge and apply the proceeds to the debt owed to the charge-holder.

Receivers who are not administrative receivers may be appointed in other circumstances. For example, under powers contained in an instrument or document creating a charge over a company’s property, a receiver or manager may be appointed until the debt is recovered. Receivers may also be appointed under the Law of Property Act 1925.

2. Who gives notice of the receiver’s appointment?

The person who appoints the administrative receiver, receiver or manager, or has them appointed under the powers contained in an instrument, is responsible for informing the Registrar within 7 days of the appointment. A Form 405(1) is required for each separate charge registered at Companies House over which the Receiver is appointed, whether the appointment is over part of property or all the company’s assets. An administrative receiver must also publish notice of his or her appointment in the Gazette and in an appropriate newspaper.

When the administrative receiver, receiver or manager ceases to act they must notify the Registrar.

3. What must the receiver send to Companies House?

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

1. the Registrar;
2. the company’s creditors;
3. the holders of a floating charge; and
4. any trustees for secured creditors of the company.
5. All receivers must send an account of receipts and payments for the first 12 months of receivership to the Registrar, and:
6. for administrative receivers, at 12-monthly intervals thereafter;
7. for receivers and managers, at 6-monthly intervals.

CHAPTER 5 Voluntary liquidation

There are two kinds of voluntary liquidation:

1. members’ voluntary liquidation (MVL) - which means the directors have made a statutory declaration of solvency;
2. creditors’ voluntary liquidation (CVL) - which means that the directors have not made such a declaration.

1. When can a company go into MVL?

This can take place when the directors of a company believe that the company is solvent.

2. What is in the declaration?

The statutory declaration will state that the directors have made a full inquiry into the company’s affairs and that, having done so, they believe that the company will be able to pay its debts in full within 12 months from the start of the winding-up. The declaration will include a statement of the company’s assets and liabilities as at the latest practicable date before making the declaration.

3. When does liquidation actually start?

The liquidation starts when the members, in general meeting, pass a resolution (usually a special resolution) to wind up the company voluntarily.

4. Must notice of voluntary liquidation be given to anyone?

Yes. Notice of the special resolution for voluntary winding-up of the company must be published in the Gazette within 14 days of the general meeting. The company must also send a copy of the declaration and the special resolution to the Registrar within 15 days of the general meeting.

5. When may a CVL be appropriate?

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

6. What must the company do?

The company passes an extraordinary resolution to say that it cannot continue in business because of its liabilities and that it is advisable to wind up.

The resolution must be:

1. advertised in the Gazette within 14 days; and
2. sent to the Registrar within 15 days.

A meeting of creditors must be held in the next 14 days after passing the resolution. Notice of the meeting must be sent to the creditors at least 7 days before the meeting. Also, the directors must prepare a statement of affairs for consideration at the meeting, and appoint one of themselves to attend and preside over the meeting.

When the liquidator is appointed, the directors must provide him or her with a statement of affairs and otherwise co-operate with the liquidator.

7. Does the company have to advertise notice of the meeting?

Yes. The meeting must be advertised in the Gazette and in two newspapers in the area where the company has its principal place of business.

8. What are the main duties of a liquidator?

The liquidator is appointed to wind up the company’s affairs. The liquidator does this by calling in all the company’s assets and distributing them to its creditors. If anything is left over, the liquidator distributes it among the members of the company.

9. Does a liquidator need to notify anyone of his or her appointment?

Yes. Within 14 days of being appointed, a liquidator must publish a notice of appointment in the Gazette and notify the Registrar. If the liquidation is voluntary, the liquidator must also give notice in a newspaper in the area where the company has its principal place of business.

10. What does the liquidator have to send to Companies House?

The liquidator must send a statement of affairs and Form 4.20 to the Registrar within 7 days of the creditors’ meeting.

The liquidator must also send a statement of receipts and payments for the first 12 months of liquidation. After that, statements must be sent every 6 months until the winding-up is complete.

11. Can an MVL be converted into a CVL?

Yes. 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, he or she must call a meeting of the creditors which must be held within 28 days. The liquidation becomes a CVL from the date of the meeting.

12. What are the requirements for giving notice in such a case?

The liquidator must:

1. post a notice of the meeting to each creditor at least 7 days before the date of the meeting;
2. advertise the date of the meeting in the Gazette and in 2 newspapers in the area where the company has its principal place of business; and
3. prepare a statement of affairs for consideration at the meeting. A copy of the statement must be sent to the Registrar within 7 days of the meeting.

13. What happens when the company’s affairs are fully wound up?

The liquidator presents an account to final meetings of creditors and members of the company. He or she must advertise the meetings in the Gazette at least one month before.

Within one week of the meeting having taken place, the liquidator must send the account to the Registrar and a return of the final meeting.

Unless the court makes an order deferring the dissolution of the company, it is dissolved 3 months after the return and account are registered at Companies House.

CHAPTER 6 Compulsory liquidation

1. What is ‘compulsory liquidation’?

Compulsory liquidation of a company is when the company is ordered by a court to be wound up.

2. Which courts can order a compulsory liquidation?

The High Court, or a county court with the appropriate jurisdiction, may order the winding-up of a company. This may be, for example, on the petition of a creditor or creditors on the grounds that the company cannot pay its debts.

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

1. the company itself;
2. the company’s directors or one or more members;
3. the Secretary of State for Trade and Industry;
4. the Financial Services Authority (formerly the Securities and Investment Board); or the Official Receiver.

In the case of a European company (SE) registered in GB, the Secretary of State may petition the Court for a winding up order on the grounds that it appears that the SE does not have both its head office and registered office in GB. For more information on SEs, please see our information, ‘The European Company: Societas Europaea (SE)’.

3. Must the petition be advertised?

Unless the court directs other arrangements, the petition must be advertised in the Gazette.

4. What appears on the company record held by Companies House?

If the petition is successful, the company must send the winding-up order to the Registrar straightaway and it will be placed on the company’s public record.

The petition itself is not presented to the Registrar so it will not appear on the public records.

5. Who acts as the liquidator when an order is made to wind up the company?

The Official Receiver becomes liquidator on the making of a winding-up order against a company, unless the court orders otherwise.

6. What are the duties of the Official Receiver as liquidator?

The Official Receiver has a duty to investigate the company’s affairs and the causes of its failure. He also decides whether to call meetings of the creditors and contributories (that is, those people liable to contribute to the assets of the company if it is wound up) for the purpose of appointing a liquidator in his place.

If he decides not to call meetings, he must notify the creditors, contributories and the court of his decision.

On the other hand, if he decides to call meetings, a liquidator may then be appointed in place of the Official Receiver. The liquidator must notify the Registrar of his or her appointment immediately.

If the position of liquidator becomes vacant at any time, the Official Receiver becomes the liquidator for the duration of the vacancy.

7. What happens when the winding-up is complete?

When the Registrar receives notice from the liquidator of the final meeting of creditors or notice from the Official Receiver that winding-up is complete, the Registrar will register it and publish its receipt in the Gazette.

Unless the Secretary of State directs otherwise, the company will be dissolved 3 months after the notice was registered at Companies House.

CHAPTER 7 European cross-border insolvency proceedings

Council Regulation (EC) No.1346/2000 became effective on 31 May 2002. The Regulation is directly applicable and an integral part of each member state’s law (except Denmark where parallel legislation will apply). To implement the Regulation in the UK, it was necessary to make some limited changes to the Insolvency Act 1986 and the Insolvency Rules.

1. What is the effect of the Regulation?

The Regulation restricts where insolvency proceedings can be opened to the country where the debtor has his “centre of main interests”. It requires insolvency proceedings opened under the Regulation to be recognised, and liquidators to be able to exercise their powers, in all member states.

The relevant company insolvency proceedings covered by the Regulation in the UK are –

1. Winding up by or subject to the supervision of the court
2. Creditors’ voluntary winding up (with confirmation by the court)
3. Administration
4. Corporate voluntary arrangements under insolvency legislation

The Regulation does not apply to receiverships – administrative or otherwise – nor to members’ voluntary winding up or to winding-up orders.

As a result of the regulations a number of statutory forms (relating primarily to the opening of insolvency proceedings) have been amended and one new form (Form 7.20 Confirmation by Court of Creditors’ Voluntary Winding Up) has been introduced.

2. Companies incorporated in Great Britain

Insolvency proceedings opened in this country will continue as normal. However, insolvency proceedings may be opened in another EU Member State if the company has its centre of main interests there. The public records of companies registered in England and Wales will show insolvency proceedings opened in another Member State of the EU. This will be the only indication that there are insolvency proceedings taking place abroad – the ‘L’ (for liquidation) marker will not appear against the company name on the Registrar’s index of company names.

3. Companies incorporated in other EU member states

Insolvency proceedings may be opened in the UK and be governed by UK law if the company has its centre of main interests here. Alternatively, insolvency proceedings may be opened in another Member State.

The public records of EU companies that have registered a place of business or branch within England and Wales will show insolvency proceedings opened in another Member State of the EU. This will be the only indication that there are insolvency proceedings taking place abroad – the ‘L’ (for Liquidation) marker will not appear against the company name on the Registrar’s index of company names.

EU companies that have not registered a place of business or branch within England and Wales can submit details of insolvency proceedings opened in another Member State of the EU. These documents may be searched on the Register of EC Insolvency Orders by contacting Companies House on 0870 33 33 636.

Tags: insolvency, liquidation, receivers