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| Dealing
with debt - how to wind up your own company Contents About this booklet 1 General information What is liquidation? What types of liquidation are there? Where can I get advice about liquidation? What are the alternatives to liquidation? 2 Voluntary liquidation 2.1 Members’ Voluntary Liquidation 2.2 Creditors’ Voluntary Liquidation 2.3 Other important details on voluntary liquidation What happens when a company goes into voluntary liquidation? When will the voluntary liquidation end? 3 Compulsory liquidation Who can put a company into compulsory liquidation? In what circumstances can a winding-up order be made? In which court should a winding-up petition be presented? What is the procedure for presenting a winding-up petition? What are the costs of putting the company into compulsory liquidation? Can anyone appeal against or stop a winding-up order? What happens after a company goes into compulsory liquidation? What are the duties of a company director in compulsory liquidation proceedings? When will compulsory liquidation end? 4 Further information Where can I get more information? What additional help is available for court users with a disability Liquidation terms - what do they mean? Disclaimer and copyright information
Before you take any action, you should obtain your own legal or financial advice. Please note that if a company has been dissolved, it must be restored to the register at Companies House before liquidation proceedings can begin. For full details, see the Companies House leaflet GP4 'Strike-off, Dissolution and Restoration', available free of charge from Companies House through their website at: www.companieshouse.gov.uk, or by telephoning 0303 1234 500. If the company has not traded in the last 3 months, the directors may apply to Companies House to have the company struck off. For full details, see the above Companies House leaflet GP4. Our booklet is only a guide and you should also refer to the relevant legislation in the Companies Act 2006, the Insolvency Act 1986 and the Insolvency Rules 1986. You will find an explanation at the back of the booklet for some of the terms used.
1 General information What is liquidation? Liquidation is a legal process in which a liquidator is appointed to 'wind up' the affairs of a limited company. At the end of the process, the company ceases to exist. Liquidation does not mean that the creditors of the company will get paid. The purpose of liquidation is to ensure that all the company's affairs have been dealt with properly. This involves:
When this has been done, the liquidator will apply to have the company removed from the register at Companies House and dissolved, which means it ceases to exist. What types of liquidation are there?
If you are a director or a shareholder and you are also a creditor of your company, you may wish to present a winding-up petition on the grounds that the company cannot pay its debts. Please read our booklet 'Dealing with debt - How to wind up a company that owes you money' for more information. Where can I get advice about liquidation? Before you take any action to put a company into liquidation, you should obtain your own legal or financial advice about this procedure and any other options available to you. You can get advice from your local Citizens Advice Bureau, a solicitor, a qualified accountant, an authorised insolvency practitioner, any reputable financial adviser or a debt advice centre. What are the alternatives to liquidation? There are 3 possibilities:
The procedure is managed by an administrator, who must be an authorised insolvency practitioner, and who may be appointed by the court, a floating charge holder or the company or its directors.
2 Voluntary liquidation A company can only be put into voluntary liquidation by its shareholders. The liquidator appointed must be an authorised insolvency practitioner. The liquidation begins from the time the resolution to wind up is passed. 2.1 Members' voluntary liquidation A members' voluntary liquidation can only take place if the company is solvent. The directors must make a formal declaration of solvency, which must:
It is a criminal offence to make a declaration of solvency without reasonable grounds. The shareholders must hold a general meeting of the company that passes a resolution:
The shareholders must pass a special resolution for winding up, unless:
If it later turns out that the company is not solvent, the liquidator will call a meeting of creditors and the liquidation becomes a creditors' voluntary liquidation (see below). 2.2 Creditors' voluntary liquidation If the majority of directors do not make a declaration of solvency, or the company is insolvent, the shareholders can still vote for a voluntary liquidation. This type of liquidation is called a creditors' voluntary liquidation. To vote for a voluntary liquidation, the shareholders must:
The company can nominate an authorised insolvency practitioner as liquidator. It must also call a meeting of creditors (usually on the same day as the shareholders' meeting) at which they receive details of its financial affairs. The creditors can nominate a liquidator and their nomination will usually override that of the shareholders, if different. 2.3 Other important details on voluntary liquidation What happens when a company goes into voluntary liquidation? The liquidator takes control of the company's affairs and almost all powers of the directors cease. The liquidator disposes of all the company's assets and, after paying the costs and expenses of the liquidation, distributes any remaining money to the creditors. In a members' voluntary liquidation, the liquidator must hold a meeting of the company each year and provide details of his or her actions and dealings, and of the conduct of the winding up in the preceding year. In a creditors' voluntary liquidation, the liquidator has to hold annual creditors' meetings for the same purpose. He also has a duty to make a report to the Secretary of State, under the Company Directors Disqualification Act 1986, regarding the conduct of the company's directors. As soon as the affairs of the company are fully wound up, the liquidator will hold final meetings of the company and its creditors. What are a company director's duties in a voluntary liquidation? In voluntary liquidation proceedings, the company's directors must:
When will the voluntary liquidation end? Liquidation ends when the company is dissolved after the final meeting held by the liquidator. How long the liquidation takes will depend on the circumstances of the individual case (e.g. the nature of the assets involved), but once the process has been completed the company will be dissolved and cease to exist.
3 Compulsory liquidation A court can make a winding-up order on the application of a relevant person (see below). The application is known as the 'winding-up petition'. Who can put a company in compulsory liquidation? A petition for the winding up of a company is usually presented to court by a creditor. Less frequently, the company itself, its directors or a shareholder may petition, as (in some circumstances) may an administrative receiver, an administrator, a supervisor of a voluntary arrangement, the Secretary of State for Business, Innovation and Skills, the Financial Services Authority, the clerk of a ‘magistrates' court, the official receiver or a Member State Liquidator. A winding-up petition can still be presented even if a company is already in administrative receivership or voluntary liquidation. In what circumstances can a winding-up order be made? A winding-up order can be made if the company:
In which court should a winding-up petition be presented? The winding-up petition should be presented in the High Court, or the District Registry of the High Court that covers the area where the company's trading address or registered office is situated. If the company's share capital, paid up or credited as paid up, is not more than £120,000, the petition can be presented in the county court that deals with insolvency matters that covers the area where the company's trading address or registered office is situated. What is the procedure for presenting a winding-up petition? To ensure that all legal requirements are met, it is usual to instruct a solicitor to deal with issuing a winding-up petition. To present a winding-up petition, you cannot just complete the petition and present it to the court. Insolvency law requires that before the court can hear the petition, statements of truth must be lodged at court verifying the winding-up petition. The petition must usually be served on the company at its registered office. A certificate of service of the petition must be filed at court at least 5 business days before the hearing. The petition must be advertised in the London Gazette at least 7 business days after the petition is served on the company and at least 7 business days before the hearing. Further statements of truth may be required if, for example, you wish to withdraw the petition. If you are a contributory and wish to present a winding-up petition, the petition form you need to complete is Form 4.14. As the procedure is different from what is outlined below you may wish to seek legal advice before taking any action. Here is more detail on the procedure:
All the forms are in the Insolvency Rules 1986 as amended, and you can get them from legal stationers - see Yellow Pages. Some of the forms are available on The Insolvency Service website at www.insolvency.gov.uk where you can print them off for completion. What are the costs of putting the company into compulsory liquidation?
Can anyone appeal against or stop a winding-up order? There are 3 ways that winding-up proceedings can be stopped:
What happens after a company goes into compulsory liquidation? Usually, the official receiver (who is both a civil servant in The Insolvency Service and an officer of the court) will be appointed liquidator of the company on the making of a winding-up order. The official receiver has a duty:
The official receiver may call a meeting of creditors to appoint an insolvency practitioner as liquidator in their place but, if this happens, they still have a duty to investigate the company's affairs. So, 2 people may be involved in the liquidation:
The official receiver also has a duty to make a report to the Secretary of State under the Company Directors Disqualification Act 1986, regarding the conduct of the company's directors. What are the duties of a company director in compulsory liquidation proceedings? In compulsory liquidation proceedings, the company's directors must:
When will compulsory liquidation end? How long liquidation takes will depend on the circumstances of the individual case (e.g. the nature of the assets involved and the complexity of the liquidation), but once the process has been completed the company will be dissolved and cease to exist.
4 Further information Where can I get more information? Our publications give more details of insolvency procedures. Please see 'A Guide for Directors' and 'A Guide for Creditors'. You can obtain further copies of this booklet from The Insolvency Service website: http://www.insolvency.gov.uk/. All of our publications are also available on this website. The address and telephone number of your local county court are listed under 'Courts' in the phone book, where you should look for 'civil courts – county courts' and not ‘magistrates' courts. The HM Courts and Tribunals Service website at: http://www.justice.gov.uk/hmcts/index/htm has an index of county courts that have jurisdiction to hear insolvency cases. By telephone: 0845 015 0010. By email: publications@bis.gsi.gov.uk By fax: 0845 015 0020 Minicom users should telephone: 0845 015 0030 You may also find it helpful to read the publication GP08 'Liquidation and Insolvency', issued by Companies House free of charge. It gives more details about alternative insolvency proceedings and liquidation. The quickest way to get a copy is through their website at: www.companieshouse.gov.uk or by telephoning 0303 1234 500. The address and telephone number of your local county court are listed under 'Courts' in the phone book, where you should look for 'civil courts – county courts' and not magistrates' courts. The Courts Service website at: http://www.hmcourts-service.gov.uk/ has an index of county courts that have jurisdiction to hear insolvency cases. You can also contact The Insolvency Enquiry Line for general enquiries, on 0845 602 9848, or email us at: Insolvency.Enquiryline@insolvency.gsi.gov.uk For general enquiries to the Courts Service, you can call their Customer Service Unit on 0845 4568770, or email them at: customerservicecshq@hmcourts-service.gsi.gov.uk This publication provides general information only. Whilst every effort has been made to ensure that the information is accurate, it is not a full and authoritative statement of the law and you should not rely upon it as such. The Courts Service and The Insolvency Service cannot accept responsibility for any errors or omissions as a result of negligence or otherwise What additional help is available for court users with a disability? If you have a disability that makes going to court or communicating difficult, please contact the Customer Service Officer of the court concerned, who may be able to help you. If they cannot help you, you can contact the Courts Service Disability Helpline free on 0800 358 3506 between 9am and 5pm, Monday to Friday. If you are deaf or hard of hearing, you can use the Minicom service on 0191 478 1476. Liquidation terms - what do they mean? Creditor - someone to whom the company owes money. Contributory - every person who is liable to contribute to the assets of a company if it is wound up. The liability is limited to the value of the person’s shareholding. Debt - the money the company owes. Dissolution - the process by which a company is removed from the Register held at Companies House and ceases to exist. Insolvency practitioner - an authorised person who specialises in insolvency, usually an accountant or solicitor. They are authorised by the Secretary of State or one of a number of recognised professional bodies. Liabilities - the money the company owes. Liquidator - may be either the official receiver or an insolvency practitioner. The liquidator's main duties are to collect and sell assets and pay the creditors. Member State liquidator - a liquidator appointed in liquidation proceedings which are opened against the company in another member State of the European Union. Realisation - sale or disposal of assets. Recognised professional body - a professional body that the Secretary of State allows to authorise a person to act as an insolvency practitioner. Rescission of a winding-up order - a court order that cancels the winding-up order. Resolution for winding up - a decision by a meeting of shareholders of a company to place it in liquidation. Not all the shareholders need to vote in favour for the resolution to be passed, but a majority vote is required. The majority needed depends on the type of resolution being passed, as follows:
Statement of truth - a statement in writing and on oath, which is sworn before an authorised person, e.g. an authorised solicitor or court official. It used to be called an affidavit. Winding-up order - a court order that places a company into liquidation. Winding-up petition - a request to the court for a company to be placed into liquidation. Disclaimer and copyright information This booklet provides general information only. Every effort has been made to ensure that the information is accurate, but it is not a full and authoritative statement of the law and you should not rely on it as such. The Insolvency Service cannot accept any responsibility for any errors or omissions as a result of negligence or otherwise.
© Crown copyright 2011 You may re-use this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit http://www.nationalarchives.gov.uk/doc/open-government-licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or e-mail: psi@nationalarchives.gsi.gov.uk. This publication is also available on our website at www.insolvency.gov.uk URN11/1003 |
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