How do I organise a Liquidation?
A creditors voluntary liquidation is quick to organise and is generally seen as the action of a responsible director when it is apparent that the company has no hope of avoiding formal insolvency proceedings. The process involves a board meeting, followed by a meeting of shareholders, and then a meeting of creditors. The third meeting is advertised by way of public advert and hence, liquidation is not a secret. When the public advert appears, giving creditors at least seven days’ notice of a meeting, suppliers tend to cease supplying and the Bank may freeze the account. A serving director must chair the first meeting of creditors and is assisted by the IP appointed by the directors/shareholders. Such IP may well continue as liquidator by vote of creditors attending the meeting.
In some cases the IP may wish to have authority to act as liquidator at the board meeting but is more normal to commence acting at the first meeting of creditors.
A court liquidation may be at the instance of either the director/company or a creditor. Both options require a law agent to present a liquidation petition to court and a public advert. Accordingly, the process is public knowledge once the advert appears. The law provides various safeguards when a court liquidation process is instigated and thus, it can take several weeks between the date of the advert and the appointment of a liquidator. Occasionally, the director will ask court to appoint the IP as provisional liquidator. If approved, the IP assumes office immediately. Some creditor petitions ask court to appoint an IP as provisional liquidator but, generally, courts exercise caution before doing so lest it be seen as a crude attempt at debt collection. When a company is subject to a court liquidation, a director does not have to chair the first meeting of creditors.
Once a liquidator is in place, both processes are very similar in terms of asset identification/security/realisation and liability determination. In both processes, a director faces the possibility of disqualification, being pursued for wrongful trading, and all other remedies available to the liquidator under the Insolvency Act 1986.
If required, creditors can elect a liquidation committee in order to monitor the activities of the liquidator during the course of the liquidation. Such committee approves the liquidator’s fee and provides assistance in the sale of assets, and investigation into a director’s conduct. A liquidation committee comprises between 3 and 5 members.
Howsoever he is elected, the liquidator has a similar focus :
- To convert the assets of the business into cash.
- To adjudicate upon the claims of the creditors i.e. determine who is owed what.
- To investigate and report upon the conduct of the officers of the company : directors and shadow directors.
- To pay dividends to creditors in order of priority when cash is available.