ACCA LW ^Eng Syllabus G. Insolvency Law - Explain Liquidation - Notes ^{1 / 2}

Liquidation

There are three ways to end a company:

Members' voluntary liquidation
Creditors' voluntary liquidation
Compulsory liquidation

1. Members' voluntary liquidation

   Started by Directors (when they think the company is solvent)

   Procedure: 
   (a) Special resolution 
   (b) Appoint liquidator
   (c) Statutory declaration of solvency (15 days to get to registrar)
   (d) Liquidator's report (within three months) on his transactions
   (e) Liquidators final accounts

   As the company is solvent, creditors have no involvement (can attend meetings)

2. Creditors' voluntary liquidation

   Started by Creditors (when they think the company is insolvent)

   Procedure: 
   (a) Special resolution (Liquidation starts here)
   (b) Statement of Affairs back to Creditors within 7 days
   (c) Members meeting - Appoint a liquidator 
   (d) Creditors meeting - Members send notice to Creditors for their consent and decision
   (e) Liquidator's report on his transactions

3. Compulsory liquidation

   Called normally when a company cannot pay its debts. 

   Any creditor of at least £750, not paid in 21 days, can ask the courts for a compulsory winding up:

   (a) The Official Receiver is appointed by the courts
   (b) Liquidation starts from the petition date
   (c) A statement of the company's affairs produced
   (d) Members and Creditors meeting - Appoint a liquidator, and form a liquidation committee
   (e) Final Creditors meeting - Liquidator presents his accounts

The Liquidator realises the assets and distributes to the creditors. Any surplus to the persons entitled to it

The Order Of Payment

1. Secured creditors with fixed charges

2. Liquidator's expenses

3. Preferential creditors – all ranking equally

4. Secured creditors with floating charges

5. Ordinary unsecured creditors

6. Deferred debts – such as dividends declared, not paid

7. Members' capital

8. Any surplus is returned to members in line with the Articles

Also a company will be wound up where it is 'just and equitable' :

(a) Deadlock in management – Yenidje Tobacco Co Ltd 
(b) Breakdown in a quasi-partnership relationship – Re Westbourne Galleries 
(c) Failure of substratum – Re German Date Coffee Co Ltd