When the court makes an order for the winding-up of a company, they count the date the petition was presented to the court as the date that the liquidation has begun.
The Official Receiver (OR) becomes the liquidator when the winding-up order is made. The only exception to this is if the court appoints the supervisor or administrator as liquidator where the winding-up order is immediately preceded by respectively a voluntary arrangement or an administration.
The OR will remain as liquidator unless another person is appointed liquidator by the creditors, contributories or the Secretary of State. The OR may seek nominations from the company's creditors and contributories for appointing another person as liquidator. The OR has a duty to decide within 12 weeks from the date of the winding-up order whether they will seek nominations. If the OR declines, they must give notice of this to the creditors and the contributories. The OR must however seek nominations if at least one-quarter in value of the company's creditors ask the OR to do so. The OR must explain in the notice seeking nominations that any proposal must:
If the OR receives any proposals, these must be put to a decision. The OR will seek a decision from the creditors and contributories on their respective proposals. The decision must be made using a decision procedure or a deemed consent procedure.
The decision procedures available to the OR are:
The notice seeking the decision from the creditors and/or contributories will say whether a decision procedure or the deemed consent procedure will be used. Details of the procedure and when a response is required by will be given.
In the deemed consent procedure the OR will give the creditors or contributories notice of the matter they need to decide on and the proposed decision. If less than 10% in value of the creditors or contributories object to the decision, the decision will be regarded as having been made. If 10% or more in value object, the decision is not made. In this case, if a further decision is sought it must be taken using a decision procedure and not the deemed consent procedure.
The OR can at any time ask the Secretary of State for the appointment of another person as liquidator in the place of the OR.
When the OR seeks nominations from the creditors and contributories on the appointment of a liquidator they will at the same time invite the creditors to form a liquidation committee. While the OR is the liquidator there can be no liquidation committee. If the OR is not the liquidator, a liquidation committee has not been established and one tenth in value of the creditors request so, the liquidator must ask the creditors and contributories to decide whether a liquidation committee should be put in place.
The liquidation committee must have at least 3 but not more than 5 members elected by the creditors. Once established, the liquidator must by notice advise the registrar of companies of its membership.
The liquidator must call the first meeting of the liquidation committee within 6 weeks of it being established. Further meetings of the liquidation committee will only be called if that was resolved at a previous meeting or if so requested by a member of the liquidation committee. The liquidation committee meeting is duly constituted if at least 2 members attend the meeting either in person or by proxy. A resolution of the committee will be passed if a majority of the members attending, either in person or by proxy, votes in favour of it. Each member has one vote.
Liquidation committee meetings can be held by remote attendance and the liquidator can also get the committees agreement to a resolution by correspondence instead of having to call a meeting.
The liquidation committee will receive reports on the progress of the liquidation from the liquidator and will assist them in their task. They will also approve the liquidator's remuneration. The liquidation committee may report to the other creditors.
The liquidator will send a notice of their appointment to every known creditor of the company and will call on creditors to submit proof of debts owed them by the company, if not already done by the OR. The liquidator will either accept those debts as proven in full or in part, reject it or compromise it.
The primary duty of the liquidator is to increase the assets of the company, collect in all the assets and realise it at the best possible price to maximize the funds available for distribution to the creditors. The liquidator can require and force any person who has or controls any assets of the insolvent company to deliver or surrender control of those assets to the liquidator.
When a winding-up order is made, the directors' powers to manage the company cease with the liquidator taking control. The liquidator can act on behalf of the company in the same way that the directors previously could, but with added powers. Contrary to bankruptcy, the assets of the company do not vest in the liquidator as trustee. The assets remain vested in the company, unless the liquidator applies to court for a vesting order. The liquidator has all the powers needed over the assets of the company to fulfil their duties as liquidator.
The OR must, at least once after the making of the winding-up order, report to the creditors and contributories on the winding up and the state of the company's affairs. The OR can however apply to court to be relieved of this duty. The court will consider the cost of preparing such a report compared to the assets available and the extent of the creditors' or contributories' interest.
The OR may by notice request the directors to prepare a statement of affairs. The contents of the statement must show certain information by law, for example, details of the company's assets, debts and liabilities; the names and addresses of the company's creditors, the securities held by them, and any other information the OR needs. This statement of affairs must be verified by a statement of truth.
The OR may at any time during the winding-up process at the request of one half in value of the creditors or three-quarters in value of the contributories, apply to court the have certain people connected to the insolvent company publicly questioned about the promotion, formation or management of the company, the conduct of its business affairs and the person's own conduct and dealings relating to the insolvent company.
The liquidator may require certain specified persons related to the company, to give them information about the company and its promotion, formation, business dealings, affairs or property. These persons must also attend on the liquidator as may be reasonably required. These persons have a duty to co-operate or face a fine or daily default fine where failure to comply continues.
The liquidator may force the following people, through an order of court, to submit to them an account of their dealings with the company and to hand over any books or records relating to the information they have as mentioned below:
If the court believes that any of the above people appearing before it, is in possession of property of the company or owes a debt to the company it may order delivery or payment of them to the liquidator.
The liquidator has the power and duty to review the company's past transactions and to take appropriate action to ensure that they maximise the available assets for the benefit of the creditors. To do that the liquidator has wide powers such as the following:
Where a transaction or asset is of such a nature that it is unprofitable, not readily saleable, give rise to an obligation to pay money or perform an onerous act, the liquidator can by notice to the interested party disclaim that property or transaction. However, if the interested party has applied to the liquidator to decide whether they will be disclaiming the transaction or property and the liquidator has for 28 days not reacted to that, the liquidator can't thereafter disclaim it. If the liquidator does disclaim a transaction or asset any person suffering a loss or damage as a result will be regarded as a creditor of the company and will be able to prove in the liquidation for that loss or damage, but they will not have any other remedy. A contract is not unprofitable just because it is financially disadvantageous or because a better deal could have been achieved. The critical feature is that the performance of future obligations would prejudice the officeholder's obligation to realise the assets and make a distribution to creditors. Disclaiming ends any ongoing obligations on the part of the insolvent company.
The liquidator can apply to court to have certain transactions entered into by the company at an undervalue or preferences given by the company set aside. The court can make any order that it believes will restore the company to the position it would've been in had it not given that preference or entered into that transaction at an undervalue.
Preference and undervalue
To be reviewable transactions must have happened:
A transaction at undervalue would be one providing for the company to receive no consideration or a consideration that is much less in money's value than the consideration given by the company. However, the transaction will only be regarded as at an undervalue if at the time of the transaction the company was insolvent or it became insolvent because of the transaction. If the transaction involved a connected person, then insolvency is presumed. A transaction at an undervalue will however not be set aside if, at the time the transaction was entered into, the company did so in good faith believing that was to the benefit of the company.
A preference would've been given to a company creditor, surety or guarantor if, because of a transaction with the company, they are in a better position than they would have been in during the insolvent liquidation of the company. However, a transaction will only be regarded as a preference if the company was influenced by a desire to prefer that person above other creditors and at the time of the transaction the company was insolvent or it became insolvent because of the transaction.
Where the company had entered into an extortionate credit transaction within the 3 years preceding the liquidation the liquidator can apply to court to have the terms of that transaction varied, any security held released and any amounts paid refunded.
A transaction is extortionate if, having regard to the risk accepted by the person providing the credit:
When the liquidator makes an application to court for an extortionate credit transaction the court will presume, unless the contrary is proven, that the transaction was extortionate.
The liquidator can claim that a floating charge over any assets of the company is invalid to the extent that it was not given in consideration of new money being provided to the company at the time that floating charge was created. However, to be reviewable, the time that the floating charge was created must fall within certain prescribed time limits.
Intended to defraud
Where a transaction was intended to defraud creditors by putting assets out of reach of the creditors it can be set aside by the court. The court can make such order as it thinks fit, including:
A transaction will be regarded as intended to defraud creditors if:
Some of the other powers a liquidator has to enable them to carry out their duties include:
Duty regarding final account
When the winding-up is complete, the liquidator must make up a final account of the winding-up showing how it was conducted and how the company's property has been disposed of. This must be sent to the company's creditors (that have not opted out of receiving correspondence) together with a notice explaining how they can object against the liquidator's release. When the period for objections has passed, the liquidator must send a copy of the account to the court and confirm whether there were any objections against the liquidator's release.
A 'provable debt' is a debt capable of being proven as due by the company being wound-up. To be recognised as a provable debt the claim must be payable in money (or money's worth, i.e. anything which is capable of being turned into money) and must have arisen prior to the date of the winding-up order. The debt or liability can either be due at the date of the winding-up order or thereafter, so long as it arose before the date of the winding-up order. If this is not the case the claim will not be counted as a provable debt.
A debtor company will be under an 'obligation' if, at the date of the winding-up order, there was a genuine possibility of a payment liability arising out of some form of legal relationship or duty.
The debt can be contractual, a tortious liability, a liability created by statute, etc. It doesn't matter whether the debt is certain or contingent and whether the amount is fixed or only capable of being determined by rules or opinion.
Any interest due on a provable debt for the period prior to the bankruptcy order can be proved as part of the bankruptcy debt.
Proving a debt
A creditor that wants to recover a debt from the insolvent estate must submit a proof to the liquidator. A 'proof' is a document in which the details of the debt due to the creditor by the insolvent company are set out. It is given to the liquidator, before the last day for proving, to decide whether they will agree that the debt is due by the insolvent company. The liquidator can on receipt of the proof ask for any supporting evidence from the creditor. (See below for contents to be included in the proof.)
A creditor however, need not submit a proof to the liquidator if:
If the creditor with a small debt disputes the amount shown in the notice, of if they want to vote in any creditors' decision procedure, they'll have to prove in the normal way (see next paragraph).
To prove for their debt the creditor must draw up a proof and send it to the liquidator on or before the last day for proving. The proof must be dated and signed by the creditor or by a person authorised to do so on their behalf.
In England & Wales, while there is no set form for the proof, its contents are prescribed by law. It must, for example, show:
In Northern Ireland to prove a debt in a liquidation, the creditor must complete
If the creditor proved their debt in a preceding administration of the company, they will be regarded as having proven in the winding-up.
After proofs of debt have been lodged with the liquidator they will be available to be inspected by:
If the liquidator agrees to it, a creditor that submitted a proof may at any time thereafter withdraw it or change the amount claimed.
If the OR received any proofs before the liquidator was appointed they must send them with an itemised list to the liquidator. The same will happen should a new liquidator be appointed.
The liquidator can admit a proof either for the whole or part of the amount claimed. If they reject all or part of the amount claimed, they have to provide the creditor that submitted the proof with written reasons for doing so. If this creditor is not satisfied with the reasons they may, within 21 days from the date of receiving the reasons, appeal to the court to have the decision reversed or varied.
Any other creditor or a contributory may also appeal the decision of the liquidator on any proof and may do so to the court within 21 days of becoming aware of the liquidator's decision. However, if the application is made by a contributory of the company the court will not disallow the proof unless the contributory can show that there will be a surplus of assets to which the company would be entitled.
If the liquidator is of the opinion that a proof has been improperly admitted, they can apply to court to have it expunged or the amount reduced.
Certain debts are regarded as non-provable in a liquidation and rank very low for payment from the assets in the company's insolvent estate. Non-provable debts would be claims that have become statute barred and claims that did not arise from an obligation incurred prior to the date of the liquidation order (or the administration order if the liquidation was preceded by an administration). If there was enough money left after payment of any statutory interest any non-provable debts would be paid. An example of a non-provable debt would be where a claim in a foreign currency was proved at the start of the liquidation (or preceding administration) but only paid when there was a negative fluctuation in the exchange rate. The loss so incurred would be regarded as a non-provable debt.
All assets whether tangible or not, in which the insolvent company has a beneficial interest at the date of the liquidation order or in which it obtains a beneficial interest during the period of winding-up, form part of the company's insolvent estate.
The mere physical possession of an asset does not necessarily mean that it forms part of the company's insolvent estate as the asset might be subject to retention of title provisions, a hire purchase agreement or might be held in trust for a third party.
When the winding-up is complete, the liquidator must make up a final account of the winding-up showing how it was conducted and how the company's property has been disposed of. This must be sent to the company's creditors (that have not opted out of receiving correspondence) together with a notice explaining how they can object against the liquidator's release. When the period for objections has passed, the liquidator must send a copy of the account to the court and the registrar of companies, together with a notice confirming whether there were any objections against the liquidator's release. The liquidator will vacate office on complying with this and will, if there were no objections, have their release at the same time. The company will be automatically dissolved 3 months after the registrar of companies received and registered this notice.