liquidation

• What does the term "liquidation" refer to?

  It refers to the process of winding up a company's business and transferring its assets to creditors.
• What percentage of company insolvencies were liquidations in 2019?

  More than 87%
• What is the difference between solvent and insolvent liquidation?

  Solvent liquidation occurs when a company can pay its debts, while insolvent liquidation occurs when it cannot.
• What happens to a company after liquidation?

  The company is removed from the register of companies and dissolved.
• How are the terms "liquidation" and "winding up" related?

  They are used interchangeably to describe the same process.
• Can solvent companies also undergo liquidation?

  Yes, solvent companies can be wound up for various reasons.
• What is the primary function of a liquidator?

  To realise the company’s assets for cash and pay dividends to creditors.
• What does "pari passu" mean in the context of liquidation?

  It means creditors of the same rank are paid proportionately based on their claims.
• What legislation outlines the ranking of creditors' claims?

  The IA 1986 and the IR 2016.
• What happens to a company's business after a liquidator is appointed?

  The liquidator usually closes the business and dismisses employees shortly after appointment.
• What are the two main types of liquidation?

  Compulsory liquidation and voluntary liquidation.
• What is the time frame for dissolution after compulsory liquidation?

  Three months after notice by the liquidator to the Registrar of Companies.
• Who can initiate a compulsory liquidation?

  A creditor, the company, directors, an administrator, an administrative receiver, or the Secretary of State.
• What is a statutory demand?

  A written demand requiring a company to pay a specific debt exceeding £750.
• What is the most common ground for a winding up petition?

  The company's inability to pay its debts.
• What happens if a company fails to comply with a statutory demand?

  The creditor can petition the court to wind up the company.
• What is the "cash-flow test" in the context of insolvency?

  It assesses whether a company can pay its debts as they fall due.
• What is the effect of a winding up order on a company's employees?

  All employees are automatically dismissed.
• What is the "balance sheet test"?

  It checks if the company's assets are less than its liabilities.
• What are the three situations under which a company can be wound up without a court order?

  When the company's purpose has expired, by special resolution if solvent, or due to inability to carry on business if insolvent.
• What is required for a members' voluntary liquidation (MVL)?

  Directors must declare solvency and pass a special resolution.
• What happens if a liquidator finds that a company cannot pay its debts during an MVL?

  The liquidator must convert the MVL into a creditors' voluntary liquidation (CVL).
• What is the most common type of liquidation?

  Creditors' voluntary liquidation (CVL).
• What must directors do within 14 days of passing a special resolution for a CVL?

  They must ask creditors to approve the nominated liquidator.
• What happens to the management powers of directors once a liquidator is appointed?

  The directors lose their powers, which are transferred to the liquidator.
• What are the principal functions of a liquidator in a winding up by the court?

  To secure and realise the company's assets and distribute them to creditors.
• What powers does a liquidator have to manage the company?

  They can sell property, execute documents, raise money, and carry on the business as necessary for winding up.
• What is the liquidator's duty regarding the company's property?

  To preserve the company's property and maximise the value of its assets for creditors.
• What transactions can a liquidator avoid to protect creditors' interests?

  They can avoid transactions at undervalue, preferences, and extortionate credit transactions.
• What are the consequences of a winding up order?

  • Automatic stay on proceedings against the company.
  • All employees are automatically dismissed.
  • Directors lose their powers and are dismissed from office.
• What are the key points regarding the types of liquidation?

  • Two main types: compulsory and voluntary liquidation.
  • Voluntary liquidation is further divided into members' voluntary liquidation (MVL) and creditors' voluntary liquidation (CVL).
  • MVL applies only to solvent companies.
  • Compulsory liquidation is ordered by the court based on statutory grounds.
• What is the role of the liquidator in the liquidation process?

  • Realise the company's assets and distribute them to creditors.
  • Act in good faith and avoid conflicts of interest.
  • Must be a qualified Insolvency Practitioner or the Official Receiver.
• What are the statutory powers of a liquidator?

  • Secure and realise the company's assets.
  • Manage the company's affairs to facilitate winding up.
  • Avoid certain transactions to protect creditors.
• What are the grounds for a winding up order under s 122(1) IA 1986?

  • The company is unable to pay its debts.
  • It is just and equitable for the company to be wound up.
• What are the consequences of a members' voluntary liquidation (MVL)?

  • Directors must declare solvency.
  • A special resolution is required to initiate MVL.
  • If unable to pay debts, it converts to creditors' voluntary liquidation (CVL).
• What is the process for creditors' voluntary liquidation (CVL)?

  • Initiated by a special resolution of shareholders.
  • Creditors have control over the choice of liquidator.
  • Directors must provide a statement of the company's affairs to creditors.
• What are the key responsibilities of a liquidator during the liquidation process?

  • Act in the best interest of creditors.
  • Ensure proper distribution of assets according to statutory priority.
  • Maintain transparency and avoid conflicts of interest.