18 - Liquidation & Dissolution

• A company is considered to be insolvent if it is unable to pay its debts.
• The two types of liquidation are:

  1.      Voluntary winding up

  2.      Winding up by the Court
• A voluntary wound up is commenced by the company passing a special resolution stating that it be wound up voluntarily (IA 1986).
• The two types of voluntary winding up are members and creditors.
• A compulsory wind up is winding up by the court.
• Can a provisional liquidator wind up a company?

  No
• The pari passu principle states that the liquidator will distribute the assets to the creditors in proportion to the size of their claim against the company.
• The Order of Distribution is:

  1.      Moratorium Debts etc

  2.      Liquidation Expenses

  3.      Preferential Debts

  4.      Debts secured by floating charge (minus prescribed part)

  5.      Unsecured creditors

  6.      Deferred Debts

  7.      Members
• The prescribed part cannot exceed £800,000
• An example of deferred debts are sums due to members by way of dividend.
• In order to prove wrongful trading the following conditions must be satisfied:

  1.      The Company has done into insolvent liquidation or insolvent administration

  2.      At some time before the commencement of admin/liquidation, that person knew or ought to have known that there was no reasonable prospect that the company wouldn’t go into insolvent liquidation / administration

  3.      The person was a director or a shadow director at the time
• A liquidator / administrator can adjust certain pre-liquidations, including:

  ·         Transactions at undervalue

  ·         Preferences

  ·         Extortionate credit transactions

  ·         Invalid floating charges
• If a company still owns property at the point of dissolution, it will be deemed bona vacantia and will pass to the Crown.