phoenix & co

Where can I get advice about Liquidation?

Before you take any action to put a Company into Liquidation, you should obtain advice about this procedure and whether any other options are available to you. We will advise you, impartially, in confidence and free of charge.

What are the alternatives to Liquidation?

Briefly, there are 3 possibilities (more detail is available by clicking on each)

• An Informal Arrangement with your Creditors
• A Company Voluntary Arrangement (CVA), which is a formal version of the arrangement noted above.
• An Administration.

What types of Liquidation are there?

There are 3 types of Liquidation available:

• 1. Members/Shareholders Voluntary Liquidation (MVL) is used by a Company that expects to pay all its creditors, employees, taxes and shareholders. An Insolvency Practitioner (IP) is appointed by the “members” over the affairs of the company as Liquidator. An MVL is generally used to re-organise assets, release capital or by a Group of companies to re-structure. Directors/Shareholders wishing to retire would use this exit strategy as well. An MVL has Tax implications (Income Tax and Capital Gains Tax) and professional advice as to the Tax position of both the company and the individual shareholders should be sought.
• 2. Creditors Voluntary liquidation (CVL) is used where the company is insolvent (i.e. It cannot pay its debts as and when they fall due – Take our simple Insolvency Test now) The Director/s believe they cannot continue (see Directors Responsibilities) hold a Board Meeting and pass a “Resolution” to appoint a Liquidator. A CVL is the most commonly used Liquidation. It is a quick and very powerful way to close a business and more importantly, deal with matters properly.
• 3. Compulsory Liquidation (or compulsory winding up) is used when a court make an order for a company to be wound up (a winding-up order) on the petition of an appropriate person, normally a creditor ( for non payment of debt in excess of £750.00) or by The Secretary of State. Most Directors do not want to go down this route, as the Official Receiver (OR), appointed by the court, will investigate the companies’ affairs and the conduct of the Directors. If the company has assets the OR will call for a “creditors meeting” at which an IP will be appointed, to realise the assets and then distribute the proceeds to the creditors.

NOTE. For more information on “Pre-Pack” or Phoenixing, please go to Administrations

What happens when a company is in Liquidation?

A company is in liquidation when a liquidator is appointed over the affairs of the company and has the effect of removing the Directors from office and the Liquidator becomes the authorised person who can deal with the assets, liabilities, bank accounts and company employees,

Who can be Liquidator?

The Insolvency Act 1986 specifies that a person in order to be a Liquidator has to be authorised by the Department of Trade and Industry (DTI) See Standards.

Creditors?

Creditors will be paid from any surplus and in a certain order of priority.

• Fixed Charge Holders like the Bank who have Mortgages over properties, Debentures over book debts, Hire Purchase companies who have financed vehicles and equipment. The fixed charge holders are paid first, out of the realised assets they have a charge over.(Lenders with Personal Guarantees will then call those PG’s in, to cover any balance shortfalls)
• Reservation of Title: any assets, once ownership is proven to the liquidator, can be claimed back by the Title holder.
• Preferential Creditors will be paid next from any surplus .They include VAT, NI, PAYE and employees with arrears of wages and holiday pay. Any Redundancy payments due, are paid directly by the National Insurance Fund, upon application.
• Floating Charge Holders will be paid next from any surplus; normally creditors with a charge on stock and work in progress.
• Unsecured Creditors will then be paid from any surplus remaining.
• Shareholders will only be paid, once all other creditors have been.

Pre-Pack Liquidation

A pre-pack liquidation and a pre-pack administration essentially achieve the same result, using a different mechanism.

In a pre-pack liquidation, a new company (A Phoenix company) is formed and the assets of the old company would be transferred to the new company via a CVL-Creditors Voluntary Liquidation.

Each case is unique, but the steps taken in a pre-pack liquidation would normally be as follows:

• An overview of the company’s financial situation is carried out, the Directors future plans are examined and any time critical events identified.
• Any insolvency legislation affecting pre-pack liquidations will be explained in detail. For example: transferring employees or the re-use of the old company name (Section 216- the use of a prohibited name)
• Depending on the asset value to be transferred to the new company, a Valuer would be instructed by the IP. However, if the assets are less than £10,000.00 and of little commercial benefit the IP would make a judgement. If the Directors are worried a rival company may want to purchase the assets, it is clear that the correct procedure must be followed.

NOTE:

A “Statement of Insolvency Practice” (SIP16) introduced in January 2009, details legislation an IP must follow when dealing with a Pre-Pack Administration. SIP16 does not apply to Liquidations.

Plymouth Liquidation Advice