Creditors Voluntary Liquidation

It is not unusual for insolvency practitioners to want to be appointed jointly, so as to enable the continuity of the process. They must consent to their appointment and set out matters concerning their appointment.

The appointment is made by the members on passing a special resolution at their meeting, from which time the company is in liquidation. The appointment of the liquidator is made by ordinary resolution of the same meeting.  Passing the resolutions means that the management powers of the directors cease save to the extent authorised by what is known as a liquidation committee (or the creditors where there is none), and the company should no longer trade, save to the extent that any such trade is beneficial to the winding up process.

Although the company is in liquidation from this moment, the second meeting called by the directors is the creditors meeting, at which the creditors have an opportunity to nominate an insolvency practitioner of their own choice, which underlines the focus of an insolvent liquidation. The directors must present the company’s statement of affairs to the creditors, and they may also form a creditors committee to assist the liquidator with the liquidation process.

The liquidator is responsible for realising the company’s assets. These may be tangible assets such as land, stock, or debts that are owed to the company but, also, the liquidator is responsible for investigating the conduct of the directors and the company’s trading. These investigations may give rise to claims against the directors that they should contribute to the company’s assets. These claims are considered separately.

The liquidator also prepares a report to the insolvency service on the directors’ conduct, which will be considered for regulatory purposes. Adverse reports can lead to disqualification proceedings and contribution orders against the directors.

To the extent allowed by funding in the estate, the liquidator will carry out investigations into the conduct of directors and the company’s trading. The liquidator may look for funding to pursue investigations and claims, and specialist lenders and insurers exist to facilitate this responsibility. Claims may themselves be sold for the benefit of the estate.

A voluntary liquidator is paid from the assets of the company and informs the creditors of the proposed basis of their remuneration as part of the appointment process. The liquidator enjoys priority over the ordinary unsecured creditors for the costs that are incurred in the liquidation, which is why creditors may wish to form a liquidation committee, as it is the committee that has the initial responsibility for fixing the basis of the liquidator’s remuneration.

There are different types of creditor in the liquidation process. Some creditors have what is known as a preferential status (employees and certain forms of taxation) and some may have forms of security for their lending, such as a mortgage on land, or a floating charge on some or all of the assets of the company. Suppliers may well have property rights to some of their supplies to the company (“retention of title”) but, where a creditor is not preferential or secured, they have what is called an unsecured claim, and these share equally in the remaining net assets.

The liquidator is responsible for distributing any realisable assets of the company to its creditors.  This process is known as “declaring a dividend” for which creditors submit what is known as a “proof of debt” to the liquidator.  In cases where there is to be no dividend to creditors, the liquidator is not required to incur the cost of adjudicating on the creditor’s proof, unless the size of the creditor’s claim becomes an issue for voting purposes in a decision procedure requiring creditors’ approval. The liquidator may need to consult with creditors, and the outcome of that process will depend on creditor claims being valued.

The treatment of creditor claims is subject to a right of appeal at court ad although a voluntary liquidator is not an officer of the court, they are subject to the court’s supervision on application by a creditor.

The liquidator must produce annual progress reports and must not unnecessarily prolong the liquidation process. When the liquidator believes that they can safely conclude the liquidation a final report will be circulated to creditors and they will then apply for the company to be struck off the register of companies and dissolved.