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Liquidation and Insolvency - GBW1

January 2008 - Version 8

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This booklet is a simple guide to liquidation and other insolvency procedures. It summarises some of the rules that apply to corporate voluntary arrangements, moratoria, administrations, receivers, voluntary liquidations, compulsory liquidations and EC regulations. Please also refer to the relevant legislation, which you will find in the Companies Act 1985 (as amended in 1989 and later), the Insolvency Act 1986, the Insolvency Rules 1986, the Insolvency Act 2000, the Insolvency (Amendment) (No 2) Rules 2002, Council Regulation (EC) No 1346/2000, the Insolvency (Amendment) (No2) Regulations 2002, the Enterprise Act 2002, and the Insolvency (Amendment) Rules 2003 (SI 1730/2003).

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• the Chartered Association of Certified Accountants;
• the Insolvency Practitioners' Association;
• the Institute of Chartered Accountants in England and Wales;
• the Institute of Chartered Accountants in Ireland;
• the Institute of Chartered Accountants of Scotland;
• the Law Society;
• the Law Society of Scotland; or
• the Secretary of State for Trade and Industry.

The liquidator, administrative receiver, administrator or Official Receiver has a duty to send the Secretary of State for Business, Enterprise and Regulatory Reform, a report on the conduct of all directors who were in office in the last 3 years of the company's trading. The Secretary of State has to decide whether it is in the public interest to seek a disqualification order against a director.

Examples of the most commonly reported conduct are:

• continuing the company's trading when the company was insolvent;
• failing to keep proper accounting records;
• failing to prepare and file accounts or make returns to Companies House; and
• failing to send in returns or pay to the Crown any tax that is due.

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• the administrator, if there is an administration order;
  
• the liquidator, if the company is being wound up; or
  
• the directors, in other circumstances.

When the directors have proposed the arrangement, the nominee appointed to supervise its implementation reports to the court within 28 days on whether, in his or her opinion, meetings of the company and of its creditors should be called.

4. How is a proposed voluntary arrangement approved?

The meetings summoned by the nominee decide whether to approve the arrangement which, subject to certain restrictions, may be approved with or without modifications. It is then binding on all creditors who had notice of the meeting and were entitled to vote. All creditors who had notice of the meeting are bound by the terms of the arrangement.

5. What happens when the arrangement is approved?

If the meetings of members and creditors approve the arrangement, then the nominee or his replacement becomes the supervisor of the arrangement.

6. What needs to be sent to Companies House?

The supervisor must send a copy of the chairman's report of the meeting.

At least once every 12 months, the supervisor must send an account of receipts and payments, together with a progress report, to all interested parties including the Registrar.

When the arrangement is completed, the supervisor must notify the Registrar within 28 days after final completion. If the arrangement is suspended or revoked, the Registrar must be notified.

Please note: These forms are not available from Companies House.  They can be obtained from legal stationers or by visiting the Insolvency website at www.insolvency.gov.uk.

7. Corporate voluntary arrangement moratorium

The Insolvency Act 2000 introduced the option of a moratorium into the existing corporate voluntary arrangement procedures.

The courts decide whether a company is eligible for a moratorium. The moratorium will normally last for a period of 28 days and will be managed by a nominee, who may or may not be a registered insolvency practitioner.

The Insolvency (Amendment)(No2) Rules 2002 came into force on 1 January 2003 and introduced the following statutory forms that are required to be filed with the Registrar of Companies:

Please note: These forms are not available from Companies House.  They can be obtained from legal stationers or by visiting the Insolvency website at www.insolvency.gov.uk.

At the end of a moratorium a company may (or may not) proceed to a corporate voluntary arrangement.

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CHAPTER 3
‘In administration’ and ‘administration orders’

The current law concerning administration was introduced with effect from 15 September 2003. For details of the previous law, see Part 2 of this chapter. Under the new regime, a company will usually be described as being ‘in administration’ – under the old regime a company would be described as subject to an ‘administration order’. We have used these two terms to describe the different regimes.

What follows is a brief outline of the process of administration: it is not a complete statement of the law.

Administration is when a person, ‘the administrator’, is appointed to manage a company’s affairs, business and property for the benefit of the creditors. The person appointed must be an insolvency practitioner and has the status of an officer of the court (whether or not he or she is appointed by the court).

The objective of administration is to:

• rescue a company as a going concern;
• achieve a better price for the company’s assets or otherwise realise their value more favourably for the creditors as a whole than would be likely if the company were wound up (without first being in administration); or
• in certain circumstances, realise the value of property in order to make a distribution to one or more preferential creditors.

A company enters administration when the appointment of an administrator takes effect. An administrator may be appointed by:

• an administration order made by the court;
• the holder of a floating charge; or
• the company or its directors.

The administrator must perform his or her functions as quickly and efficiently as reasonably practicable.

When a company enters administration:

• any pending winding-up petitions will be dismissed or suspended;
• there will be a moratorium on insolvency and on other legal proceedings;
• if an administrative receiver has been appointed, he or she must vacate office;
• if a receiver of part of the company’s property has been appointed, he or she must vacate office (if the administrator requires this).

As soon as reasonably practicable, an administrator must send a notice of his or her appointment to the company and each of its creditors and publish notice of his or her appointment in the Gazette and in a newspaper in the area where the company has its principal place of business.

The administrator must send a notice of his or her appointment to the Registrar on Form 2.12B.

While a company is in administration, every business document issued by or on behalf of the company or the administrator must state the name of the administrator and that he or she is managing the affairs, business and property of the company.

5. What does the process of administration involve?

The administrator will request a statement of the company’s affairs from relevant people (e.g. an officer or employee of the company).

No later than 8 weeks after the company enters administration, the administrator must make a statement setting out proposals for achieving the purpose of the administration or explaining why they cannot be achieved. The proposals may include a voluntary arrangement or a compromise or arrangement with creditors or members.

The statement setting out the proposals must be sent to:

• the Registrar of Companies;
• every creditor of the company with an invitation to an initial creditors’ meeting, if one is to be held. The business of the initial creditors meeting will be to approve (with or without modifications) the statement of proposals. Following the initial meeting, the administrator ;
• may hold further creditors’ meetings, form a creditors committee, or deal with matters in correspondence between the administrator and creditors;
• every member of the company unless the administrator undertakes to provide a copy free of charge to any member of the company who applies in writing for a copy. Any revisions to the proposals following a creditors’ meeting must, likewise, be notified to members.

Decisions taken at creditors’ meetings must be reported to the Register of Companies on Form 2.23B and to the court.

6. When does administration end?

There are several ways in which administration can come to an end.

Administration can end automatically when the administrator’s term of office expires. The appointment of an administrator expires after 1 year. However, this may be extended with the consent of creditors or the court. Any extension must be notified to the Registrar on Form 2.31B.

An administrator appointed under a court order may apply to the court to end administration if he or she thinks that the purpose of the administration cannot be achieved or the company should not have entered administration, or a creditors’ meeting requires the application. The court will discharge the administration order and the administrator must notify the Registrar on Form 2.33B.

An administrator appointed by the holders of a floating charge or by the company or its directors may end administration when the purpose of administration has been sufficiently achieved. The administrator must file notice with the court and with the Registrar on Form 2.32B.

Administration may end on the application of a creditor to the court alleging an improper motive on the part of the person who appointed the administrator or applied to the court for an administration order. The administrator must send a copy of the order with Form 2.33B to the Registrar within 14 days of the order being made.

Administration may end when the company moves into creditors’ voluntary winding up. This can happen where the administrator thinks that each secured creditor is likely to be paid and a distribution will be made to unsecured creditors, if there are any. The administrator must notify the Registrar on Form 2.34B and send copies to the court and each creditor. The company will then be wound up as if a resolution for voluntary winding up had been passed on the day on which notice is registered with the Registrar.

The Insolvency (Amendment) Rules 2003 came into force on 15 September 2003, and introduced new statutory forms for filing with the Registrar, some of which are listed below:

‘In administration’ does not apply to Limited Liability Partnerships (LLP’s). LLP’s will enter administration under the old style administration order (see part 2)

Part 2: Cases that began before 15 September 2003: Administration orders

Before 15 September 2003, the only way into administration was by court order to appoint an administrator. Where a petition for an administration order had been presented before 15 September 2003 the old law continues to apply.

1. What was the purpose of the administration order?

Its purpose may have been to:

• save the whole or any part of the company as a going concern; or
• approve a corporate voluntary arrangement; or
• sanction (agree to) a compromise or arrangement; or
• get a better price for the company's assets or otherwise realise their value more favourably than in a winding up.

2. What are the administrator's duties?

As with the current law, the administrator would take control of all the property to which the company was, or appeared to be entitled. He or she would have prepared proposals for achieving the purpose for which the administration order was made and called a meeting of creditors to consider those proposals. If the majority of creditors approved the proposals, the administrator would then manage the affairs, business and property of the company in accordance with the proposals.

3. Would the administrator send anything else to Companies House?

Yes, as now, the administrator would have sent details of the proposals to the Registrar. This would have been done within 3 months after the administration order was made. Then, every 6 months, the administrator must send an account of receipts and payments.

4. When does administration end?

It continues until the court discharges the administration order - in other words, decides that the order is no longer needed. If there is a court order to discharge the order, or to vary its terms, the administrator must send a copy to the Registrar within 14 days after the order was made.

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The person who appoints the administrative receiver, receiver or manager, or has them appointed under the powers contained in an instrument, is responsible for informing the Registrar within 7 days of the appointment. A Form 405(1) is required for each separate charge registered at Companies House over which the Receiver is appointed, whether the appointment is over part of property or all the company’s assets. An administrative receiver must also publish notice of his or her appointment in the Gazette and in an appropriate newspaper.

When the administrative receiver, receiver or manager ceases to act they must notify the Registrar.

3. What must the receiver send to Companies House?

Within 3 months of appointment, an administrative receiver must make a report to:

• the Registrar;
• the company's creditors;
• the holders of a floating charge; and
• any trustees for secured creditors of the company.

• for administrative receivers, at 12-monthly intervals thereafter;
• for receivers and managers, at 6-monthly intervals.

Please Note: Separate Forms 405(1) and 405(2) must be filed for each separate charge, registered at Companies House, over which a receiver is appointed and/or ceases to act, whether the appointment is over part of property, or all the company’s assets.

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CHAPTER 5
Voluntary liquidation

There are two kinds of voluntary liquidation:

• members' voluntary liquidation (MVL) - which means the directors have made a statutory declaration of solvency;
• creditors' voluntary liquidation (CVL) - which means that the directors have not made such a declaration.

The liquidation starts when the members, in general meeting, pass a resolution (Companies Act 1985 or Companies Act 2006) (usually a special resolution) to wind up the company voluntarily.

Please note, Companies Act 1985 booklet provides general information which could still be relevant to your company.

The company passes an special  resolution (Companies Act 1985 or Companies Act 2006) to say that it cannot continue in business because of its liabilities and that it is advisable to wind up.

• advertised in the Gazette within 14 days; and
• sent to the Registrar within 15 days.

• post a notice of the meeting to each creditor at least 7 days before the date of the meeting;
• advertise the date of the meeting in the Gazette and in 2 newspapers in the area where the company has its principal place of business; and
• prepare a statement of affairs for consideration at the meeting. A copy of the statement must be sent to the Registrar within 7 days of the meeting.

Please note: With the exception of Form 600, these forms are not available from Companies House. They can be obtained from legal stationers or by visiting the Insolvency website at www.insolvency.gov.uk.

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CHAPTER 6
Compulsory liquidation

1. What is 'compulsory liquidation'?

Compulsory liquidation of a company is when the company is ordered by a court to be wound up.

2. Which courts can order a compulsory liquidation?

The High Court, or a county court with the appropriate jurisdiction, may order the winding-up of a company. This may be, for example, on the petition of a creditor or creditors on the grounds that the company cannot pay its debts.

• the company itself;
  
• the company's directors or one or more members;
  
• the Secretary of State for Business Enterprise and Regulatory Reform;
  
• the Financial Services Authority (formerly the Securities and Investment Board); or the Official Receiver
• the Official Receiver

In the case of a European company (SE) registered in GB, the Secretary of State may petition the Court for a winding up order on the grounds that it appears that the SE does not have both its head office and registered office in GB. For more information on SEs, please see our booklet, ‘The European Company: Societas Europaea (SE)’.

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Council Regulation (EC) No.1346/2000 became effective on 31 May 2002. The Regulation is directly applicable and an integral part of each member state’s law (except Denmark where parallel legislation will apply). To implement the Regulation in the UK, it was necessary to make some limited changes to the Insolvency Act 1986 and the Insolvency Rules.

1. What is the effect of the Regulation?

The Regulation restricts where insolvency proceedings can be opened to the country where the debtor has his “centre of main interests”. It requires insolvency proceedings opened under the Regulation to be recognised, and liquidators to be able to exercise their powers, in all member states.

The relevant company insolvency proceedings covered by the Regulation in the UK are –

• Winding up by or subject to the supervision of the court
• Creditors’ voluntary winding up (with confirmation by the court)
• Administration
• Corporate voluntary arrangements under insolvency legislation

The Regulation does not apply to receiverships – administrative or otherwise – nor to members’ voluntary winding up or to winding-up orders.

As a result of the regulations a number of statutory forms (relating primarily to the opening of insolvency proceedings) have been amended and one new form (Form 7.20 Confirmation by Court of Creditors’ Voluntary Winding Up) has been introduced.

Insolvency proceedings opened in this country will continue as normal. However, insolvency proceedings may be opened in another EU Member State if the company has its centre of main interests there. The public records of companies registered in England and Wales will show insolvency proceedings opened in another Member State of the EU. This will be the only indication that there are insolvency proceedings taking place abroad – the ‘L’ (for liquidation) marker will not appear against the company name on the Registrar’s index of company names..

Insolvency proceedings may be opened in the UK and be governed by UK law if the company has its centre of main interests here. Alternatively, insolvency proceedings may be opened in another Member State.

The public records of EU companies that have registered a place of business or branch within England and Wales will show insolvency proceedings opened in another Member State of the EU. This will be the only indication that there are insolvency proceedings taking place abroad – the ‘L’ (for Liquidation) marker will not appear against the company name on the Registrar’s index of company names.

EU companies that have not registered a place of business or branch within England and Wales can submit details of insolvency proceedings opened in another Member State of the EU. These documents may be searched on the Register of EC Insolvency Orders by contacting Companies House on 0870 33 33 636.

Copies of the Council Regulation and relevant UK Statutory Instruments are available on the Insolvency Service website (www.insolvency.gov.uk)

Enquiries about the Regulation should be forwarded to the Insolvency Service Policy Unit at
Policy.Unit@insolvency.gsi.gov.uk or telephone 020 7291 6740

Chapter 8
Frequently Asked Questions

Liquidation and other insolvency procedures can be lengthy and complex. This booklet cannot answer every query but these are some of the most frequently asked questions.

1. Do I need to send the Court Order appointing a provisional liquidator to Companies House?

There is no statutory requirement to notify The Registrar of an appointment of a provisional liquidator. Companies House is unable to register the document on a company’s record.

2. How do I defer the date of dissolution of a company that was subject to liquidation proceedings?

When the Registrar receives a liquidator’s final documentation under sections 201 and 205 of the Insolvency Act 1986, it must be registered straightaway. After a period of approximately three months, the company is dissolved. However, it may be possible to defer the date at which the dissolution is to take effect.

In order to do so, the Registrar must receive either a direction to defer from the Secretary of State (in compulsory liquidation cases – s.205) or an order of court to defer (in voluntary cases – s.201). You should immediately apply for whichever is appropriate. Please note that whilst it may be possible to extend the deferment period by making a further application, it is not possible to shorten it. You should, therefore, select the period of the deferment with care.

We must receive the document in time to allow us to examine and register it before the company is dissolved.

3. Do the directors of a company subject to a liquidation need to file annual accounts and annual returns (Forms 363)?

Once a company goes into liquidation and the statutory liquidation documents are registered at Companies House, there is no need to file annual accounts and annual returns. However, until Companies House receives notification that the liquidation has commenced the annual accounts and annual returns will still be deemed to be due.

If the company comes out of liquidation via a court order to sist (stop) and is returned to the live companies register, then annual accounts and annual returns should be filed up to date. Failure to comply could result in the company being struck off the register.

Any other queries relating to filing annual accounts and annual returns should be referred to Compliance Section at Companies House by contacting Companies House on 0870 33 33 636.

4. Will Companies House accept notification of the resignation of a director (Form 288b) once a company has gone into liquidation?

Companies House will accept correctly completed forms 288b relating to the resignation of directors even if the company has gone into liquidation.

Any other queries relating to filing Forms 288b should be referred to Document Examination Support Section at Companies House by contacting Companies House on 0870 33 33 636.

5. What happens when I file an Order to stay a liquidation?

The Court may make an Order staying, or sisting (stopping) winding-up proceedings, either altogether or for a limited period, pursuant to Section 112 and Section 147 of the Insolvency Act 1986.

The Order must be sent to the Registrar straight away for entry onto the records relating to the company. The Registrar records the Order onto the public records in the following ways:

1. The Order itself is placed on the public record for the company. It is listed as a ‘miscellaneous’ document on the list of documents received by the Registrar.

• The Liquidation status flag is removed from the company’s public record. A searcher will still be able to obtain a copy of the winding up order. In addition, the insolvency details can still be obtained from the insolvency section of the electronic search products.

• Once the stay Order has been recorded, any outstanding accounts and annual returns must be filed, as for any other live and active company. Failure to comply may result in the company being struck off the register.

This information is provided free on the Companies House website (www.companieshouse.gov.uk) or by calling 0870 333 3636.

Chapter 9
Quality of documents

1. What happens to documents sent to Companies House?

The documents and forms you deliver to Companies House are scanned to produce an electronic image. The original documents are then stored, and the electronic image is used as the working document.

When your business contacts view the company record, they see the electronic image reproduced on-line. So it is important not only that the original is legible, but that it can also produce a clear copy.

This chapter lays down a few quality guidelines to follow when preparing a document for filing at Companies House.

2. What happens if my documents do not meet the guidelines?

Section 706 of the Act allows Companies House to reject documents that cannot be captured electronically, giving a notice saying why they are unacceptable. An acceptable copy must be delivered within 14 days of the notice (otherwise we treat the original as not having been delivered).

3. How should documents be set out?

Every document delivered to the Registrar must state in a prominent position the registered number of the company, and must comply with any requirements specified by the Registrar relating to the legibility of that document.

Briefly, documents should be on A4 size, plain white paper between 80gsm and 100gsm in weight with a matt finish. Text should be black, clear, legible, and of uniform density. Letters and numbers must not be less that 1.8mm high, with a line width of not less than 0.25mm.

Important: coloured ink can drop out (disappear) when a document is scanned to produce an image. To prevent this - always use black ink to complete and sign all documents.

Chapter 10
Further information

1. Where can I go for help?

Staff at Companies House in Cardiff will be able to advise you on general matters, but if you are considering liquidation or insolvency proceedings you should seek the advice of an insolvency practitioner or the Insolvency Service.

Complaints about the conduct of a licensed insolvency practitioner should be sent, in writing, to:

The Insolvency Practitioners' Section
The Insolvency Service
Area 1.10
PO Box 203
21 Bloomsbury Street
London
WC1B 3QW

They will then forward the complaint to the practitioner's authorising body.

2. Where do I get forms and guidance booklets?

This is one of a series of Companies House booklets which provide a simple guide to the Companies Act.

The following forms (mentioned in this booklet) are available from Companies House.

• 405(1) notice of appointment of receiver or manager;
  
• 405(2) notice of ceasing to act as receiver or manager;
  
• 600 notice of appointment of liquidator voluntary winding up (members or creditors); and

• SE82(1)(b) notice of the initiation or termination of winding-up, liquidation, insolvency or cessation of payment procedures and the decision by Societas Europaea (SE) to continue operating.

All the other forms mentioned in this booklet are insolvency forms and can only be obtained from legal stationers, not Companies House. A list of legal stationers can usually be found in 'Yellow Pages'.

Statutory forms and guidance booklets are available, free of charge from Companies House. The quickest way to get them is through this website or by telephoning 0870 3333636.

If you prefer you can write to our Stationery Sections in Cardiff or Edinburgh.

3. How do I send information to the Registrar?

• Documents, including court orders, should display the correct company name and registration number, where appropriate.
  
• Companies House will only acknowledge receipt if you provide a stamped addressed envelope.
  
• You should supply documents in portrait format (that is, with the shorter edge across the top)

Documents may be delivered by hand (personally or by courier), including outside office hours, bank holidays and weekends to Cardiff or London.

You may also send documents by post or by the Document Exchange Service.

If you send insolvency documents, you should address them to:

The Liquidation Department
Companies House
Crown Way
Cardiff CF14 3UZ

DX33050 Cardiff 1

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