Updated: 27th March 2020
On first entering insolvency the company should have stopped trading, and if there is no hope of recovery it will enter liquidation. Once a liquidator is appointed, the statutory procedure commences, which eventually ends in the company’s closure.
An important point to note is that the liquidator acts on behalf of creditors rather than the company or its directors, and one of their main roles is to realise company assets and then distribute the proceeds to creditors.
The company is a separate entity to its directors, who may need to account for any transactions or situations that have placed it in jeopardy during the time leading up to insolvency.
So what does the liquidation procedure involve once the liquidator takes office – what happens to the company?
As soon as the liquidator is appointed, they take control of the company away from the directors. Only the Official Receiver (OR) or a licensed insolvency practitioner (IP) can act as liquidator, and carry out formal insolvency procedures such as this.
The liquidator will analyse the company’s assets and liabilities, its existing contracts, and prepare a statement of affairs to present to creditors. This lets creditors know the extent of the company’s financial situation and how it has reached this position.
When the liquidator is appointed, directors are no longer able to use the business’ bank account – in essence, the company’s financial affairs are ‘frozen’ for a time until the liquidator has made their assessment.
Although directors do not take any further part in controlling the company once the office-holder is appointed, they must assist the liquidator if requested. This typically involves providing information when asked, or financial documentation, and generally supporting the liquidator where necessary.
It used to be the case that in-person creditors’ meetings were held to inform creditors about the situation, but this part of the liquidation process was changed in 2017 and new insolvency rules introduced.
The company’s position is presented to creditors via a statement of affairs, and this is now done electronically rather than at a creditors’ meeting, although meetings can be arranged is sufficient numbers of creditors request it.
The fact that a liquidator has been appointed and the company is being wound up is announced in the local Gazette, and this could be London, Edinburgh, or Belfast-based. The notice includes other details, such as the liquidator’s registered office and date of appointment, and alerts creditors to the company’s situation if they are not already aware.
The liquidator will have the company’s assets professionally valued, including intangible assets such as intellectual property, databases, and goodwill. Once a fair value has been established, the assets are sold at auction. The proceeds are gathered in by the liquidator, and used to repay the company’s creditors according to the statutory order of payment in these cases.
The public announcement regarding the business’ liquidation in the Gazette may result in bad publicity for the company, as well as reputational damage for the directors. This may or may not be justified, however, as insolvencies can happen very quickly and are often outside the directors’ control.
Once creditors have been repaid as far as funds allow, the company is struck off the register at Companies House. It cannot be reinstated in the future, but depending on the outcome of the liquidator’s investigations into director conduct, directors may be able to take office at new companies in the future.
Real Business Rescue specialises in helping directors of companies in financial distress, and provides reliable independent advice. If you believe your company may need to be liquidated, we will ensure you understand your duties and obligations as a director, and guide you through the process.
Please contact one of our partner-led team of licensed insolvency practitioners to find out more. We can arrange a same-day consultation free-of-charge, and operate a broad network of offices around the UK.
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