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Chapter 203 4

1.3 Creditors’ voluntary liquidation

This form of liquidation is used if a company intends to liquidate voluntarily but is
insolvent.

There are two tests for insolvency defined in the Insolvency Act 1986:

1 if assets are exceeded by liabilities, or

2 if a company is failing to discharge its debts as and when they fall due.

If a company meets either criteria then it is technically insolvent.

A meeting of creditors must be held within fourteen days of passing a resolution. At
least seven days written notice must be given for this meeting.

During the meeting the directors must present a full statement of the company's
affairs and a list of all creditors and amounts owed to them.

Both the members and the creditors are entitled to appoint a liquidator, however, the
creditors' choice must prevail over the members' choice.

The liquidator will realise the company's assets and distribute the proceeds
accordingly.

1.4 Compulsory liquidation

Companies may be obliged to liquidate if a winding up order is presented to a court,
usually by a creditor or member.

The court will appoint an official receiver (an officer of the courts) as liquidator.

The receiver investigates the company's affairs and the cause of its failure.

The liquidator will realise the company's assets and distribute the proceeds
accordingly.

Within twelve weeks of being appointed the official receiver will call a meeting of
creditors in order to agree the appointment of a licensed insolvency practitioner and
to appoint a liquidation committee.

Once the liquidation process is complete, the liquidator presents a report at the final
meeting of the members which is then submitted to the registrar of companies. The
company will then be dissolved.

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