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UK syllabus: Auditing aspects of insolvency

During the process of liquidation:

 all actions for the recovery of debt against the company are stopped

 any floating charges crystallise

 all legal proceedings against the company are halted and none may start unless
the courts grant permission

 the company must cease trading activity, unless it is necessary to complete the
liquidation, e.g. completing work-in-progress

 the directors relinquish power and authority to the liquidator, although they may
remain in office

 employees are automatically made redundant. The liquidator may choose to re-
employ them to help complete the liquidation process.

1.5 Allocation of company assets

Liquidators in a compulsory liquidation must pay debts in the following order:

1 Fixed charge holders

2 Expenses of liquidation, including liquidator's remuneration

3 Preferential creditors, including employee's wages and accrued holiday pay

4 Prescribed part set aside for unsecured creditors *

5 Floating charge holders

6 Unsecured creditors (ranked equally)

7 Preference shareholders

8 Members.

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