| MEMBERS
VOLUNTARY LIQUIDATION LIMITED COMPANY
(Part
IV S91 Insolvency Act 1986)
Directors swear a Declaration of Solvency which lists the assets and liabilities
and states that the Company's debts will be paid in full (with interest)
within such a period, not exceeding 12 months from the commencement of
winding up, as may be specified in the declaration. A meeting of the shareholders
must be held within five weeks of swearing the Declaration of Solvency.
The Meeting passes a Special Resolution placing the Company into Members
Voluntary Liquidation. At the same meeting the members appoint a Liquidator.
The Declaration of Solvency is filed with the Registrar of Companies.
The Liquidator files notice of his appointment, advertises notice for
claims in the London Gazette and circularises all creditors inviting them
to lodge their claims. The Liquidator proceeds to realise the assets,
pays the creditors, and distributes the surplus amongst the shareholders.
If the Liquidator forms the view that the creditors will not be paid in
full (with interest) within the period specified in the Declaration, he
must call a meeting of creditors to place the Company into Creditors Voluntary
Liquidation. At that meeting, he must present a Report and Statement of
Affairs.
The creditors may replace him with a Liquidator of their choosing. When
the winding-up is complete, the Liquidator convenes a final meeting of
shareholders, and the Company is ultimately struck off the register. The
Liquidator's remuneration is fixed by the shareholders.
This method of realising assets and distributing same to the Members,
is tax advantageous as the final distribution falls under the Capital
Gains Rule and not treated as a dividend. Also this procedure assists
the shareholders to realise the assets of the company without being put
under due pressure by creditors to pay, especially when the company is
suffering cashflow and its main assets are fixed assets, as opposed to
liquid assets.
Enterprise Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
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CREDITORS
VOLUNTARY LIQUIDATION LIMITED COMPANY
(Part
IV S98 Insolvency Act 1986)
The Directors resolve to voluntarily wind-up the company due to its Insolvency.
Notices are sent to creditors and shareholders giving them 14 days notice
of the convened meeting. In some instances, in order to preserve the assets
of the Company, Liquidator is appointed under Short Notice.
The Liquidator's powers are restricted until his appointment is ratified
by the creditors at their meeting. If the liquidator wishes to sell any
assets prior to the Meeting of Creditors, then an application to the Court
must be made for sanction of same. Preparation of Statement of Affairs,
list of creditors and report for creditors meeting.
The shareholders pass an Extraordinary Resolution putting the Company
into creditors voluntary liquidation and appointing a Liquidator at a
meeting held prior to the creditors meeting. At the creditors meeting,
the creditors are presented with a Statement of Affairs together with
a report explaining the Company's demise.
The creditors confirm the shareholders' appointee as Liquidator or appoint
someone else in their place; appoint a Creditors Committee. The Liquidator
files and advertises notice of his appointment in the London Gazette and
two local newspapers. The Liquidator realises the assets. The Liquidator
agrees creditors' claims. The Liquidator distributes funds, reports to
creditors and holds final winding-up meeting. The Company is dissolved.
The Liquidators remuneration is agreed by the creditors or the Creditors
Committee, if one is appointed.
Enterprise Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
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COMPULSORY
LIQUIDATION LIMITED COMPANY AND PARTNERSHIP
(Part IV S429 Insolvency Act 1986)
The Petition application can be made by:-
a) The Creditors
b) The Company
c) The Directors
d) Contributories
e) DTI
f) Official Receiver
g) Administrator, Administrative Receiver and Supervisors
Winding-up Order issued by the court upon hearing the application. The
Official Receiver acts as Liquidator unless and until an Insolvency Practitioner
is appointed Liquidator in his place by the creditors at a creditors meeting
or by the Secretary of State. The Liquidator may also be appointed by
the Court at the time of making the Order for the winding up of the company.
Meeting of Creditors and contributories are called if the Official Receiver
deems it necessary.
The Official Receiver issues a report and summary of a Statement of Affairs.
The Liquidator realises the assets.
The Liquidator agrees the claims of creditors.
The Liquidator distributes funds in the following order:-
a) Costs of winding-up
b) Liquidator's fees
c) Preferential Creditors
d) The Directors e) Contributories
The Liquidator is released upon conclusion and by the agreement of the
creditors final meeting. If creditors do not agree to his release, the
Liquidator has the right to apply to the Court for his release.
Once the Liquidation is closed, the Company is dissolved shortly thereafter.
A partnership may also be compulsorily wound up. (Part IV S7 & 8 of the
Insolvent Partnerships Order 1994).
Enterprise
Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
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ADMINISTRATIVE RECEIVERSHIP LIMITED COMPANY
(Part III S33 Insolvency Act 1986)
An Administrative Receivership can only arise when there is a Charge on
the Company's assets by a secured creditor and that secured creditor has
demanded full payment of the outstanding amount and the company has been
unable to comply.
The most common type of situation is where there is a Debenture being
a Fixed & Floating Charge over the assets of the Company and there has
been a breach of the terms of the Charge which gives the Charge-Holder
the right to appoint a Receiver.
The appointee in such circumstances is known as an Administrative Receiver.
His duty primarily is to realise the assets to the best advantage for
the Debenture Holder/Chargee, but he must pay the preferential creditors
out of the assets caught by the Floating Charge, before he can pay any
monies to the Charge-Holder. Any realisations made in respect of the Fixed
Charge assets are paid before preferential creditors.
An Administrative Receiver must convene a meeting of the creditors within
three months of his appointment. At that meeting he presents a report.
If the meeting appoints a Creditors Committee, he must report to the Committee
as and when required. If there is a surplus after satisfying the preferential
creditors and the Charge-Holder, the Administrative Receiver returns this
to the Company or if the Company is in Liquidation, to the Liquidator.
A company can be in Administrative Receivership and in Liquidation at
the same time.
A Receiver may be appointed under a Fixed Charge. Such a Receiver is not
obliged to pay the preferential creditors, but is only concerned with
the specific item named in the Fixed Charge ie. a Charge made on a property.
On satisfying the Charge, the balance of assets would be returned to the
Company.
A Receiver can be appointed over the Company's property by a Mortgagee
and will be known as Law of Property Act 1925 Receiver.
If the property in question is the major asset of the Company then he
can also be deemed an Administrative Receiver.
Enterprise Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
Charge holders will
no longer be able to appoint administrative receivers (with certain exceptions)
on debentures drawn up from 15/09/2003 onwards.
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
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ADMINISTRATION ORDER LIMITED COMPANY AND PARTNERSHIP
(Part II S8 Insolvency Act 1986)
If the Court is satisfied that a company is or is likely to become unable
to pay its debts and considers that the making of an Order would be likely
to achieve one or more of the purposes mentioned below, the Court may
make an Administration Order in relation to the company.
An Administration Order is an order directing that, during the period
of which the order is in force, the affairs, business and property of
the company shall be managed by the Administrator appointed for this purpose
by the Court.
The purposes for whose achievement an Administration order may be made,
are:-
a) The survival of the company and the whole or any part of its undertaking,
as a going concern.
b) The approval of a Voluntary Arrangement under Part I.
c) The sanction under Section 425 of the Companies Act of a compromise
or arrangement between the company and any such persons as are mentioned
in that Section; and
d) A more advantageous realisation of the company's assets that would
be effected on a winding up.
The application may be made by the Company or a Creditor.
On the making of the Order, the Court will appoint a Licensed Insolvency
Practitioner as the Administrator, who will take charge of the management
of the Company. The Administrator can dismiss the board of directors.
Within three months of his appointment, the Administrator must send to
the Creditors, a Statement of his proposals, and convene a meeting of
creditors as he must obtain the creditors approval of same.
If the meeting does not approve the proposals, the Court may discharge
the Administration Order and the Company will go into Compulsory Liquidation.
If the proposals are approved, the Administrator proceeds to carry out
the scheme, reporting to the Creditors' Committee, if any. Assuming a
successful outcome, e.g. the Company is fully rescued and the Creditors'
debts are satisfied, the Administrator will report to the Court and the
Administration Order will be discharged. Unless creditors receive 100p
in the £, then in all cases the Company goes into Compulsory Liquidation.
Since the introduction of Part III S6 The Insolvent Partnership Order
1994, this procedure is also available to Partnerships.
Enterprise Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
The new administration
procedure, introduces out of court routes to appoint an administrator
for the company or its directors and for holders of qualifying floating
charges. This is in addition to the existing provisions for creditors
to apply to court for the appointment of an administrator.
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
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VOLUNTARY ARRANGEMENT LIMITED COMPANY AND PARTNERSHIP
(PART I S1 INSOLVENCY ACT 1986) (Part II S4 The Insolvency Partnership
Order 1994)
A Company or Partnership may effect a Voluntary Arrangement with its Creditors.
The procedure is similar to that of a Voluntary Arrangement for an individual,
except that:-
a) There is no "interim order"
b) The nominee reports to the Court within 28 days of receiving notice
of the Proposal for a Voluntary Arrangement from the Directors/Partners.
c) A meeting of creditors is convened to consider the approval or rejection
of the proposal. The proposal can only be accepted if 75% or more in value
of creditors voting vote for the approval thereof. Only a simple majority
is required at the Shareholders/Partners meeting.
d) The Shareholders/Partners as well as the Creditors are given the opportunity
of considering the scheme.
Such an Arrangement may also be proposed by the Liquidator or Administrator
of the Company. In such a case, the Liquidator/Administrator does not
need to go to Court before convening the meetings to consider the proposals.
The approved Voluntary Arrangement takes the effect as if made by the
company at the Meeting of Creditors and binds every person who in accordance
with the Rules, had notice of and was entitled to vote at, that meeting
as if they were a party to the Voluntary Arrangement.
If the company is being wound up or an Administration Order is in force,
the Court may do one or both of the following:-
a) By order stay or sist all proceedings in the winding up or discharge
of the Administration Order; or
b) Give such directions with respect to the conduct of the winding up
or the Administration as it thinks appropriate for facilitating the implementation
of the approved Voluntary Arrangement.
Although Voluntary Arrangement are not advertised, they are registered
at Companies House and anyone carrying out a search on the company can
establish that the company has entered into a Voluntary Arrangement.
INSOLVENCY ACT 2000
The first changes
were made by the Insolvency Act 2000. The parts of that Act that amend
the legislative framework for insolvency procedures came into force in
England, Wales and Scotland on 1 January 2003.
In summary, changes
made as follows:
Company
Voluntary Arrangement (CVA)
A
CVA is a binding agreement between a company and its creditors. It usually
involves creditors receiving less than the total amount of their debt,
and/or payment to them being delayed.
The procedure was introduced by the Insolvency Act 1986, but the absence
of a moratorium in the period between initiating the procedure and the
acceptance of binding proposals at meetings of creditors and the company
negated its effectiveness. The Insolvency Act 2000 introduces a new CVA
procedure that includes a moratorium.
This
new CVA moratorium procedure is only available to companies that satisfy
two or more of the requirements for being a small company, as set out
in the Companies Act 1985.Various types of small company are, however,
specifically excluded from the procedure, including those involved in
market contracts and public private partnerships.
Under
the new procedure, a 28 day moratorium automatically comes into effect
once proposals for a CVA, a report on those proposals by an insolvency
practitioner (who acts as nominee), and various other documents are filed
in court.
The main effects of the moratorium are that:
- no
other insolvency procedures can be commenced, and, except with the leave
of the Court:
-
a landlord may not exercise any right of forfeiture
- no
other steps may be taken to enforce any security over the company's
property, or to repossess goods in the company's possession, and
- no
other legal proceedings maybe commenced or continued.
During the moratorium, meetings of the members and creditors are
convened to consider the CVA proposals. The meeting will either
reject, or accept, with or without modifications, the CVA proposals.
The
Insolvency Act 2000 also introduces changes that extend the effect of
all approved CVAs, irrespective of whether they are approved under the
new moratorium procedure or under the Insolvency Act 1986
procedure.
A CVA will now bind not only every creditor who is entitled to vote at
the meeting, but also every creditor who would have been entitled to vote
at the meeting if they had been given notice of it. Thus unknown creditors
are bound by the arrangement.
Enterprise Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
TOP
VOLUNTARY ARRANGEMENTS PRIVATE INDIVIDUALS
(Part VIII S252 Insolvency Act 1986)
If a debtor wishes to come to some arrangement with his creditors e.g.
a moratorium or composition, the Insolvency Act 1986 provides a legal
framework for effecting such an arrangement, avoiding the cumbersome and
drastic effects of bankruptcy.
The debtor applies to the Court for an Interim Order which protects his
estate while the scheme is being mounted. He instructs a Licensed Insolvency
Practitioner to act as the "Nominee" to his proposal providing him with
a Statement of Affairs and the proposal which sets out the proposed Arrangement.
The proposal should be comprehensive, and must cover such matters as:-
1. The reasons for the Arrangement
2. Particulars of the debtor's asset, and how they are to be dealt with
3. The manner in which the liabilities are to be dealt with, particularly
secured creditors, preferential creditors, unsecured creditors and debts
due to associates of the debtor
4. The duration of the Arrangement
5. The name, address and qualifications of the proposed Supervisor
6. The remuneration of the Supervisor
7. Whether the business is to continue, and if so, on what terms
8. Banking arrangements
9. Powers and duties of the Supervisor.
The Nominee must report to the Court within 14 days of the Interim Order
as to whether he feels that a meeting of creditors should be convened
to consider the proposals. In practice these are filed on the same day.
The Nominee convenes a meeting of the Creditors. Details of the proposals
must be attached to the notice of the meeting, together with a Statement
of Affairs.
The meeting may approve the scheme, with or without modifications. The
majority required is 75% in value of those voting. The Creditors may replace
the Nominee with one of their own choosing.
The chairman of the meeting ie the Nominee or his representative reports
the results of the meeting to the Court and to all creditors. A copy of
this report is also filed with the DTI.
If the meeting approves the scheme, it binds all Creditors, the Nominee
becomes the "Supervisor" and he proceeds to manage the scheme. He must
send a report to the Creditors every 12 months and on the completion of
the scheme. Dividends to Creditors are paid annually unless otherwise
specified in the proposal or modifications.
Although Individual Voluntary Arrangements are not advertised they are
registered and a search can be made by any credit agency to establish
that an individual has entered into a Voluntary Arrangement.
INSOLVENCY ACT 2000
The first changes
were made by the Insolvency Act 2000. The parts of that Act that amend
the legislative framework for insolvency procedures came into force in
England, Wales and Scotland on 1 January 2003.
In summary, changes
made as follows:
Individual Voluntary Arrangement (IVA)
An IVA is the personal
insolvency equivalent of a CVA. In contrast to CVAs, the Insolvency Act
1986 provided a moratorium for those seeking an IVA.
However, the Insolvency
Act 2000 introduces a simplified procedure for non-traders (i.e. consumer
debt cases). This recognises that in the vast majority of consumer debt
cases a moratorium to protect the debtor from action by creditors is unnecessary.
Consequently, in a consumer debt IVA under the new procedure all that
is required is the filing in court of the debtor's proposals, and a report
on those proposals by an insolvency practitioner who acts as nominee.
The nominee then convenes a meeting of creditors to consider
the IVA proposals.
The existing IVA procedure involving a moratorium through
the court making an "interim order" is, however, still available
in consumer debt IVAs if it is considered appropriate. This may include,
for example, where a creditor has threatened, or commenced, bankruptcy
proceedings.
As
with CVAs, the effect of an approved IVA has been extended, irrespective
of whether they are approved under the new simplified procedure or under
the Insolvency Act 1986 moratorium procedure.
Enterprise Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
TOP
BANKRUPTCY PRIVATE INDIVIDUALS
(Part IX S264 Insolvency Act 1986)
WHAT IS BANKRUPTCY?
Bankruptcy is an insolvency procedure in which an individual enters when
one cannot pay their creditors. Anyone can be made bankrupt, including
individual members of a partnership.
HOW IS ONE MADE BANKRUPT?
A Court makes a Bankruptcy Order only after a bankruptcy petition has
been presented either by:- a. The debtor himself; or b. One or more of
his creditors who are owed at least £750 and that amount is unsecured.
WHERE IS A BANKRUPTCY ORDER MADE?
Bankruptcy petitions are usually presented either at the High Court in
London or a County Court near where the debtor lives. A petition can be
presented against anyone, even if they are not present in England or Wales
at the time of presentation of the petition. This can happen when the
debtor normally lives in or within the previous three years, has had residential
or business connections with England and Wales. Once a Bankruptcy Order
has been made, it is advertised in the London Gazette and in a local or
national newspaper.
WHO WILL DEAL WITH THE BANKRUPT'S CASE?
a. The Official Receiver who is a Civil Servant in the Insolvency Service
and an Officer of the Court. He is responsible for looking into the bankrupt's
financial affairs for the period before and during their bankruptcy. Also
there will be a need for him to report any matter which indicates that
the debtor may have committed criminal offences in connection with their
bankruptcy.
b. An Insolvency Practitioner. This is a person who is qualified and authorised
to act as same. They can be appointed Trustee instead of the Official
Receiver. Once appointed, he will carry out the duties of the Official
Receiver mentioned above.
WHAT ARE THE DUTIES OF A BANKRUPT?
The bankrupt must:-
a. Provide information regarding their financial affairs.
b. Fully document assets and liabilities.
c. Hand over the books and records of his business and any papers relating
to their financial affairs.
d. Notify his Trustee of any increases in income that he obtains during
his bankruptcy. This includes lump sum cash payments that may be received
from redundancy payments or money bequeathed in a will.
e. Immediately cease using a bank or building society or credit cards
or similar accounts straight away and will not be allowed to obtain credit
of more than £250 without first disclosing the fact that he is bankrupt.
f. If the bankrupt has not assisted the Trustee in every way, he can apply
to the court for the bankrupt's arrest.
WHAT HAPPENS TO THE DEBTOR'S ASSETS?
The assets of the debtor are realised by the Trustee in Bankruptcy as
they rest with and come under his control. If the bankrupt has a business,
this will normally be closed and the employees dismissed.
The bankrupt can keep the following items.
a. Tools, books, vehicles and other items of equipment which are needed
to use personally in employment, business or vocation.
b. Clothing, bedding, furniture, household equipment and other basic items
that are needed by the bankrupt and his family in the home.
WHAT ARE THE RESTRICTIONS ON A BANKRUPT?
It is a criminal offence for a bankrupt to:-
a. Obtain credit of £250 or more either alone or with another person without
disclosing their bankruptcy.
b. Carry on a business in a different name from that in which they were
made bankrupt without informing all those that they do business with the
name in which they were made bankrupt
c. Be concerned (directly or indirectly) in forming or managing a company
without the Court's permission.
d. They may not hold public offices.
e. They may not open a new bank or building society account without informing
them of their bankruptcy.
BECOMING FREE FROM BANKRUPTCY?
A bankrupt will automatically be free from bankruptcy (known as discharged)
after three years. If the bankrupt has filed his or her own petition and
the unsecured debts are less than £20,000, then the discharge is after
2 years.
A Bankrupt can also become free from bankruptcy if an application is made
to the Court for the annulment of the Bankruptcy Order. This would normally
be where the debts, fees and expenses of the bankruptcy proceedings have
been paid in full or the bankrupt has entered into a Voluntary Arrangement.
Once a bankrupt has been discharged, he must ensure that all future liabilities
are paid as and when they become due and payable, as this could result
in a further Bankruptcy Order being issued against them and the whole
procedure commences once again.
Enterprise Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
TOP
DEED OF ARRANGEMENT PRIVATE INDIVIDUALS AND PARTNERSHIPS
A Deed of Arrangement is an alternative to Bankruptcy. It is a private
Arrangement between a debtor and his creditors, providing for a transfer
of the debtor's assets to a Trustee for equitable distribution amongst
the creditors.
The Deed of Arrangement procedure avoids the publicity and the disabilities
of Bankruptcy, although the Deed must be registered with the Department
of Trade and Industry and the register is available for public inspection.
It is usual to invite the Creditors to a meeting to discuss the proposal
for a Deed. If the proposal is approved in principle, the Deed is prepared
and executed by the Debtor and the Trustee. It must be registered within
seven days of execution. The Creditors are invited to formally assent
to the Deed. A majority of the Creditors in number and value must assent
to the Deed within 21 days of registration. The Trustee must file a declaration
that the requisite majority have assented, and this declaration must be
lodged within 28 days of registration.
The Trustee realises the assets in the same manner as in Bankruptcy except
that his title depends entirely on the Deed, and he is not able to upset
transactions at an undervalue, fraudulent preferences and similar matters
for which the Authority lies in the Insolvency Act.
The distributions to Creditors should follow the same principles as in
bankruptcy, ie preferential creditors first, and dividends to unsecured
creditor second.
Enterprise Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
TOP
INFORMAL
SCHEMES PRIVATE INDIVIDUAL AND PARTNERSHIPS
Insolvent persons may come to arrangements with Creditors outside the
statutory - recognised procedures. Such Schemes suffer from the fact that
they are not widely understood, and can be upset by the precipitate action
of one Creditor.
The main types are moratoriums and informal compositions.
A moratorium is a freezing of debts. It is an informal arrangement between
a Debtor and his Creditors, designed to give the Debtor breathing space
to put his affairs in order. Its main purpose should be to see that ultimately
the Creditors get paid in full. The main features are as follows:-
1. A meeting of Creditors should be held, at which a Statement of Affairs
should be presented, the reasons for the Debtor's difficulties explained,
and the proposals outlined.
2. Provision should be made for preferential creditors to be paid in full.
3. A Committee of Creditors should be formed to supervise the Debtor's
affairs during the moratorium, if creditors wish to appoint same.
4. A phased programme for the repayment of the debts should be set out.
5. Each Creditor should sign a document agreeing to defer action for recovery
of his debt.
6. If the Bank Account is overdrawn, a new Account at a new Bank would
be opened.
An informal composition can take many forms. The terms embraces any scheme
under which Creditors accept less than 100 pence (p) in the Pound (£)
in full and final settlement.
Such a scheme will normally only work when the number of Creditors is
few and they can be satisfied that the scheme will provide them with a
better return than Bankruptcy. A typical ingredient of such a scheme would
be the waiving of a large claim by a relative of the Debtor. Although
such schemes are described as "informal", it is advisable for documents
to be completed, so that, once accepted, the scheme is binding to all
parties.
Enterprise
Act
The insolvency provisions
of the Enterprise Act took effect on the 15th September 2003 as follows;
Customs and Inland
Revenue have lost their preferential status in the distribution of insolvent
assets.
TOP
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