Types of Insolvent Liquidations

Posted by alisoncollier - January 21, 2020 2:59 pm Types of Insolvent Liquidation

When a company cannot continue to trade because it cannot meet its debts as and when they fall due, or the liabilities are greater than the assets, there are two types of insolvent liquidation available, being a Compulsory Winding Up and a Creditors Voluntary Liquidation

Compulsory Winding Up

This procedure is predominately used by a disgruntled creditor who is trying to recover their money.  A creditor needs to be owed more than £750 which remains unpaid after a Statutory Demand has been served or they have obtained a County Court Judgement.  The creditor can petition the court for a Winding Up Order to be made. 

Once the petition is advertised, which must be at least 7 days after issue, the company bank account will be frozen and no payments should be made by the company as they will be void unless a validation order is obtained.   This means that the staff and suppliers cannot be paid and the company will effectively cease to trade.

The directors have no control over the timing of this procedure, and have the option of paying the debt, proposing a Creditors Voluntary Liquidation or entering the company into Administration.   

Once the Court has made the order, the Company the Official Receiver will initially become the liquidator.

Creditors Voluntary Liquidation 

In this procedure the director will instruct an Insolvency Practitioner to assist him place the company into Liquidation.  A board meeting is held to commence the procedure, notice is sent to creditors and members and within as little as two weeks the company can be in liquidation, which takes place once the members have passed a resolution to wind up the company.

This procedure provides the directors with control over the timing of the liquidation which is particularly important if there are staff waiting for payments from the National Insurance Fund.  A claim can only be made once the company is subject to a formal insolvency procedure has commenced.

The directors can chose the Liquidator they wish to instruct and although creditors can elect to appoint an alternative Liquidator this does not happen very often. 

If your company is facing a financial crisis and you are considering the options available please do not hesitate to contact me.