ACCAspace · Company’s financial position solvent insolvent Choice of liquidator members Creditor prevail Approval of liquidators actions members creditors . ACCAspace 中国

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ACCA F4

Corporate and Business Law (CL)

公司法与商法

ACCA Lecturer: Eli Qiu

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Chapter19 Insolvency and administration

Part G Insolvency Law



• Explain the meaning of and procedure involved in voluntary

liquidation, including members’ and creditors voluntary

liquidation

• Explain the meaning of grounds for and procedure involved

in compulsory liquidation

• Explain the order in which company debts will be paid off

on liquidation

• Explain administration as an general alternative to

liquidation

• Explain the way in which of an administrator may be

appointed ,the effect of such appointment, and the powers

and duties an administrator.

Chapter guide



1.Voluntary liquidation

Insolvency

Voluntary liquidation

Members

Creditors

Compulsory liquidation

Administration


1.What is liquidation?

Liquidation is the dissolution or ‘winding up’ of a company

It means the company must be dissolved and its affairs ‘wound up’

or brought to an end.

The assets are realized, debts are paid out of the proceeds, and

any surplus amounts are returned to members. Liquidation leads

on to dissolution of the company. It is sometimes referred to as

winding up.



1.Voluntary liquidation

1.1 Members voluntary liquidation

a) special resolution be passed, which marks the commencement

of the winding up process

b) A liquidator is appointed by the company

c) The directors make a sworn statutory declaration of solvency

delivered to the registrar within 15 days.

d) The liquidator convenes a meeting within 3 months from the

commencement of the winding up to report on his transactions

e) A final meeting is called upon completion of the liquidation, with

the laying of the liquidators final accounts.



1.2 Creditors’ voluntary liquidation

a) An special resolution is passed,

b) A meeting of creditors will be called, with at least 7 days notice

given and advertised in the Gazette

c) A meeting of members is held to resolve to wind up the

company, appoint a liquidator, and nominate five

representative to the liquidation committee.

d) The creditors meeting is held, they may appoint their own

liquidator, and five representatives to the liquidation committee

e) The liquidator convenes a meeting 3 months from the

commencement of the winding up to report on his transactions



1.3 Difference


Feature Members Creditor

Company’s financial position

solvent insolvent

Choice of liquidator

members Creditor prevail

Approval of liquidators actions

members creditors


2 Explain the meaning of grounds for, and procedure involved in

compulsory liquidation

2.1 Grounds

Insolvency Act 1986(grounds on which an action for compulsory

winding up)

i) The company has passed a special resolution that it be wound

up by the court;

ii) It is a public company which has not within a year since its

registration obtained a trading certificate with the sharecapital

requirements

iii) It is an ‘old public company’ which has failed to re-register;



2 Explain the meaning of grounds for, and procedure involved in

compulsory liquidation

2.1 Grounds

iv) It has not commenced business within a year from its

incorporation or has suspended its busniess for a whole year;

v) (except in the case of a private company limited by shares or by

guarantee) the number of members is reduced below two;

vi) The company is unable to pay its debts

vii)The court is of the opinion that it is just and equitable that the

company should be wound up



The most common of these grounds are(i),(vi)(vii)

If for any person the members of the company no longer wish to

continue the business they will use(i)

Outsiders may apply to have a company wound up under(vi).

Section123 (IA) providers that, if a company with a debt exceeding

£750 fails to pay it within three weeks of receiving a written demand,

then it is deemed unable to pay its debts.



2.2 Procedure

a) The officer Receiver is appointed by the courts

b) Liquidation is deemed to have commenced from the date the

petition was presented

c) A statement of the company’s affairs will be produced

d) A meeting of the company’s members and creditors is called to

appoint a liquidator, and form a liquidation committee

e) A final meeting of creditors is called at which the liquidator

presents his account.



2.3 Just and equitable

A member who is dissatisfied with the directors or controlling

shareholders over the management of the comoany may petition

the court for the company to be wound up on the just and equitable

ground

a) Deadlock in management-Yenidje Tabacco Co Ltd

b) Breakdown in quasi-partnership relationship -Re Westbourne

Galleries

c) Failure of substratum- Re German Date Coffee Co ltd



3 Explain the order in which company debts will be paid off on

liquidation

a) Secured creditors holding fixed charges

b) Liquidator’s expense

c) Preferential creditors- all ranking equally

d) Secured creditors holding floating charges

e) Ordinary unsecured creditors

f) Deferred debts- such as dividends declared, but not paid

g) Members’ capital

h) Any surplus is returned to members in line with the AoA



4 Explain administration as an general alternative to liquidation

An alternative to liquidation is administration.The process aims to

save the company from liquidation by taking the company out of the

hands of the directors, and placing it in the hands of an

administrator. In essence the company is granted breathing space

in which to trade its way out of difficulty.The administration may last

up 12 months, and when the administrator feels their business is

complete they will resign.



5 .Explain the way in which of an administrator may be appointed,

the effect of such appointment, and the powers and duties an an

administrator

Administration orders can be sought by the company’s directors or

any of its creditors, and once granted by the courts the following

occurs:

a) Winding up petition are dismissed/refused

b) Assets cannot be reclaimed by secured charge holders

c) Assets held under hire purchase agreements cannot be

repossessed.



The function of the administrator is to

a) Rescue the company as a going concern

b) Achieve a better result for creditors as a whole than under a

winding up

c) Where it is in the best interests of the creditors, to realise the

assets and make contributions to secured or preferential

creditor.



5.1.1 Intention: appointment without a court approval

There are three sets of people who might be able to do this:

i) Floating charge holders. The floating charge holders may only

appoint an administrator if

• They have given two days written notice to the holder of any

prior floating charge where the person has the rights to appoint

an administrator.

• Their floating charge is enforceable



ii) Directors

iii)Company

• The company has not done so in the past 12 month or been

subject to a moratorium as a result of a voluntary arrangement

with its creditors in the past 12 months

• The company is , or is likely to be , unable to pay its debts

• No petition for winding for any administration order in respect of

the company has been presented to the court and is

outstanding.

• The company is not in liquidation

• No administrator is already in office



5.1.2 Initiation: appointment with a court approval

There are four sets of parties that may apply to the court for an

administration order:

The company (that is, a majority of the members by (ordinary)

resolution.

The directors of the company

One or more creditors of the company

The justice and chief Executive of the Magistrates’ Court following

non-payment of a fine imposed on the company



5.2 The effect of appointing an administrator

A moratorium over the company’s debts commences

The court must give its permission for security over company properly to

be enforced.

Goods held under hire purchase to be repossessed

A landlord to conduct forfeiture by peaceable entry

Commencement/contribution of any legal process against the company

The power of management are subjugated to the authority of the

administrator and managers can only act with his consent

All outstanding petitions for winding up of the company are dismissed

Any administrative receiver in place must vacate office. No appointments

to this position can be made.



5.3 Powers

a) Manage the company as they require

b) Remove/appoint directors

c) Pay monies to secured/preferential creditors without court

approval

d) Pay monies to unsecured creditors with court approval

e) Take custody of all company property

f) Dispose of company property



5.4 Duties

As soon as reasonably practicable after appointment must:

a) Send notice of appointment to the company

b) Publish notice of appointment

c) Obtain a list of company creditors and send notice of

appointment to each

d) Within 7 days of appointment, send notice of appointment to

Registrar.

e) Require certain relevant people to provide a statement of

affairs of the company



f) Ensure that every business document of the company bears the identity

of the administrator and a statement that affairs, business and properly of

the company are being managed by him

g) Consider the statement of affairs submitted to him and set out his

proposals for achieving the aim of administration. The proposals must sent

to the Registrar and the company’s creditors, and be made available to

every member of the company as soon as is reasonably practicable, and

within eight weeks

h) Whilst preparing their proposals ,the administrator must manage the

affairs of the company.


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ACCAspace · Company’s financial position solvent insolvent Choice of liquidator members Creditor prevail Approval of liquidators actions members creditors . ACCAspace 中国