If the company is liquidated then it is the role of the liquidator to realise the company assets and to distribute them to the creditors in order of priority and also to return any surplus to the shareholders. In the case of owning the reversion (i.e. the freehold) then this could be sold to a third party to pay the company’s debts.
The liquidator must be a licensed insolvency practitioner and if he can show that before the Director(s) became involved they knew (or should have known) that there was no reasonable prospect of insolvency being avoided, then they may be required to contribute towards the company’s liabilities and debts.
There are three types of liquidation:
1: Compulsory Liquidation
This is when the company is wound-up by a creditor (such as a debenture holder or charge holder i.e. a bank or anyone else with a secure debt). A creditor who is owed £750 or more can instigate this form of winding up because the law currently states that a company is unable to pay its debts if;
- A statutory demand has been served by a creditor who is owed more than £750 and the debt remains unpaid after 21 days. This demand has to be served at the company’s registered office;
- A court order or a County Court Judgement is still outstanding after the court bailiff has attended the registered address.
The creditor presents to the court a winding up petition against the company.
The company, its directors and shareholders may also present a winding up petition.
Initially the official receiver is appointed as liquidator but a licensed insolvency practitioner may be appointed in due course.
2: Creditors Voluntary Liquidation (winding up)
This is where the company makes the decision and a creditors voluntary winding up starts on the day the resolution to wind up the company is passed. It’s assets are applied to discharge its liabilities with any surplus being returned to those who are entitled to it (provided there is any excess remaining).
The company Directors will:
- Pass a resolution calling for a creditors voluntary winding up;
- Nominate an insolvency practitioner to act as liquidator which has to be ratified by the creditors;
- Call a meeting of creditors under Section 98 Insolvency Act 1986;
- Present to the meeting a sworn statement detailing the companys assets and debts.
If there is no nomination by the shareholders then the creditors will appoint one. They will also appoint another liquidator if the liquidator dies, resigns or for any other reason is unable to complete the winding up. The Court may appoint another liquidator in exceptional circumstances, for example when a liquidator’s insolvency licence has been revoked.
3: Members Voluntary Liquidation: Pays Debts and is Solvent
This method of liquidation will arise for reasons other than insolvency such as a group reconstruction, or when there is no further use for a company.
It can also occur when the shareholders or directors of a family company want to extract their capital.
A licensed insolvency practitioner is appointed and the company directors swear an affidavit (statement) known as a declaration of solvency, to say the company will be able to pay (receive) all its debts within a period not exceeding 12 months.
The company would not be ‘insolvent’ because only liquidations result in the company being automatically dissolved.
Within 5 weeks of that declaration the directors must pass a resolution to wind up the company which is dissolved 3 months after the date on which the Registrar of Companies is advised that the winding up is complete.
Directors who deliberately make a false declaration may face imprisonment, a fine, or both.
The leaseholders can then acquire the freehold from the Treasury Solicitor.