There are several types of liquidation:

• A Members Voluntary Liquidation (or Members Voluntary Winding-up) which is when the share holders of a company decide to put the company into liquidation and the company is solvent and has enough assets to pay off all its debts.
• Creditors Voluntary Liquidation (or Creditors Voluntary Winding-up) is when the share holders of a company decide to put the company into liquidation but the company is insolvent as there are not enough assets to pay off its creditors.
• Compulsory Liquidation (or Compulsory Winding-up) is when the Court makes an order for the company to be wound up on the petition usually of a Creditor.

Sometimes it might be possible for a company to enter into a Company Voluntary Arrangement (CVA) which is an insolvency procedure which allows a company in financial difficulty to reach a binding agreement with its creditors about paying the full, or part of its debts over a brief period of time. A CVA can be proposed by the Directors of the company, the Administrators of the company or the Liquidator of the company.

When a company is in financial difficulties an alternative to compulsory liquidation is for an Administrator or Administrative Receiver to be appointed.

In administration the role of an Administrator is to get the company out of its difficulties and trading again if that is possible. Administrators can be appointed to a company which is unable, or is likely to become unable, to pay its debts and can be appointed by any of the following:-

• The Court – On an application being made to it by a Creditor or by the Directors of the company
• The holder of a qualifying floating charge (usually a bank)
  
• The Directors of the Company
  
• The shareholders of the Company

The principle aim of the Administrator is to rescue the company as a going concern but if that is not possible then the Administrator will try to get a better result for the creditors as possible if the company was wound up. If however neither of these goals is possible, then the Administrator will sell the company’s property in order to make at least a partial payment to one or more secured or preferential creditors, for example employees or a bank.

An Administrative Receiver can be appointed by a lender who has some security over the company’s assets to guarantee payment of the debt due to it. If the company fails to keep to the terms of the loan or runs into financial difficulties then the lender may be entitled to appoint an Administrative Receiver who would then have control over the whole, or a substantial part of the company’s property and wide powers over the business. The Administrative Receiver’s main concern will be to get back the money owed to the secured creditor and he may sell the assets piecemeal or sell the whole business as a going concern to pay off the secured creditor and the costs of the Receivership.

Since 15th September 2003 however the right to appoint an Administrative Receiver is generally limited to debenture holders whose charge existed on that date.

Both an Administrator and an Administrative Receiver must be a Licensed Insolvency Practitioner.

For advice on Company Insolvency please contact:

Paul Addison on 01934 637 909 e-mail addison@powellslaw.com, or
Rabina Ahmed on 01934 637 913 e-mail ahmed@powellslaw.com.