This is a voluntary process that is often instigated by a company’s directors because it is insolvent. The process is an alternative to the company being wound up by the court at the request of a creditor.
At a meeting of the board of directors, decisions should be made with regard to the following:
- Placing the company into liquidation
- Convening meetings of shareholders and creditors
- Choosing a Liquidator
Notices are then sent out to convene meetings of the shareholders and creditors. The notices are also advertised in the London Gazette at least 7 days before the meetings.
After the board meeting, the directors remain very much in control of the company. This can be a very difficult time for the company’s management as they must continue to trade whilst preserving the assets of the company. In addition, they must ensure any actions taken will not have a negative impact on the company’s creditors.
There is a period of time between the board meeting and the meetings of shareholders and creditors directors need to bear in mind:
That the interests of one creditor are not put ahead of another creditor or the general body of creditors.
That any continued trading does not better the position of the secured creditor to the detriment of general body of creditors.
No goods or services should be obtained on credit.
That no overdrawn bank account should be used.
That none of the company’s assets should be disposed of unless absolutely necessary to meet essential costs and expenses of trading the business.
The content of the report to be presented at the meeting of creditors by the Company’s creditors.
A meeting of shareholders is held to resolve to place the company into liquidation and to choose a liquidator.
A meeting of creditors follows the meeting of shareholders and it is at this meeting that the report is presented to creditors. Following the presentation of the report, the creditors either ratify the shareholders’ choice of liquidator or choose one of their own.
The company’s liquidation commences on the date that the shareholders resolve to place it into liquidation. The directors’ powers cease automatically on liquidation, consequently there is no formal requirement to file accounts, etc. There is, however, a continuing responsibility to assist the liquidator in his enquiries and, failure to do so, may result in facing disqualification proceedings.
Following the appointment of the liquidator, his role falls into two distinct categories, to realise any assets the company may have for the benefit of creditors and to investigate the affairs of the company and its directors.