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Published byJeffry Preston Modified over 8 years ago
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Section G: Legal implications relating to companies in difficulty or in crisis
Designed to give you knowledge and application of: G1. Insolvency
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G1: Insolvency Learning Outcomes
Explain the meaning and procedure of voluntary liquidation Explain the meaning and procedure of compulsory liquidation Explain administration as an alternative to winding up
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Compulsory liquidation Voluntary liquidation
Explain the meaning and procedure of voluntary liquidation Liquidation is the legal process by which the affairs of a limited company are wound up Compulsory liquidation Members' voluntary liquidation Creditors' voluntary liquidation Types of liquidation Voluntary liquidation Members' voluntary liquidation A company may be wound up voluntarily: On completion of specified duration On occurrence of specified event for winding up By special resolution on any grounds On liabilities exceeding its assets – extra-ordinary resolution needed Continued …
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Continued … Members' voluntary liquidation - process Continued …
Passing a resolution Declaration of solvency Commencement of voluntary liquidation Advertisement of the notice of meeting Notice of resolution Consequences of winding up Final meeting and dissolution Appointment of liquidator Members' voluntary liquidation - process Continued …
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Continued … Creditors’ voluntary liquidation:
This is when the shareholders of a company decide to liquidate the company, but there are not enough assets to pay all the creditors, i.e. the company is insolvent Procedure: The company must call a meeting of its creditors within 14 days of the members’ meeting. A notice of the meeting must be published in The London Gazette and in two local newspapers. A full statement of the company’s affairs, along with a list of creditors and estimated amount of liability must be prepared by the board of directors and presented to the creditors in their meeting. A liquidation committee may also be appointed by the creditors to work with the liquidator in the process of company liquidation. The committee consists of representatives of creditors as well as members of the company. The liquidator must hold a meeting of the creditors each year. As soon as the affairs of the company are fully wound up, the liquidator will make an account. A final meeting of members & creditors should be held. The notice of this meeting must be published in the London Gazette at least one month before the meeting.
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of receiver by the court
Explain the meaning and procedure of compulsory liquidation Compulsory winding up is a legal process by which a liquidator is appointed by a court order to wind up the affairs of a limited company. Submission of winding up petition Appointment of receiver by the court of liquidator Effects of winding up order Disposal of company’s assets Order for payment of company debts Final meeting & dissolution Procedure Grounds for compulsory
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Appointment of administrator
Explain administration as an alternative to winding up Objectives of administration: Rescue a company as a going concern Achieve a better price for the company’s assets Realise the value of property Approve a corporate voluntary arrangement sanction, a compromise or arrangement Creditors with floating charge over all / substantially all of company‘s assets can directly appoint an administrator. Appointment of administrator Court can order an administrator in response to application for administration by person eligible to apply for administration. Company itself / its directors can appoint administrator without a court order. Court can make an administration order only if it is satisfied that: the company is / is likely to become unable to pay its debts, administration order is likely to achieve statutory purpose of administration. Continued …
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Continued … Duties of administrator:
Notify company, creditors & registrar of companies & publicise his appointment. Obtain a statement of company’s affairs Arrange a creditors’ meeting Establish control over company’s property Manage company’s affairs Comply with court’s directions Take reasonable care to obtain best price for property disposed of & report on conclusions of administration. Powers of administrator: To carry on company's business. To realise company’s assets. Administrator displaces company's board of directors from its management function & has power to remove / appoint directors. To dispose of the property. To make distribution to secured & preferential creditors without court’s permission. To make distributions to unsecured creditors with court’s permission.
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Recap Explain the meaning and procedure of voluntary liquidation
Explain the meaning and procedure of compulsory liquidation Explain administration as an alternative to winding up
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