2. Section G: Legal implications relating to companies in difficulty or in crisis
Designed to give you knowledge and application of:
G1. Insolvency

3. 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

4. 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 …

5. 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 …

6. 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.

7. 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

8. 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 …

9. 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.

10. 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