Corporate Frequently Asked Questions
To help you understand your situation and how we can help, here are some frequently asked questions
Table of Contents
- Can I wind up my company even if it’s not insolvent?
- How do I close my company and retire?
- What are the consequences of a winding up petition?
- What are the consequences of a winding up order?
- Can a company continue to trade even if it’s insolvent?
- Can a company reach an agreement with its creditors to enable it to continue to trade?
- At what point might I become personally liable for my company’s debts?
- When do I become liable for a personal guarantee concerning a company’s borrowing?
- Am I likely to be disqualified as a director?
- Could I buy the business and/or assets back from the liquidator?
- Can I place my company into liquidation before my creditors do?
- What are the insolvency options available to the company?
- The bank wishes to appoint investigating accountants, what can I do?
- The company has cash flow difficulties, what can I do?
- I have received notice of a creditors meeting from a major customer, what can I do?
- What can a bailiff do?
- Can the company protect its assets?
- Can a minority shareholder wind up the company?
- Do directors/shareholders have to attend a meeting of creditors?
- I think the company may be insolvent, can I pay the wages?
- Is the company’s failure advertised?
- In what circumstances can I repay my director’s loan account?
Can I wind up my company even if it’s not insolvent?
Yes. You need to speak to an Insolvency Practitioner to assist you to place your company into a Members Voluntary Liquidation (Link to What is an MVL?) Alternatively the company could be struck off or dissolved, each of which carries risks.
How do I close my company and retire?
If you wish to cease trading and/or sell the business of the company, the shareholders may wish to place the company into Members Voluntary Liquidation (Link to What is an MVL?) or distribute the proceeds by way of a dividend and then apply for the company to be struck off. It is also important to obtain specialist advice regarding the most tax efficient method of distributing the net value of the company to it’s shareholders.
What are the consequences of a winding up petition?
The company’s bankers will usually freeze the company’s bank account on receipt of the petition.
Any disposal of the company’s property, or payments to creditors, after the date of the petition may be recoverable by a liquidator.
Customer contracts may be cancelled.
The petition is advertised in the London Gazette. A winding up order may be made if the petition debt is not paid.
What are the consequences of a winding up order?
The directors powers cease.
The employees contracts of employment are automatically severed.
All enforcement procedures (other than those taken by a landlord) are stopped.
It is likely that the company will cease to trade.
The winding up order is advertised in the London Gazette and a local paper.
The Official Receiver is receiver and manager of the company’s affairs. A report on the director’s conduct will be submitted to the Department of Trade & Industry.
Can a company continue to trade even if it’s insolvent?
Yes. Only as a part of a formal insolvency procedure or restructure agreed by all creditors. In these circumstances directors should not continue to trade until expert advice has been received from an Insolvency Practitioner.
A director should be aware that he may become personally liable for any debts incurred after a time when he knew or ought to have known that the company was insolvent.
Can a company reach an agreement with its creditors to enable it to continue to trade?
Yes. The most effective way to achieve this is by directors proposing a company voluntary arrangement (Link to Company Voluntary Arrangement), whereby they will utilise the income and assets of the company to settle its liabilities.
At what point might I become personally liable for my company’s debts?
If you continue trading after a time at which a reasonable director would have known, or ought to have known that the company was insolvent or unable to pay it’s debts. You may also become liable if the company defaults on the servicing of any liability which you have personally guaranteed.
When do I become liable for a personal guarantee concerning a company’s borrowing?
You may become liable if the company defaults on the servicing of any liability which you have personally guaranteed.
In the event of formal insolvency, it is likely that the terms of the guarantee will result in demand being made upon you as guarantor.
Am I likely to be disqualified as a director?
It is not an automatic result of any corporate insolvency procedure that a director is disqualified.
However, in receiverships, compulsory liquidations, creditors voluntary liquidations, administrations, and administrative receiverships, a report on the directors conduct must be submitted to the Department of Trade and Industry. An adverse report may result in disqualification procedures being brought against a director by the Department of Trade and Industry. Previous failures may be taken into consideration, notwithstanding that adverse reports have not been filed in those instances.
Could I buy the business and/or assets back from the liquidator?
In certain circumstances this may be possible. However there are specific guidelines as to how such transactions can be effected to ensure that realisations are maximised for the benefit of creditors.
Can I place my company into liquidation before my creditors do?
Yes. The shareholders can resolve to wind up the company and appoint a liquidator. This decision must be ratified at a subsequent creditors meeting. This can be effected prior to any creditor obtaining a winding up order.
What are the insolvency options available to the company?
There are various options available to a company as detailed below. Please click on the appropriate procedure to obtain more detailed information.
- Administration can be initiated by shareholders, directors, liquidator, and creditors. Generally used by directors to obtain a moratorium to allow the company to consider its options.
- Administrative Receivership can only be initiated by holder of floating charge. This is typically a bank driven process and generally used to maximise the return to the appointer i.e. Bank. It usually involves a change in management.
- Creditors Voluntary Liquidation can only be initiated by agreement of (usually) 75% of the shareholders who also nominate a liquidator. Requires ratification by simple majority in value of creditors voting at the subsequent meeting of creditor. This is generally the most common procedure used to wind up an insolvent company.
- Compulsory Liquidation is initiated by the presentation of a petition at court by (generally) a creditor who is owed in excess of £750. The Liquidator is appointed by a meeting of creditors summoned by the Official Receiver. The Official Receiver is also responsible for the investigation of the affairs of the company and the directors conduct.
- Company Voluntary Arrangement is generally initiated by the directors who put a proposal to settle the company’s liabilities from a combination of future income and assets before creditors at a meeting. The proposal must be approved by greater than 75% in value of creditors voting at the meeting.
- Members Voluntary Liquidation can only be used if company is solvent. It is initiated by the shareholders and is usually a mechanism for the re-organisation or controlled dispersal of the company’s assets.
- Law of Property Act Receiver. This is appointed by a holder of a fixed charge to deal solely with the management and sale of a specific asset.
- Court Appointed Receiver. This is appointed by the court to deal with the assets and affairs of the company. This is generally initiated directors but is not an often used insolvency procedure.
- Restructure Business and/or finance. This is initiated by the directors where insolvency caused by illiquidity can be relieved by altering the financial structure.
The bank wishes to appoint investigating accountants, what can I do?
Seek the advice of an insolvency practitioner to establish the options available to the directors. Ask the bank if you can nominate investigating accountants of your choice that is acceptable to the bank. It is important to ask for a specific clause to be inserted in the instruction letter that any appointed investigating accountant should not accept any subsequent formal insolvency appointment in relation to that company.
The company has cash flow difficulties, what can I do?
Consider restructuring the company and/or entering into a insolvency procedure which will allow the settlement of the company’s liabilities over a period of time and the survival of the company. (Link to Insolvency Options)
I have received notice of a creditors meeting from a major customer, what can I do?
Consider instructing Chamberlain & Co to attend the meeting of creditors on your behalf free of charge. We can provide a full report for your attention and ensure that the relevant questions are asked to maximise any possible return to you, as a creditor.
What can a bailiff do?
A bailiff has the power to remove or distrain over the company’s assets. It is imperative that you contact us as soon as possible to negotiate with the bailiff on your behalf and to take the appropriate to protect your business.
Can the company protect its assets?
Only by petitioning for an Administration Order. (Link to Administration explanation)
Can a minority shareholder wind up the company?
Yes. He can petition the court that the company be compulsorily wound up (Link to Compulsory Liquidation) on the grounds that it is just and equitable in that either his position as a minority shareholder has been unfairly prejudiced, or that there is deadlock between the shareholders.
Do directors/shareholders have to attend a meeting of creditors?
This is dependent upon the type of insolvency proceedings to which the company is subject. (Link to Insolvency Options) Briefly, attendance is required for Creditors Voluntary Liquidations, Company Voluntary Arrangements but is not mandatory for any other procedures, although it may be requested by the appointed Insolvency Practitioner.
I think the company may be insolvent, can I pay the wages?
This is a complex area and is dependent upon the particular circumstances in each case. Generally the payment of wages should only be considered if it would be of ultimate benefit to the creditors. You should seek specialist advice from Chamberlain & Co in these instances.
Is the company’s failure advertised?
Yes, other than in company voluntary arrangements, the appointment of an Insolvency Practitioner is advertised in local papers and the London Gazette.
In what circumstances can I repay my director’s loan account?
In respect of a company voluntary arrangement, the director’s loan account is generally deferred until the arrangement has been successfully completed, thereafter it can be paid in full. In respect of any other insolvency procedures the director’s loan account would rank as an unsecured claim alongside trade and other creditors and is unlikely to be repaid in full.