Business FAQ

1. 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 solvent liquidation otherwise known as a Members Voluntary Liquidation (‘MVL’) , Alternatively the company could be struck off or dissolved, each of which carries risks.

2. 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 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 its shareholders.

3. 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 or upon its advertisment.
  • 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.
4. 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.
  • 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.
5. 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.

6. 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 CVA , whereby they will utilise the income and assets of the company to settle its liabilities.

7. 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 its debts. You may also become liable if the company defaults on the servicing of any liability which you have personally guaranteed.

8. 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.

9. 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 compulsory liquidations, CVL’s, administrations, and administrative receiverships, a report on the directors’ conduct must be submitted to the Department for Business, Enterprise and Regulatory Reform. An adverse report may result in disqualification proceedings being brought against a director by the Department of Trade and Industry.

10. Could I buy the business and/or assets back from the liquidator?

This is possible. However there are specific guidelines as to how such transactions can be effected to ensure that there is transparency and that realisations are maximised for the benefit of creditors.

11. 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 done prior to any creditor obtaining a winding up order.

12. What are the insolvency options available to the company?

There are various options available to a company as detailed below:

  • 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. May be used by a holder of a floating charge to recover its lending.
  • Creditors Voluntary Liquidation can only be initiated by agreement of 75% of the shareholders who also nominate a liquidator. Requires ratification by simple majority in value of creditors voting at the subsequent meeting of creditors. 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 a meeting of creditors. 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 tax efficient distribution of the company’s assets.
  • Law of Property Act Receiver is appointed by a holder of a fixed charge to deal solely with the management and sale of a specific asset.
  • Court Appointed Receiver is appointed by the court to deal with the assets and affairs of the company. This is generally initiated by the directors, but is not an often used insolvency procedure.
  • Administrative Receivership can only be initiated by a holder of a floating charge. This is typically a lender-driven process and generally used to maximise the return to the appointer. It usually involves a change in management.
  • Restructure Business and/or finance is initiated by the directors where insolvency caused by liquidity can be relieved by altering the financial structure.
13. 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 which are of your choice but are 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.

14. The company has cash flow difficulties, what can I do?

There are an array of potential options. However, it is important that you seek early professional advice, as making the wrong moves at this point can be disastrous to the company. Chamberlain & Co have a wealth of experience in advising directors in taking the right decision. The options range from some simple restructuring through to formal insolvency.

15. 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 with you or on your behalf. We can ensure that the relevant questions are asked to maximise any possible return to you. With the support of the majority of creditors attending the meeting Chamberlain & Co could take over the liquidation.

16. What can a bailiff do?

A bailiff has the power to remove or take ‘walking possession’ 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 action to protect your business.

17. Can the company protect its assets?

Yes. There are a variety of ways in which the company can protect its assets. Professional advice from experts such as Chamberlain & Co is critical at this point to optimise the potential outcome for the company.

18. Can a minority shareholder wind up the company?

Yes. The shareholder can petition the court that the company be compulsorily wound up 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.

19. 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. Briefly, attendance is required for CVLs and CVAs, but it is not mandatory for any other procedures, although it may be requested by the appointed Insolvency Practitioner.

20. 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. You should seek specialist advice from Chamberlain & Co in these instances.

21. Is the company's failure advertised?

Yes, other than in a CVA, the appointment of an Insolvency Practitioner is advertised in the London Gazette.

22. In what circumstances do I get repayment of my director's loan account?

In respect of a CVA 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.

A director’s loan account can be secured if the director took a private debenture over the company prior to lending the money.

23. Can I sell a company's assets before insolvency?

The assets of a company can be sold prior to insolvency if the transaction is for fair value and at arm’s length. The valuation should be supported by a written valuation by an appropriately qualified professional.

24. Can a company trade while in administration?

The company may be traded in administration but it will be trading is under the control of the administrator while the options for the company are explored.

25. How to remove a personal guarantee in respect of a bank account?

If a company is insolvent and you have personally guaranteed the company’s overdraft facility, the bank has the right to demand repayment from you. Any payment made by yourself would allow you to be able to claim in the insolvency. You would “stand in the shoes of the bank” for the amount claimed and have the benefit of any priority that it might enjoy over other creditors due to any security held over the company’s assets.

26. Is my house at risk if a limited company becomes insolvent?

If you are a director of a limited company which becomes subject to an insolvency proceeding, your house would be protected from any action unless you have personally guaranteed any of the company’s liabilities. You and the company are separate legal entities. Your personal assets are at risk only if you have personally guaranteed any of the company’s liabilities or if you are found guilty of fraudulent or wrongful trading.

27. The position of employees in insolvency?

Under the provisions of the Employment Rights Act 1996, any claim that you may have for arrears of pay, accrued holiday pay, redundancy pay or pay in lieu of notice will, subject to certain limitations, be paid to you by the Department of Employment out of the National Insurance Fund. You will need to send a completed form RP1 to the Department of Employment to claim any arrears of pay, redundancy pay, holiday pay or pay in lieu of notice.

28. Creditors' meetings appropriate questions?
  • What are the reasons for the company’s failure?
  • Will there be any return to creditors?
  • What are the directors’ future intentions?
  • What is the position with regard to director’s loan accounts?
  • Have the directors been involved in any previous insolvencies?
29. Can I legally retain goods in lieu of payment?

Should you have a valid retention of title claim on goods supplied, you may request these to be returned should the goods are still in the company’s possession upon insolvency and can be specifically identified. If the company has not commenced any insolvency process, you would be able to obtain a judgement against the company and instruct a bailiff to seize assets located at the company’s premises. If you are a warehouse man, you could exercise a lien on goods for unpaid charges. Similarly other tradesmen have similar rights. Solicitors have a right to a lien over documents of title held for work done thereon.

30. What is the procedure for winding up a company?

As a creditor for more than £750, you are able to petition for the winding up of a company if you have an outstanding unsatisfied judgement or have issued a statutory demand against the company which has not been satisfied or set aside after 21 days.

A petition can then be lodged in court for sealing and endorsing with a date and time for a hearing for the petition to be heard. The petition is served on the company and advertised in the London Gazette.

The bank should freeze the company’s bank account upon the advertising of the order. Any subsequent payments from the bank account can only be made upon receiving court sanction.

At the hearing the petition to wind up the company will be adjourned, made or dismissed.

Administration
Administration
Bankruptcy
Bankruptcy
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Liquidation
Company Dissolution
Company Dissolution
Receivership
Receivership
Business Restructure
Business Restructure

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