Frequently Asked Questions (FAQ's)
To help you understand your situation and how we can help, here are
some questions that are often asked by people facing corporate financial
difficulties
1. Can
I wind up my company even if it's not insolvent?
2. How
do I close my company and retire?
3. What
are the consequences of a winding up petition?
4. What
are the consequences of a winding up order?
5. Can
a company continue to trade even if it's insolvent?
6. Can
a company reach an agreement with its creditors to enable it to continue
to trade?
7. At
what point might I become personally liable for my company's debts?
8. When
do I become liable for a personal guarantee concerning a company's
borrowing?
9. Am
I likely to be disqualified as a director?
10. Could
I buy the business and/or assets back from the liquidator?
11. Can
I place my company into liquidation before my creditors do?
12. What
are the insolvency options available to the company?
13. The
bank wishes to appoint investigating accountants, what can I do?
14. The
company has cash flow difficulties, what can I do?
15. I
have received notice of a creditors meeting from a major customer, what
can I do?
16. What
can a bailiff do?
17. Can
the company protect its assets?
18. Can
a minority shareholder wind up the company?
19. Do
directors/shareholders have to attend a meeting of creditors?
20. I
think the company may be insolvent, can I pay the wages?
21. Is
the company's failure advertised?
22. In
what circumstances can I repay my director's loan account?
23. Can I sell a company's assets before insolvency?
24. Company in administration can I trade solely?
25. How to remove a personal guarantee in respect of a bank account?
26. Is my house at risk if a limited company becomes insolvent?
27. The position of employees in insolvency?
28. Creditors' meetings appropriate questions?
29. Can I legally retain goods in lieu of payment?
30. What is the procedure for winding up a company?
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 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 it's 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.
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 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.
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 cCVA, 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 it's 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 receiverships, compulsory liquidations, CVL's, 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.
10. 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.
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 effected 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. 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 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 directors but is not an often used insolvency procedure.
- 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 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.
14. 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.
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 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.
16. 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.
17. Can the company protect its assets?
Only by petitioning for an Administration Order.
18. Can a minority shareholder wind up the company?
Yes. He 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 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. 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.
21. Is the company's failure advertised?
Yes, other than in CVA, the appointment of an Insolvency Practitioner is advertised in local papers and the London Gazette.
22. In what circumstances can I repay 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.
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 arms length. The value should be support by a written valuation by an appropriately qualified professional.
24. Company in administration can I trade solely?
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 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. From February 2008 the limits for arrears of pay, redundancy pay and pay in lieu of notice is £330 per week.
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 then you may request these to be returned should the goods still be in the company's possession upon insolvency. If the company has not started any insolvency process then 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 as such for work done thereon.
30. What is the procedure for winding up a company?
As a creditor
of 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 bank account upon the advertising of the order. Any subsequent payments therefrom can only be made upon receiving court sanction.
At the hearing the petition to wind up the company will be adjourned, made or dismissed.
| For any advice on financial difficulties, e-mail us here |  |
| Or alternatively talk to us on Live Support here |  |
Call us on 0800 195 4585 if you have any other questions you want answers to.
