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In the main there are three types of liquidation, the procedures for which are summarised below:
Creditors Voluntary Liquidation
This is probably the most familiar and common type of insolvency. In this situation the Directors of a company have established that their company is insolvent, either being unable to pay company debts as and when they fall due, or it is considered that the liabilities of the company are greater than its assets and that the situation will not improve in the foreseeable future.
A meeting of creditors is convened, usually under the provisions of Section 98 of the Insolvency Act 1986, for the purposes of the creditors having placed before them a financial statement of affairs and a report on the company’s activities. The formal purpose of the meeting is to appoint a Liquidator of the creditors’ choice and, if appropriate, a Liquidation Committee. In this situation, we are available to assist the Directors of the company in preparing all the necessary documentation required.
Members Voluntary Liquidation
In these cases it is considered by the company that there are sufficient assets to pay all creditors in full together with a distribution to shareholders. Generally a meeting of creditors is not convened and all creditors should be paid within 12 months.
Compulsory Liquidation
If a company is unable to pay its debts as and when they fall due, its creditors are entitled to take proceedings through the Court. If judgment has been obtained against a company or it has failed to pay the amounts due after 21 days have passed following the issue of a Statutory Demand, a creditor can take proceedings for a company to be wound up in Compulsory Liquidation.
If the creditor is successful and the petition is granted, the Official Receiver will take control of the company in the first instance and then, if appropriate, a Liquidator will be appointed by the creditors at a meeting of creditors. Alternatively, the appointment of a Liquidator will be made by the Secretary of State. The Liquidator appointed will realise the assets of the company and distribute the funds to creditors appropriately.
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