Liquidation and insolvency

Question 1

1. Insolvency proceedings

Accepted Answer

Insolvency proceedings are formal measures taken to deal with company debt.

There are many different types of company insolvency proceedings. We cover all of them in this guidance.

It’s important to note that not all companies involved in insolvency proceedings are insolvent.

1.1 Companies can be dissolved without going through insolvency proceedings

If we have reason to believe that a company is not carrying on business or is not in operation, its name may be struck off the register and dissolved without going through liquidation.

A private company that is not trading can apply to be struck off the Companies House register. This procedure is not an alternative to formal insolvency proceedings.

See our guidance for more information on striking off and dissolution of a company.

1.2 Supervising insolvency procedures

All liquidators, administrators, administrative receivers and supervisors taking office must be authorised insolvency practitioners.

Receiver managers, Law of Property Act (LPA) receivers and nominees appointed to manage a company voluntary arrangement moratorium do not have to be authorised.

Insolvency practitioners may be authorised by the:

Association of Chartered Certified Accountants
Insolvency Practitioners’ Association
Institute of Chartered Accountants of England and Wales
Institute of Chartered Accountants in Ireland
Institute of Chartered Accountants in Scotland

1.3 Directors of an insolvent company

The liquidator, administrative receiver, administrator or Official Receiver must send the Secretary of State for Business, Energy & Industrial Strategy, a report on the conduct of all directors who were in office in the last 3 years of the company’s trading.

The Secretary of State must decide whether it’s in the public interest to seek a disqualification order against a director.

Examples of the most commonly reported conduct are:

continuing the company’s trading when the company was insolvent
failing to keep proper accounting records
failing to send in returns or pay any tax that is due
disqualification for persistent breaches of companies legislation
disqualification of unfit directors of insolvent companies
disqualification following investigation of companies
disqualification for wrongful trading

Question 2

2. Moratorium

Accepted Answer

A moratorium provides struggling businesses a formal breathing space. It prevents the company’s creditors from proceeding against the company during this time. During a moratorium no legal action can be taken against a company without leave of the court.

2.1 Obtaining a moratorium

The directors must apply to the court for a moratorium. The moratorium will normally last for a period of 28 days and will be managed by a nominee, who may (or may not) be a registered insolvency practitioner.

2.2 What we need

The nominee must deliver notice of the moratorium to Companies House. You must notify us if the moratorium ends, or is:

extended
further extended
renewed
being continued

At the end of a moratorium a company may (or may not) proceed to a CVA.

Access the full list of forms for moratorium.

Question 3

3. Company voluntary arrangements (CVA)

Accepted Answer

A CVA is when a company proposes an agreement with its creditors. This arrangement must be approved by the court, in which the company has formally agreed terms with its creditors for the settlement of its debts.

3.1 Proposing a CVA

A CVA may be proposed by the:

administrator where the company is in administration
liquidator where the company is being wound up
directors, in other circumstances

3.2 Considering the proposal

Where the nominee is not the administrator or liquidator they must deliver notice of consent to the proposer as soon as possible after receiving the proposal. Within 28 days of receipt the nominee must submit a report to the court.

3.3 Approving a proposal for a CVA

The nominee must invite members of the company to consider a proposal by summoning a meeting and inviting creditors to consider the proposal by a decision procedure.

3.4 Once the CVA is approved

If the members and creditors approve the arrangement, the nominee or his replacement becomes the supervisor of the arrangement.

3.5 What we need

The supervisor must send a copy of the convener’s or chair’s report to us.

The supervisor must send reports on the progress and prospects for the full implementation of the voluntary arrangement, to all interested parties including Companies House, every 12 months starting with the date the CVA was approved.

Access the full list of forms for company voluntary arrangements.

3.6 Termination or full implementation

When the arrangement is completed, the supervisor must send a copy of the notice to creditors and the supervisor’s report to us within 28 days after final completion or termination of the voluntary arrangement.

If the arrangement is suspended or revoked, you must notify us.

Question 4

4. Administration

Accepted Answer

Administration provides breathing space to allow a rescue package or more advantageous realisation of assets to be put in place. An administrator is appointed to manage a company’s affairs, business and property for the benefit of the creditors.

The person appointed must be an insolvency practitioner and have the status of an officer of the court (whether they’re appointed by the court, or not).

The objective of administration is to:

rescue a company as a going concern
achieve a better price for the company’s assets or otherwise realise their value more favourably for the creditors as a whole than would be likely if the company were wound up (without first being in administration)
in certain circumstances, realise the value of property in order to make a distribution to one or more preferential creditors

Access the full list of forms for companies in administration.

4.1 Companies entering administration

A company enters administration when the appointment of an administrator takes effect. An administrator may be appointed by:

an administration order made by the court
the holder of a floating charge
the company or its directors
the liquidator of a company
the supervisor of a CVA
a designated office of a magistrates’ court

The administrator must perform their functions as quickly and efficiently as reasonably practicable in the best interests of the creditors as a whole.

4.2 Notification when a company is in administration

As soon as reasonably practicable, an administrator must send a notice of their appointment to the company and each of its creditors and publish notice of their appointment.

The administrator must also send a notice of their appointment to us.

4.3 The process of administration

Soon after their appointment, the administrator will request a statement of the company’s affairs from relevant people - such as an officer or employee of the company.

As soon as practicable and before the end of 8 weeks after the company enters administration, the administrator must make a statement setting out proposals for achieving the purpose of the administration or explaining why they cannot be achieved. The proposals may include a voluntary arrangement or a compromise or arrangement with creditors or members.

The statement setting out the proposals must be sent to:

Companies House
every creditor of the company whose claim and address they’re aware of
every member of the company whose address they’re aware of

Creditors will be asked to approve (with or without modifications) the statement of proposals. Following the initial meeting, the administrator may form a creditors committee. The administrator must notify creditors of any revisions to the proposals.

Any decisions taken by creditors must be reported to us.

Role of the administrator in the disposal of assets

An administrator must not make a substantial disposal to a connected person within the first 8 weeks of administration unless they either:

obtain approval of the transaction from creditors
have received and considered a report obtained by the connected person from an evaluator on the reasonableness of the proposed disposal

The administrator must send a copy of the report to the creditors and Companies House at the same time as they send the administrator’s proposals.

If the report, or any previous reports, concluded that the disposal is not reasonable in the circumstances, the administrator must also send a statement explaining their reasons for carrying on with the disposal.

You must send a copy of the report, and if necessary, the statement, to Companies House, together with the administrator’s proposals.

Read more about the disposal of assets in administration.

4.4 Approval of statement of proposals

The administrator will be able to use a process of deemed consent where they write to creditors with a proposal. If they do not receive objections from 10% or more of creditors, the proposal will be deemed to be approved. If 10% or more creditors object, the office holder will use an alternative decision-making process, such as:

a virtual meeting
correspondence
electronic voting

Where the proposal is deemed to have been approved the administrator must, as soon as reasonably practicable, deliver a notice of the date of deemed approval to us.

4.5 When administration ends

There are several ways administration can end.

Administration can end automatically one year from the date the administration took effect. You must notify us. But the administration may be extended with the consent of creditors or the court.

You must notify us of any extension.

An administrator who thinks that the purpose of administration has been sufficiently achieved must file a notice with the court and Companies House.

An administrator appointed by a court order may apply to the court to end administration if they think that the purpose of the administration cannot be achieved or the company should not have entered administration, or a creditors’ decision requires them to make an application. The court will discharge the administration order and the administrator must notify us.

An administrator appointed by the holders of a floating charge or by the company or its directors may end administration when the purpose of administration has been sufficiently achieved. The administrator must file the notice with the court and with Companies House.

Administration may end on the application of a creditor to the court. If the application is approved the administrator must send a copy of the order with the relevant form to us.

Administration may end and move into dissolution. This can happen if the administrator thinks that a company has no property with which to make a distribution to its creditors.

The administrator must send notice to us. The company will be dissolved 3 months after the date we register the form, unless an order is made to extend or suspend the period, or stop, the dissolution. You must send notice of any order to us.

4.6 Administration can be converted to creditors voluntary liquidation (CVL)

The administration can be converted to CVL where the administrator of a company thinks the total amount each secured creditor of the company is likely to receive has been paid to them or set aside for them and that a distribution will be made to any unsecured creditors of the company.

The administrator must send form AM22 (Notice of move from administration to creditors’ voluntary liquidation) to Companies House. The company converts from administration to CVL on the date of registration of form AM22. Once we register the form, you must also file Form 600 (Notice of appointment of liquidator).

The appointment of the liquidator must not be before the date the company went into liquidation - the date of registration of form AM22.

Question 5

5. Receivers

Accepted Answer

There are many different kinds of receiver and their powers vary according to the terms of their appointment.

An administrative receiver is a receiver or manager of the whole, or substantially the whole, of a company’s property. They’re appointed by, or on behalf of, the holders of any debentures of the company secured by a floating charge. They have the power to sell (or otherwise realise) the assets covered by the floating charge and apply the proceeds to the debt owed to the charge-holder.

Receivers who are not administrative receivers may be appointed in other circumstances. For example, under powers contained in an instrument or document creating a charge over a company’s property, a receiver or manager may be appointed until the debt is recovered. Receivers may also be appointed under the Law of Property Act 1925.

Access the full list of forms for receivership.

5.1 Notice of the receiver’s appointment

The person who appoints the administrative receiver, receiver or manager, or has them appointed under the powers contained in an instrument, is responsible for informing us within 7 days of the appointment. Form RM01 is required for each separate charge registered at Companies House over which the receiver is appointed, whether the appointment is over part of the property or all the company’s assets.

When the administrative receiver, receiver or manager ceases to act they must notify us with a form RM02.

5.2 What the receiver sends to Companies House

Within 3 months of appointment, an administrative receiver must make a report to:

Companies House
the company’s creditors, including unsecured creditors
the holders of a floating charge
any trustees for secured creditors of the company

The report must explain the circumstances of the appointment and the action the administrative receiver is taking.

The report must also include a summary of any ‘statement of affairs’ prepared for the receiver by the officers or employees of the company.

Statement of affairs

This is a summary of the company’s assets, liabilities and creditors. The administrative receiver decides whether it is required and who should prepare it.

Receipts and payments

All receivers must send an account of receipts and payments for the first 12 months of receivership to Companies House, and:

for administrative receivers, at 12 monthly intervals thereafter
for receivers and managers, at 6 monthly intervals thereafter

Question 6

6. Voluntary liquidation

Accepted Answer

There are 2 kinds of voluntary liquidation:

members’ voluntary liquidation (MVL) - which means the directors have made a statutory declaration of solvency
creditors’ voluntary liquidation (CVL) - which means that the directors have not made such a declaration

Access the full list of forms for voluntary liquidation.

6.1 When a company can go into MVL

A company can go into MVL when the directors of a company believe the company is solvent.

A majority of the company’s directors must make a statutory declaration of solvency in the 5 weeks before a resolution to wind up the company is passed.

6.2 The statutory declaration

The statutory declaration will state that the directors have made a full inquiry into the company’s affairs and that, having done so, they believe that the company will be able to pay its debts in full within 12 months from the start of the winding-up.

The declaration will include a statement of the company’s assets and liabilities as at the latest practicable date before making the declaration.

6.3 The start of liquidation

The liquidation starts when the members, in general meeting, pass a special resolution to wind up the company voluntarily.

6.4 Giving notice of voluntary liquidation

Notice of the company’s special resolution must be published in the London Gazette within 14 days of the passing of the resolution. The company must also send a copy of the declaration and the special resolution to Companies House within 15 days.

6.5 When a CVL is appropriate

A company may go into CVL when it cannot pay its debts.

6.6 What the company must do

The company passes a special resolution to say that it cannot continue in business because of its liabilities and that it is advisable to wind up.

The resolution must be:

advertised in the London Gazette within 14 days
sent to Companies House within 15 days

The directors must prepare a statement of affairs and send the statement to the creditors for consideration. When the liquidator is appointed, the directors must provide them with a statement of affairs and otherwise co-operate with the liquidator.

6.7 The main duties of a liquidator

The liquidator is appointed to wind up the company’s affairs. The liquidator does this by calling in all the company’s assets and distributing them to creditors and shareholders.

6.8 Notification of a liquidator’s appointment

Within 14 days of being appointed, a liquidator must publish a notice of appointment in the London Gazette and notify us.

If the liquidation is voluntary, the liquidator may also give notice in a different way, if they think it’s appropriate.

6.9 What the liquidator has to send to Companies House

The liquidator must send a statement of affairs with the relevant form to us within 5 business days after completion of the decision procedure or deemed consent procedure.

The liquidator must also send a progress report to us every 12 months. The progress report must cover the period of 12 months starting with the date the liquidator is appointed and, for CVL cases, each subsequent period of 12 months.

6.10 Converting an MVL into a CVL

If the liquidator decides that the company will not be able to pay its debts in full in the period stated in the directors’ statutory declaration of solvency, the liquidation becomes a CVL.

6.11 What happens when the company’s affairs are fully wound up

When a company’s affairs are fully wound up, the liquidator must send a copy of the final account to us.

Unless the court makes an order deferring the dissolution of the company, it is dissolved 3 months after the notice of final account are registered at Companies House.

6.12 Filing an Order to stay a liquidation

The Court may make an Order staying, or sisting (meaning stopping) winding up proceedings, either altogether or for a limited period of time, pursuant to Section 112 and Section 147 of the Insolvency Act 1986.

You must deliver the Order to us. We will then make it available for public inspection.

Once we record the Order, you must file any outstanding accounts and confirmation statements or old annual returns, like any other live and active company. If you fail to comply, we may strike the company off the Companies House register.

Question 7

7. Compulsory liquidation

Accepted Answer

Compulsory liquidation of a company is when a court orders a company to be wound up.

Access the full list of forms for compulsory liquidation.

7.1 Courts that can order a compulsory liquidation

The High Court, or a county court with the appropriate jurisdiction, may order the winding-up of a company. This may be, for example, on the petition of a creditor or creditors on the grounds that the company cannot pay its debts.

A company is regarded as not able to pay its debts if, for example, a creditor:

is owed more than £750
can prove the company cannot pay the debt

There are other situations where a company is deemed not able to pay its debts.

The court may also order the company to be wound up on the petition of:

the company itself
the company’s directors
any creditor or creditors
a contributory or contributories
the clerk of a magistrates’ court in the exercise of the power contained by section 87A of the Magistrates Court Act 1980
the Secretary of State for Business, Energy & Industrial Strategy
the Financial Conduct Authority (formerly the Financial Service Authority)
the Official Receiver
an administrative receiver, administrator or supervisor

7.2 Information on the public record

If the petition is successful, the Official Receiver must deliver a copy of the winding-up order to us. We will place it on the company’s public record.

The petition is not presented to us and it does not appear on the public record.

7.3 When the official receiver becomes liquidator

The Official Receiver becomes liquidator on the making of a winding-up order against a company, unless the court orders otherwise.

7.4 The duties of the Official Receiver

When a winding-up order is made, the Official Receiver becomes liquidator unless and until an insolvency practitioner is appointed in their place. The exception to this is where the court has appointed a former administrator, or supervisor under a voluntary arrangement, as liquidator at the time of the winding up.

The Official Receiver retains their duty to:

investigate
report to creditors
report on the company officers’ conduct

The Official Receiver’s initial duties as liquidator include identifying, collecting, securing and protecting the assets of the company, until a liquidator is appointed.

The Official Receiver may decide to ask creditors or contributories to nominate a liquidator. If after being given notice, they do not nominate a liquidator, the Official Receiver may apply to the Secretary of State to appoint an insolvency practitioner. The Official Receiver may also seek a decision from creditors or contributories on whether to form a creditors committee.

If the position of liquidator becomes vacant at any time, the Official Receiver becomes the liquidator for the duration of the vacancy.

7.5 What needs to be sent to Companies House

The Official Receiver or other person appointed as provisional liquidator must send us a copy of the winding up order.

A copy of the statement of affairs and any statement of concurrence must be delivered to Companies House, plus details of the formation of, and any changes to, a creditors committee.

The liquidator or Official Receiver must deliver progress reports from the date of appointment and for each 12-month period until the winding up ceases.

7.6 When the winding-up is complete

When we receive notice that winding-up is complete and the final account from the liquidator or Official Receiver, we will register it.

Unless the Secretary of State directs otherwise, the company will be dissolved 3 months after the notice is registered with us.

If the Official Receiver, acting as liquidator, is satisfied that the company’s realisable assets (assets which could be sold or disposed of to raise money) will not cover the expenses of winding-up, and that no further investigation of the company’s affairs is necessary, they may apply for early dissolution of the company. The company will be dissolved 3 months after the application is registered with us.

Question 8

8. UK Societas

Accepted Answer

Insolvency proceedings that apply to a PLC also apply to a UK Societas.

See our guidance on UK Societas.