Company Insolvency

(1) A company may be wound up by the court if:

(a) the company has by special resolution resolved that the company be wound up by the court,
(b) being a public company which was registered as such on its original incorporation, the company has not been issued with [F1 a trading certificate under section 761 of the Companies Act 2006 (requirement as to minimum share capital)] and more than a year has expired since it was so registered,
(c) it is an old public company, within the meaning of the [F2 Schedule 3 to the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009],
(d) the company does not commence its business within a year from its incorporation or suspends its business for a whole year;
(f) the company is unable to pay its debts,
(g) the court is of the opinion that it is just and equitable that the company should be wound up.

A company that is not able to pay debts that are due is known as ‘cash flow’ insolvent.

A company whose liabilities exceed its assets is known as ‘balance sheet’ insolvent.

An insolvent company may go into liquidation, into a Company Voluntary Arrangement or into administration.

Liquidation means the business stops trading, its assets are sold and the company ceases to exist. This can take three forms.

Compulsory liquidation is initiated when a third party, unusually a creditor, presents a wind-up petition at Court.

Creditors’ voluntary liquidation is started by the company itself by agreement between its directors and shareholders, who hand over to the creditors at an early stage.

Members’ voluntary liquidation often takes place when the company is dormant. It must be solvent in order to wind up this way.

The basic timeline of a voluntary winding up petition is as follows:

• Directors pass a resolution to convene a general meeting in line with the Companies Act 2006 to vote on passing a special resolution to wind up the company. They also convene a meeting of the company’s creditors.
• The meeting is announced in the Gazette with 14 days notice.
• Creditors are to be personally notified at least seven days before the meeting.
• The directors prepare a statement of affairs to be presented at meeting.
• The general meeting is held and passes the resolution to wind up.
• One director is appointed to represent the company at the creditors’ meeting.

Once a liquidator has been appointed, the directors must fully cooperate and provide in full any information asked for.

The liquidators and administrators are obliged to maximise the assets available to creditors, for example, by avoiding certain floating charges and preferences, as well as transactions at an undervalue and extortionate debt transactions.