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How Winding Up a Company Works?

Winding up/liquidation represents the last stage in company’s life by which a company is dissolved. After winding up, the company is struck off from the Companies Register at Companies House. The company simply stops doing any business and employing staff.

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How Winding Up a Company Works?

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  1. Winding up/liquidation represents the last stage in company’s life by which a company is dissolved. After winding up, the company is struck off from the Companies Register at Companies House. The company simply stops doing any business and employing staff. • During the proceedings, the company’s assets are disposed off, the debts are paid off out of the company’s assets, and the surplus, if any is then distributed among the shareholders in proportion to their holdings in the company. • And the surplus money goes to the state if it is not distributed among shareholders by the time the company is removed from the register. How Winding Up a Company Works?

  2. Modes of Winding Up There are two modes of winding up of a company. • Winding up by the Tribunal or Compulsory Liquidation • Voluntary Liquidation Further Voluntary Liquidation is of 2 kinds: • (a) Members’ voluntary liquidation OR • (b) Creditors’ voluntary liquidation

  3. Winding Up by Tribunal or Compulsory Liquidation • Compulsory Liquidation is advanced only when the company can’t pay off the debts it owes to its creditors or to people. • A company is subjected to wound up only if creditors ask to get paid either by getting a court judgment or by issuing an official request for payment, also known as statutory demand.

  4. By Court Judgment: If court judgment is issued, a 14 day respond period is given to the company during which the company can do the following: • Pay the debt • Reach to an agreement with the creditors following commercial viability of the company in future by using Company Voluntary Arrangement (CVA) • Putting company into administration • Challenge the court judgment

  5. Failing to respond to the court order in given period, a bailiff or sheriff is appointed by the court to seize all the assets.If the seized assets aren’t worthy enough to pay off all the debts, creditors then can apply for winding up the company.

  6. By Statutory Demand: Following issuance of Statutory Demand, a 21 days responding period is given to the debtor or the company. To avoid being nominated for winding up, the company has following options: • Pay the debt • Reach to an agreement with the creditors following commercial viability of the company in future by using Company Voluntary Arrangement (CVA) • Putting company into administration • Challenge the statutory demand

  7. Winding-up Petition Creditors can apply to the court to wind up a company by making an application known as “winding-up petition” unless the company is unable to pay debts worth £750 or don’t address the request of payment. A “winding-up petition” may be filed by following people: • The Company • Company Directors • Creditor/Creditors • Contributory/Contributories

  8. The clerk of a magistrates’ court • The official receiver • The Secretary of State • An administrative receiver or administrator • The supervisor of a composition or arrangement • The Attorney General (in the case of a charitable company)

  9. After Winding-Up Procedures The court issues a winding up order only if it is confirmed that the company can’t pay its debts up to £ 750 or more and this can be proved by following methods: • By a certificate of personal service or substituted service to confirm that a request for payment or statutory demand has been served to the company • By a bailiff’s statement showing that the bailiff wasn’t able to recover enough assets to pay the debts. • If it is proved that the debts of the company is more that its assets.

  10. To stop a winding-up order against the company, the order must be challenged in the court. Else; • Company’s bank accounts are frozen • Assets/Property are sold by the liquidator to recover debts If the company isn’t bought by buyers with the intention of continuing the business, then any & all employees will lose their jobs. During advancement of the winding up petition, company’s directors must co-operate with the official receiver. Else, a 2 to 15 years ban can be imposed or court prosecution can be carried out for failing to carry out duties as a director or breaking the law.

  11. Commencement of winding up When a winding-up order is made by the court, the winding up is deemed to have commenced from the time of the presentation of the petition. Exceptions to this rule are: • Where a resolution for voluntary winding up had already been passed prior to such presentation, in which event the winding up is deemed to have commenced at the time of passing the resolution, or • Where a winding-up order is made following presentation of an application for administration which the court has treated as a winding-up petition, the winding up is deemed to commence on the making of the order.

  12. Voluntary Winding Up Voluntary winding up simply means winding up a company by the board members or creditors without approaching the Tribunal. A company may be wound up voluntarily: • By passing an ordinary resolution • By passing a special resolution

  13. Creditors’ Voluntary Winding Up A director/Board of Directors can propose voluntary liquidation if • The company can’t pay its debts • Majority of shareholders agree to the resolution After the agreement, the company will stop any kind of trading and be would up.

  14. Shareholder’s Agreement: Before passing the resolution for voluntary liquidation, a shareholder’s agreement is called for voting. Only upon getting 75% votes in favor of winding up, “winding-up” resolution is passed. Once the resolution is passed, following steps must be followed: • Appoint an authorised insolvency practitioner as liquidator to take charge of liquidating the company • Send the resolution to Companies House within 15 days. • Advertise the resolution in The Gazette.

  15. Hold Creditors’ Meeting: A creditor’s meeting must be called on within 14 days of passing of the “winding-up resolution” with one of the following present in that meeting: • a director • the company secretary • the liquidator The creditors must be informed about the meeting 7 days before and an advertisement should be published in The Gazette regarding this.

  16. Members’ Voluntary Winding Up Members’ liquidation is chosen only if company is solvent and, • member/members of the business want to retire • nobody else wants to take over the family business after the member/members step down • member/members don’t want to run the business anymore

  17. Download a ‘Declaration of solvency’ (form 4.70). • Fill in the declaration - it must be signed by the majority of directors. • Call a general meeting with shareholders at least 5 weeks before and pass a resolution for voluntary winding up. • Advertise the resolution in The Gazette within 14 days. • Appoint an authorized insolvency practitioner as a liquidator who will take charge of winding up the company. • Send your signed form to Companies House within 15 days of passing the resolution. To opt for members’ voluntary liquidation, following 6 steps are followed:

  18. Role of The Liquidator The liquidator is an authorized insolvency practitioner who oversees the liquidation process. Soon as the liquidator is appointed by the company or creditors, they take control of the company and act in the interest of the creditors. The role of the liquidator includes: • settle any legal disputes or outstanding contracts • sell off the company’s assets and use any money to pay creditors • meet deadlines for paperwork and keep authorities informed

  19. pay liquidation costs and the final VAT bill • bring together people owed money (creditors) and hold meetings where necessary • decide which creditors should be paid first • interview the directors and report on what went wrong in the business • get the company removed from the companies register

  20. Following appointment of liquidator, directors are relieved from all of their duties from the company. They can neither control the company or anything it owns nor act for or on behalf of the company. A director must : • Furnish any information seek by the liquidator • Handover company’s assets, accounts, records and all paperworks • Allow the liquidator to interrogate if asked

  21. Consequence of Liquidation: • On the making of a winding-up order, a copy of the order must forthwith be forwarded by the company (or otherwise as may be prescribed) to the registrar of companies, who shall enter it in his records relating to the company. • When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose.

  22. (When an order has been made for winding up a company [registered but not formed under the Companies Act 2006], no action or proceeding shall be commenced or proceeded with against the company or its property or any contributory of the company, in respect of any debt of the company, except by leave of the court, and subject to such terms as the court may impose. An order for winding up a company operates in favor of all the creditors and of all contributories of the company as if made on the joint petition of a creditor and of a contributory.

  23. Content Designed By insolvencyandlaw.co.uk

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