Winding up a Company and Liquidation | Administration Order | Receivership |
Winding Up a Company
If
your company cannot pay its creditors, it runs the risk of creditors taking action on the grounds of
insolvency. Depending on the circumstances, this will involve creditors using either:
- a
petition to wind up the company;
- an administration order; or
- the appointment of a receiver.
Winding up a Company and LiquidationThis will commence when a letter is issued demanding payment of the debt within
seven days or when sheriff officers serve a demand at the registered office of the company.
Failure to pay in response to such a letter or demand requesting payment is usually
sufficient evidence to enable a creditor to prove to the satisfaction of the court that a company is
unable to pay its debts as they fall due – the test of insolvency for a company.
The
winding-up petition has to be advertised in the Edinburgh Gazette (which is published by the Stationery
Office and contains various statutory notices and advertisements) and in a local newspaper.
At the same time as this public notice is arranged, a copy of the petition has to be sent
by recorded delivery to your company’s registered office. The company has eight days after service of
the petition to lodge answers, i.e. explain to the court in writing what its defence is.
If
you are defending the case, your company must be legally represented in court. If you don’t defend
it, or the court doesn’t accept your defence, the court will order that your company is wound up and
a liquidator will be appointed.
The liquidator will manage the affairs of the company in
place of you and the other directors. The liquidator has a duty to realise a company’s assets to pay
its debts.
Any money left over after debts plus expenses of the liquidation are paid will be
distributed among the shareholders. When all assets have been used up, the company is dissolved and
ceases to exist.
Administration OrderThis is a court order made to appoint
an administrator to manage the company’s affairs.
A court can make an administration order
when the company is, or is likely to become, unable to pay its debts and the court considers that
the making of an administration order could achieve one of following purposes:
- save the
whole or any part of the company as a going concern;
- approve a company
voluntary arrangement;
- agree to a compromise or arrangement; or
- get a better price for the company’s assets than in a winding up.
One or
more of your creditors can apply to court for such an order. While an administration order is in
force, the company cannot be wound up.
There are restrictions on creditors enforcing any
security over the company’s property, selling any goods and starting any legal proceedings. For
these reasons, it is often worth the directors applying for such an order themselves.
The
administrator will advertise the order in the Edinburgh Gazette and in a newspaper in the area where
the company has its principal place of business.
The administrator will take control of all the
property of the company. He or she will then draw up proposals and call a meeting of the creditors
to consider those proposals.
If the majority of creditors approve the proposals, the
administrator then manages the affairs, business and property of the company.
ReceivershipIf your company has granted a floating charge over the
assets of the company as a security for a loan, (commonly a bank loan) and the company defaults on
the loan, the creditor can appoint a receiver.
A receiver has the power to sell or otherwise
realise the assets of the company secured against the loan in an attempt to repay the debt owed to
the charge-holder.
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