Keenan and Riches’BUSINESS LAW

Chapter 6Companies

Some solicitors are authorised by the Law Society to
act as insolvency practitioners but most practitioners
are accountants authorised by their professional bodies
or by the Insolvency Practitioners Association to act.
Thus, the public interest in the proper procedures being
applied is safeguarded by the need for authorisation and
the monitoring functions of the authorising bodies.

Insolvency procedures

There are three main corporate insolvency procedures
as follows:

■liquidation, in which the company is wound up and
taken off the register of companies;
■administration, which is designed to rescue the com-
pany from insolvency; and
■a company voluntary arrangement, which is designed
to allow the company to continue to trade under
arrangements to make some payments to those who
are its creditors at the time of the making of the
arrangement.

The demise of the administrative
receiver

An administrative receiver was the normal appointment
of a bank where a company was in financial difficulties
with a bank overdraft. The bank held a floating charge
on the company’s undertaking and the function of the
administrative receiver was to undertake such procedures
with the company as would pay off the bank. An admin-
istrative receiver was not primarily part of the company
rescue procedure as an administrator is. What is more,
the existence of the office of administrative receiver inhib-
ited the rescue procedures of administration because
when the company or its creditors sought to make the
appointment of an administrator the bank, which had to
be notified, would often immediately appoint an admin-
istrative receiver and veto the administration.
The Enterprise Act 2002 prevents the holder of a
floating charge, such as a bank, from appointing an
administrative receiver except in a restricted number of
organisations, such as companies involved in the finan-
cial market. These are beyond the scope of this text
and of courses in business law at our level. The ban
on the appointment of administrative receivers will not
be complete for a while since the relevant procedures
of the Enterprise Act 2002 did not come into force until

15 September 2003 and banks which had taken floating

charges before that date will still be able to appoint such

practitioners. However, the office is, from a student point

of view, redundant and no more will be said about it in

this text.

It is worth noting that the practice of appointing

receiversby those who have taken fixed charges over

property will continue. These practitioners are in no

sense managers being appointed to pay off the debt by

a sale of the charged property or by collecting rents if

it is let until the debt is paid. They do not have to be

authorised insolvency practitioners and the practice is to

appoint chartered surveyors to do this work.

Liquidation

Liquidation is a procedure by which the existence of a

company is brought to an end and its property adminis-

tered for the benefit of creditors and members. A liquida-

tor takes control of the company, collects in its assets and

pays its debts and liabilities and distributes any surplus

between the members. The company is then dissolved

and it is removed from the register of companies.

There are three types of liquidation (or winding-up)

as follows:

■a compulsory liquidation;

■a members’ voluntary liquidation;

■a creditors’ voluntary liquidation.

These procedures are controlled in the main by the

Insolvency Act 1986.

Compulsory liquidation

The petition

A compulsory liquidation begins with the presentation

of a petition to the court. It is usually on the grounds that

the company cannot pay its debts. A company is to be

regarded in law as unable to pay its debts if:

■a statutory demand in a special form for more than£750

has been left at the registered office of the company

and this has not been complied with to the satisfaction

of the creditor(s) for a period of at least three weeks;

■the company has failed to satisfy a debt where the

creditor has obtained a court judgment and there has

been an unsuccessful attempt to levy execution, i.e.

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