Chapter 6CompaniesIt should be noted that a members’ voluntary may
become a creditors’ voluntary if the statutory declara-
tion of solvency is not complied with.
The creditors are then in charge of the winding-up in
terms, for example, of the power to appoint a different
liquidator.
The powers of the directors cease in both a members’
and a creditors’ winding-up and are taken over by the
liquidator. The creditors can agree to the powers of the
directors continuing but this is not likely particularly in
a creditors’ voluntary.
Actions against the company
■In a compulsory winding-up, no action can be
brought against the company unless the court gives
leave. Where a creditor has brought a claim and com-
pleted it before the order the creditor concerned may
keep the proceeds of any company property realised
(sold) as a result. If an action is brought against the
company between the presentation of the petition
and the making of the winding-up order, any creditor
can apply to have it stayed (stopped).
■In a voluntary liquidation, application may similarly
be made to have actions against the company stopped.
The court has a discretion whether to stop claims or not.
The property of the company
The liquidator does not own the company’s property
but has a duty to take possession of it in order to realise
it and use the proceeds to pay the debts and liabilities
of the company in a prescribed order (see below). Any
surplus is distributable among the members.
It is important to note that certain property is ex-
cluded and not available to the liquidator for realisation.
Of significance in business is property held by the com-
pany that is subject to a retention clause (see further,
Chapter 10 ). This property is not owned by the com-
pany if the property concerned has not been paid for by
the company. A retention of title clause is often inserted
into business contracts and is to the effect that the owner-
ship of goods sold to a customer does not pass to the
customer until they have been paid for.
Distribution of assets
The funds realised by the liquidator must be distributed
in a given order. However, it should be noted that secured
creditors with a fixed charge over specific property of the
company such as land or buildings will usually enforce
their security by a sale of the property. They are not sub-
ject to the preferential debts or expenses of the winding-
up though they will have to pay some costs in order to
sell the security. If the sale funds do not pay off the debt
the secured creditor can try to recover the balance in the
liquidation process but with the rank of an unsecured
creditor. If the sale proceeds are more than sufficient to
pay the debt and the costs of realisation, the balance
must be paid to the liquidator for distribution.Creditors other than holders of a fixed charge
The liquidator will distribute funds in the following order.
■In meeting the expenses of winding-up. This includes
the cost of collecting and realising assets and the
remuneration of the liquidator.
■In paying preferential creditors. The Enterprise Act
2002 abolished Crown preference and so debts owed
to the Inland Revenue, Customs and Excise for VAT
and Social Security debts such as national insurance
contributions are no longer preferential. They join the
ranks of the unsecured creditors for payment. Pre-
ferential status is retained for unpaid contributions to
occupational pension schemes and employees’ wages
or salaries (see below).
■Wages or salaries owed to employees for the previous
four months up to a current maximum of £800 per
employee plus accrued holiday pay. These figures are
taken as gross.
■Money that was lent, e.g. by a bank, to the company
as employer before the liquidation to pay debts in the
above category and which was used for that purpose.
This provision encourages banks to lend money for
wages and salaries before liquidation to try to keep
the company operating as a going concern. The bank
knows that if the company does fail it will at least be
a preferential creditor for the relevant sum of money.
Where the assets are insufficient to pay the preferential
debts in full, they abate equally, i.e. each creditor is paid
the same proportion of the debt. For example, if the
preferential debts are £2,000 but the assets available
amount only to £1,000, each preferential creditor would
receive only half the debt.Creditors having a floating charge
These rank as regards priority of payment in the order of
their creation so that those created first are paid off first.191