ACCA F4 - Corp and Business Law (ENG)

Part G Legal implications of companies in difficulty or in crisis  21: Insolvency and administration 323

However, if the members refuse to put the company in liquidation and the directors feel that to continue

to trade will prejudice creditors, they could resign their posts in order to avoid committing fraudulent or

wrongful trading.

In any case, if the company was in such serious financial difficulty for this to be an issue, it is likely that a

creditor would have commenced proceedings against it.

1.1.1 Creditors

If a creditor has sufficient grounds they may apply to the court for the compulsory winding up of the

company.

Creditors may also be closely involved in a voluntary winding up, if the company is insolvent when the

members decide to wind the company up.

1.1.2 Members

The members may decide to wind the company up (probably on the advice of the directors). If they do so,

the company is voluntarily wound up. This can lead to two different types of members' winding up:

 Members' voluntary winding up (if the company is solvent)

 Creditors' voluntary winding up (if the company is insolvent)

1.2 Role of the liquidator

A liquidator must be an authorised, qualified insolvency practitioner.

Once the decision to liquidate has been taken, the company goes under the control of a liquidator who

must be a qualified and authorised insolvency practitioner.

Although the liquidator's main role is to wind up the company, they also have a statutory duty to report to

the Secretary of State where they feel that any director of the insolvent company is unfit to be involved in

the management of a company.

1.3 Common features of liquidations

Once insolvency procedures have commenced, share trading must cease, the company documents must

state that the company is in liquidation and the directors' power to manage ceases.

Regardless of what method of liquidation is used, similar legal problems may arise in each of them. In

addition, the following factors are true at the start of any liquidation:

 No share dealings or changes in members are allowed

 All company documents (eg invoices, letters, emails) and the website must state the company is

in liquidation

 The directors' power to manage ceases

2 Voluntary liquidation

A winding up is voluntary where the decision to wind up is taken by the company's members, although if

the company is insolvent, the creditors will be heavily involved in the proceedings.

As we saw earlier there are two types of voluntary liquidation:

 A members' voluntary winding up, where the company is solvent and the members merely decide

to 'kill it off'

 A creditors' voluntary winding up, where the company is insolvent and the members resolve to

wind up in consultation with creditors

FAST FORWARD

FAST FORWARD

FAST FORWARD