ACCA F4 - Corp and Business Law (ENG)

Part G Legal implications of companies in difficulty or in crisis  21: Insolvency and administration 325

It is a criminal offence punishable by fine or imprisonment for a director to make a declaration of

solvency without having reasonable grounds for it. If the company proves to be insolvent they will have to

justify their previous declaration or be punished.

In a members' voluntary winding up the creditors play no part since the assumption is that their debts will

be paid in full. The liquidator calls special and annual general meetings of contributories (members) to

whom they report:

(a) Within three months after each anniversary of the commencement of the winding up the liquidator

must call a meeting and lay before it an account of their transactions during the year.

(b) When the liquidation is complete the liquidator calls a meeting to lay before it their final accounts.

After holding the final meeting the liquidator sends a copy of their accounts to the Registrar who dissolves

the company three months later by removing its name from the register.

2.2 Creditors' voluntary liquidation

When there is no declaration of solvency there is a creditors' voluntary winding up.

If no declaration of solvency is made and delivered to the Registrar the liquidation proceeds as a creditors'

voluntary winding up even if in the end the company pays its debts in full.

To commence a creditors' voluntary winding up the directors convene a general meeting of members to

pass a special resolution (private companies may pass a written resolution with a 75% majority). They

must also convene a meeting of creditors, giving at least seven days notice of this meeting. The notice

must be advertised in the Gazette and two local newspapers. The notice must either:

 Give the name and address of a qualified insolvency practitioner to whom the creditors can apply

before the meeting for information about the company, or

 State a place in the locality of the company's principal place of business where, on the two

business days before the meeting, a list of creditors can be inspected.

The meeting of members is held first and its business is as follows:

 To resolve to wind up

 To appoint a liquidator, and

 To nominate up to five representatives to be members of the liquidation committee.

The creditors' meeting should preferably be convened on the same day but at a later time than the

members' meeting, or on the next day, but in any event within 14 days of it.

One of the directors presides at the creditors' meeting and lays before it a full statement of the company's

affairs and a list of creditors with the amounts owing to them. The meeting may nominate a liquidator and

up to five representatives to be members of the liquidation committee.

If the creditors nominate a different person to be liquidator, their choice prevails over the nomination by

the members.

Of course, the creditors may decide not to appoint a liquidator at all. They cannot be compelled to appoint

a liquidator, and if they do fail to appoint one it will be the members' nominee who will take office.

However even if creditors do appoint a liquidator there is a period of up to two weeks before the creditors'

meeting takes place at which they will actually make the appointment. In the interim it will be the

members' nominee who takes office as liquidator.

In either case the presence of the members' nominee as liquidator has been exploited in the past for the

purpose known as 'centrebinding'.

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