ACCA F4 - Corp and Business Law (ENG)

Part G Legal implications of companies in difficulty or in crisis  21: Insolvency and administration 329

The court will not order compulsory liquidation on a member's petition if they have nothing to gain from it.

If the company is insolvent they would receive nothing since the creditors will take all the assets.

Once the court has been petitioned, a provisional liquidator may be appointed by the court. The official

receiver is usually appointed, and their powers are conferred by the court. These usually extend to taking

control of the company's property and applying for a special manager to be appointed.

The official receiver is an officer of the court. They are appointed as liquidator of any company ordered to

be wound up by the court, although an insolvency practitioner may replace them.

3.4 Effects of an order for compulsory liquidation

The effects of an order for compulsory liquidation are:

(a) The official receiver becomes liquidator.

(b) The liquidation is deemed to have commenced at the time when the petition was first presented.

(c) Any disposition of the company's property and any transfer of its shares subsequent to the

commencement of liquidation is void unless the court orders otherwise.

(d) Any legal proceedings in progress against the company are halted (and none may thereafter

begin) unless the court gives leave. Any seizure of the company's assets after commencement of

liquidation is void.

(e) The employees of the company are automatically dismissed. The liquidator assumes the powers

of management previously held by the directors.

(f) Any floating charge crystallises.

The assets of the company may remain the company's legal property but under the liquidator's control

unless the court by order vests the assets in the liquidator. The business of the company may continue

but it is the liquidator's duty to continue it with a view only to realisation, for instance by sale as a going

concern.

Within 21 days of the making of the order for winding up a statement of affairs must be delivered to the

liquidator verified by one or more directors and by the secretary (and possibly by other persons). The

statement shows the assets and liabilities of the company and includes a list of creditors with particulars

of any security.

The liquidator may require that any officers or employees concerned in the recent management of the

company shall join in submitting the statement of affairs.

3.4.1 Investigations by the official receiver

The official receiver must investigate:

 The causes of the failure of the company, and

 Generally the promotion, formation, business dealings and affairs of the company.

The official receiver may report to the court on the results.

(a) The official receiver may require the public examination in open court of those believed to be

implicated (a much-feared sanction).

(b) The official receiver may apply to the court for public examination where half the creditors or three-

quarters of the shareholders (in value in either case) so request. Failure to attend, or reasonable

suspicion that the examinees will abscond, may lead to arrest and detention in custody for

contempt of court.

Key term

Attention!