330 21: Insolvency and administration Part G Legal implications of companies in difficulty or in crisis
3.4.2 Meetings of contributories and creditors
Contributories are members of a company.
At winding up, members may have to make payments to the company in respect of any unpaid share
capital or guarantees.The official receiver has 12 weeks to decide whether or not to convene separate meetings of creditors and
contributories. The meetings provide the creditors and contributories with the opportunity to appoint their
own nominee as permanent liquidator to replace the official receiver, and a liquidation committee to work
with the liquidator.
If the official receiver believes there is little interest and that the creditors will be unlikely to appoint a
liquidator they can dispense with a meeting, informing the court, the creditors and the contributories of
the decision. They can always be required to call a meeting if at least 25 per cent in value of the creditors
require them to do so.
If no meeting is held, or one is held but no liquidator is appointed, the official receiver continues to act as
liquidator. If the creditors do hold a meeting and appoint their own nominee this person automatically
becomes liquidator subject to a right of objection to the court. Any person appointed to act as liquidator
must be a qualified insolvency practitioner.
At any time after a winding up order is made, the official receiver may ask the Secretary of State to
appoint a liquidator. Similarly, they may request an appointment if the creditors and members fail to
appoint a liquidator.
If separate meetings of creditors and contributories are held and different persons are nominated as
liquidators, it is the creditors' nominee who takes precedence. Notice of the order for compulsory
liquidation and of the appointment of a liquidator is given to the Registrar and in the Gazette.
If, while the liquidation is in progress, the liquidator decides to call meetings of contributories or creditors
they may arrange to do so under powers vested in the court.3.5 Order of payments on liquidation
In a compulsory liquidation (and often in a voluntary one) the liquidator follows a prescribed order for
distributing the company's assets:Order Explanation
1 Costs These include the costs of selling the assets, the liquidator's remuneration and all
costs incidental to the liquidation procedure
2 Preferential debts Employees' wages (subject to a statutory maximum)
Accrued holiday pay
Contributions to an occupational pension fund
3 Debts secured by
floating chargesSubject to the ‘prescribed part' (see below)4 Debts owed to
unsecured ordinary
creditorsA proportion of assets (known as the ‘prescribed part') is 'ring-fenced' for
unsecured creditors. This proportion (which is subject to a statutory maximum) is
calculated as 50% of the first £10,000 of realisations of debts secured by floating
charge and 20% of the floating charge realisations thereafter (subject to a
prescribed maximum)
5 Deferred debts These include dividends declared but not paid and interest accrued on debts since
liquidation
6 Members Any surplus (unlikely in compulsory and creditors' voluntary liquidations) is
distributed to members according to their rights under the articles or the terms of
issue of their shares.Key term