Winding up of companies 323(3) Floating charges created before 15 September 2003.
(4) Top-sliced assets for distribution to the unsecured creditors (see immediately below).
(5) Floating charges created on or after 15 September 2003.
(6) The unsecured creditors.
(7) Sums due to members but not yet paid. For example, dividends declared but not yet paid.
(8) The members of the company, as set out in the articles of association.
If there are not enough assets to pay each class of creditors in full then each member of the
relevant class is paid the same percentage of the money owing to them.
Top slicing
The charge holders will be paid what they are owed, if enough money is generated, after the
costs of realising these assets have been paid. If the assets are sold for more than the amount
of the charge, any surplus goes into the general pool of assets. However, as regards floating
charges created after 15 September 2003, ‘top-slicing’ applies. This means that the liquidator
must set aside a certain percentage of the assets which would otherwise be payable to float-
ing charge holders, so that this amount can be paid to the unsecured creditors. The amount
which must be set aside for the unsecured creditors is 50 per cent if the company’s net
property does not exceed £10,000 in value. If the company’s net property exceeds £10,000
then the amount to be set aside is 50 per cent of the first £10,000, then 20 per cent of the
remainder, the fund having a ceiling of £600,000. However, if the value of the company’s
net property is less than £10,000 the liquidator does not have to distribute the funds to the
unsecured creditors if he considers that this would be disproportionate to the costs of
doing so.
Liability arising from insolvency
In general, a liquidator will not be able to claim assets which do not belong to the company
or which are not owed to the company. However, there are certain exceptions to this prin-
ciple, which are considered below.
Wrongful trading
Section 214 of the Insolvency Act allows a liquidator to apply to the court to declare that
a person who is, or has been, a director should be liable to make such contribution to the
company’s assets as the court thinks proper. The court may declare a person liable to make
a contribution if:
(a) the company has gone into liquidation; and
(b) at some time before the commencement of the winding up of the company, that person
knew or should have known that there was no reasonable prospect that the company
would avoid going into insolvent liquidation; and
(c) that person was a director or shadow director of the company at that time.
However, a person will not be liable for wrongful trading if the court is satisfied that he took
every step which he ought to have taken to minimise the potential loss to the company’s
creditors.
Fraudulent trading
Section 213 of the Insolvency Act 1986 provides that if it appears to a liquidator that any
business of the company has been carried on with the intention of defrauding creditors,