How do I liquidate my company under the new insolvency rules?

virtual meetingDavid Kirk outlines what’s changed for liquidation under the new rules.

The new Insolvency Rules came into effect on 5 April 2017, in order to:

  • consolidate minor changes that have happened since 1986 into one place
  • make the language more modern and gender neutral
  • allow more virtual meetings and use of email, saving postage and printing costs to reflect communications changes
  • abolish standard insolvency documents, as the new rules just list what needs to be included in documents
  • add confidentiality to some creditors, in particular, employees owed money no longer have their addresses disclosed in the report to creditors

An end to creditors' meetings

The main change to the process of liquidation in the new rules is that there no longer needs to be a physical creditors’ meeting at the start of the liquidation. However, there still needs to be a physical shareholders' meeting, which seems a missed opportunity to fully streamline the process.

The lack of a creditors’ meeting is likely to be a bonus for some directors, as turning up to a meeting and facing an audience of angry creditors was never something to look forward to.

As a liquidator, it was useful to have a creditors’ meeting, as this would highlight any issues early on that creditors had. You often found out about events leading up to the liquidation that you had not been told about.

It always pays to be open and honest with your insolvency practitioner (IP) to enable them to get the best understanding possible of your company’s situation; only then will they be able to provide the best advice.

The stages of the liquidation

To be able to liquidate a company, you still need a licensed IP to assist you. They need to act as the appointed liquidator and are usually initially chosen by the directors on a recommendation, or by finding someone local. Attempting to liquidate a company yourself is not possible and will likely leave the company in a worse situation, which will be harder to fix.

The stages involved within a standard liquidation have not changed. The process still has three main phases:

Stage 1: directors

The directors need to meet and agree by a majority that the company is insolvent and needs to be placed into liquidation. They then choose a liquidator, which can be anyone, provided they are licensed to do so. There is no notice needed for this directors' meeting and directors can attend via a call.

Stage 2: shareholders

A shareholders’ meeting is called to pass a special resolution to liquidate. This has to be passed by 75 per cent of shareholders – but only the shareholders who vote count for this 75 per cent.

This meeting is held with at least 14 days’ written notice, but with the consent of more than 90 per cent can be held immediately. This is useful for companies with only one or two shareholders, as you can drastically reduce the time required.

Stage 3: creditors

This is the main area affected by the new Insolvency Rules changes.

Under no circumstances can you call an actual physical meeting of creditors at the outset. Companies now only have two options:

1) Call a virtual meeting of creditors with at least seven days’ notice, giving them details of how to virtually attend (video conference or by telephone). Usually, the director still comes in on the day of the meeting to meet with the IP and to be present to answer any creditor questions and then sign off all the paperwork.

Bizarrely, if a creditor turns up asking to be in the meeting room, you have to send them away and ask them to telephone in to hear what’s going on. Creditors do not like this and it can increase tensions between the parties involved; nevertheless, it is part of the regulations and must be adhered to.

2) Send creditors a notice of deemed consent. This is with at least seven days’ notice. Deemed consent means there isn’t even a chance to attend remotely or by telephone. There is a specified date by which if no-one objects the company is deemed to have gone into liquidation.

In recent times, it has become very rare for creditors to attend – so in smaller cases, this deemed consent option is quite a useful process. If, however, 10 per cent of creditors by value or in number want an actual physical meeting that they can attend, they can request one and one has to be held. This means at least another seven-day delay to call an actual meeting.

You can now also give notice to creditors of either process above by email if they are known email users – previously notices had to be by post. This can save time and provide evidence that the notice has been sent.

Stages 2 and 3 above (calling the shareholders’ meeting and giving notice to creditors) can be run together, so that the fastest possible time a company can be put into liquidation is effectively eight days. This figure should only be used as a guideline and assumes that the company is in the best possible position to be liquidated. The more the directors can help beforehand, the faster the process will be.

Report and statement of affairs

Another significant change under the new rules is that a report must be sent to all creditors before the virtual meeting or deemed consent, setting out a company history, a statement of affairs which shows the assets and liabilities, and other statutory information.

The statement of affairs part still has to be posted – yet everything else can be emailed or posted online with access details given to creditors. Previously, all of this information was only available for the first time at the creditors’ meeting, so this update gives creditors a chance to look over any documents in advance of a meeting.

Opinions about the new insolvency rules are mixed throughout the industry, though in my experience, they have failed to simplify the process. The physical process has only been made more complicated, as some meetings still need to be actually held and some items still have to be posted out. That said, I’m yet to hear any directors complain about not needing to meet with their creditors.

If you’re considering liquidation for your company, make sure you seek advice from a licensed IP.

About the author

David Kirk is a chartered accountant and licensed insolvency practitioner based in the south west. Follow @kirksinsolvency or visit www.kirks.co.uk.

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