Insolvency Q&A part two: business owners/company directors

Welcome to part two of our five part insolvency blog covering the most frequently asked questions around insolvency and liquidation.

Part two will cover the most frequently asked insolvency questions by business owners and company directors.

In part one we covered the most frequently asked questions around general insolvency.

For further advice about any of the topics covered in our insolvency blogs or regarding a specific scenario, please contact our insolvency & recovery specialists on 0330 024 0888 or enquiry@larking-gowen.co.uk. All initial discussions are confidential, free of charge and without obligation.

1. How can I put my company into liquidation?

In order to place your company into a creditors’ voluntary liquidation, the directors will need to hold a board meeting and convene a meeting of the company’s shareholders.

You’ll need 75% of the company’s shareholders to vote in favour of passing a winding up resolution and an insolvency practitioner who’s willing to act as liquidator of the company.

Following the introduction of the insolvency rules 2016, there are now varying routes for engaging with creditors as part of the appointment process.

It’s advisable to engage an insolvency practitioner to help you through the legal process.

2. When should I seek advice?

Seek advice as soon as you become aware that the company may not be able to pay its debts as they fall due. Failure to get advice early may result in reduced options being available for the company.

Speak to one of our insolvency practitioners today to arrange a free confidential consultation.

3. When should my company stop trading?

When a company should cease trading depend on the circumstances of the company. Typically, a company will cease to trade when the directors reach an agreement that the company ought to be placed into insolvent liquidation.

You should not continue to trade if there’s no prospect that you’ll be able to pay your debts as and when they fall due. Continuing to trade beyond this point could have further consequences for the directors.

4. My company has just been served with a winding-up petition. What should I do?

Timing is key if your company has been served with a winding-up petition.

The petitioning creditor will be entitled to advertise the petition in the London Gazette seven days after serving it on the company. Once the petition is advertised it’s likely that the company’s bank account will be frozen, which could have severe consequences for your business.

If the debt is disputed then it’s likely that you’ll need to seek legal advice. Larking Gowen can provide you with contact details for a number of lawyers who are suitably experienced in dealing with these matters.

If the company doesn’t dispute the debt then you should seek advice from an insolvency practitioner as soon as possible. It may still be possible to avoid the company entering compulsory liquidation.

5. How much will it cost to wind up a company? I’m looking for a cheap liquidation.

The costs of winding up a company will vary depending on the size of the company, the complexity of the case and the nature of the assets the liquidator has to deal with.

Please contact one of our insolvency practitioners to get a competitive quote.

6. Who pays to wind up a company? Who is liable for the liquidator’s costs?

The costs of assisting directors with placing a company into liquidation and acting as liquidator are payable out of the funds realised from the sale of the company’s assets.

The directors are not liable to contribute to the costs. However, if there are no assets to pay the costs of liquidation then a director can choose to meet the costs personally.

7. Am I liable for company debts? Can a director be liable for company debts?

Ordinarily a director of a limited company is not personally liable for the debts of a company.

However, a director may have personal liability in respect of a debt if they have provided a personal guarantee (PG). It’s not uncommon for banks to seek security in the form of a PG from one or more of the directors when a company applies for credit.

A director could also become liable to contribute to the assets of a company if it can be shown that they have acted incorrectly. Directors in the UK are legally considered to have ‘fiduciary duties’ which means that, in the event of insolvency, they are duty-bound to act in the interests of the company’s creditors and not of themselves.

8. Will my personal guarantee be called upon by the bank?

It’s common for the bank to contact directors who’ve provided a personal guarantee upon the liquidation of the company; however, early negotiations with the bank will leave the director more options.

9. My company has gone bust, can I still be a director?

Being a director of a company that enters formal insolvency proceedings does not automatically prohibit you from continuing to act or taking new directorship appointments.

10. Can I start up a new limited company immediately?

You’re entitled to set up a new company immediately (assuming there are no matters affecting your ability to act, such as disqualification or being an undischarged bankrupt). However, there may be some restrictions, such as trading with a prohibited name.

Please contact one of our insolvency practitioners, who can provide further information.

11. Will I have to attend court?

A creditors’ voluntary liquidation doesn’t involve the court and allows the director(s) to control the timing and appointment of an insolvency practitioner.

However, a compulsory liquidation is a court based process which does require a court hearing. You’re not required to attend the hearing, but failure to attend is likely to result in the judge simply making an order for the company’s winding-up.

12. Will I have to face the company creditors?

Historically a creditors’ meeting would be held as part of the process to place a company into creditors’ voluntary liquidation. A physical meeting, however, is now only held as part of the appointment process, if requested by creditors and certain triggers are met.

If a physical meeting is requested, then at least one director is required to attend. During the meeting, there’s opportunity for any questions to be asked of the director(s).

13. Can I pay family creditors?

Family creditors are likely to fall into the category of ‘associated creditors’ within the definition of the Insolvency Act 1986. Associated creditors who have been repaid in the two years prior to the date of liquidation may be requested to repay these sums to the liquidator.

14. How long does an insolvent liquidation last? When will the company be dissolved?

There’s no definitive timescale for the duration of a liquidation. A liquidator will remain in office until all of the company’s assets have been dealt with.

Once the liquidator considers that the administration of the company’s affairs has been concluded, they’ll take formal steps to conclude the liquidation, which will ultimately result in them being released from office.

The company will be dissolved at Companies House three months after the final return is lodged by the liquidator.

15. How long does a solvent liquidation last? When will the company be dissolved?

Similar to an insolvent liquidation, there’s no definitive timescale for the duration of a solvent members’ voluntary liquidation. However, there is a legal requirement that all of the company’s creditors must be repaid in full, plus statutory interest, within a period of 12 months.

A liquidator will remain in office until all of the company’s assets have been dealt with and the funds have been distributed accordingly.

Once the liquidator considers that the administration of the company’s affairs has been concluded, they’ll take formal steps to conclude the liquidation, which will ultimately result in them being released from office.

The company will be dissolved at Companies House three months after the final return is lodged by the liquidator.

16. When do my director duties cease?

Your duties as director cease upon the passing of a winding-up resolution or following an order of the court for compulsory liquidation. However, you have an ongoing legal duty to cooperate with the liquidator.

Failure to cooperate with the liquidator or official receiver could result in you being examined at court.

17. Will my employees get paid?

Employees may claim for arrears of wages, holiday pay, redundancy pay and pay in lieu of notice from the redundancy payments service, although certain restrictions will apply. Please note this isn’t an exhaustive list of all items that an employee can claim.

The money comes from the Government’s National Insurance fund and they aim to pay within three to six weeks of receiving a claim.

The office-holder will issue a fact sheet to employees advising them how to submit claim, which is done via the Government website.

18. Is the liquidation advertised?

Yes. There are a number of statutory notices which are advertised in the London Gazette for both a creditors’ voluntary liquidation and compulsory liquidation.

However, advertisements are only placed in regional or national newspapers if the insolvency practitioner considers it appropriate.

19. Can a director purchase company assets? Can a shareholder purchase company assets?

Yes, a director or shareholder is able to purchase the assets of an insolvent company.

If a company’s assets are sold prior to an insolvency event then that disposal will be reviewed by the office-holder. An office-holder has the power to overturn such transactions if it can be shown that market value wasn’t achieved for the disposal.

However, if the assets are sold to a director/shareholder by a liquidator then it’s the liquidator’s duty to make sure that fair value has been paid for the assets. A liquidator has a duty to disclose details of transactions with connected parties to creditors.

Need help?

To find out more, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.