As a result of a court order, the assets of a corporation are sold and the earnings are distributed among the company’s creditors. When a petition is submitted to a court, the commencement of the procedure is marked. A judge then decides whether a winding-up order should be issued during a court hearing. Financial difficulties are the most common reason for a winding-up order. After the Liquidation (Court Order/Compulsory) procedure is complete, the company is dissolved.
In the event of an involuntary liquidation, what steps must be taken?
Once the winding-up petition is filed in court, the process begins. For further information on the serious consequences that might result from receiving a winding-up petition, see the practise guide Responding to a winding-up petition: a guidance for firms.
One of the company’s creditors is usually the one who files the petition. It is possible for a company to be put into forced liquidation by the firm itself, its directors, and other persons and organisations (section 124, IA 1986). A company’s inability to meet its financial commitments on time is the most common reason for its dissolution. In some cases, however, an order may be obtained based on other reasons, as outlined in section 122(1) of IA 1986.
It is needed that notice of the petition be published within a reasonable amount of time after a copy is delivered to and signed by both the petitioner and the company.
Once the petition has been filed, a hearing will be scheduled in court where the company might oppose to it. The petition may be rejected, the hearing can be postponed, or the court can issue a winding-up order.
What is the liquidator’s function?
When a business goes bankrupt, the liquidator’s job is to collect and sell the company’s assets, and then distribute the money to the company’s creditors and, if there is a surplus, to those who are entitled to it.
A liquidator is someone who has considerable influence. It is possible for a company to take legal action in its own name, manage its own business as well as pay all of its debts. For further details, see Appendix 4 of the IA 1986.
Who bears the cost of the liquidator’s services?
Liquidator costs are typically paid from the winding-up earnings. Thus, they’re normally paid from the company’s assets after fixed-charge creditors and preferential creditors who don’t have any security over the company’s assets are paid, but before floating-charge creditors and creditors with no fixed or floating charge security are paid. Checklist, The allocation of assets to creditors in a corporate insolvency: flowchart is an illustration of the priority of creditor claims.
As laid down in the IR 2016’s rules 18.16 to 18.20, liquidators might be paid for their services. The Practice Note has further information. How are assets awarded to creditors in bankruptcy proceedings for corporations? Expenses incurred by the bankrupt estate’s liquidators.
What is the role of a creditor in a forced liquidation?
Equivalently, secured and unsecured creditors’ claims are both paid. Unsecured creditors will normally get their dividends pro rata in accordance with the amount of cash available once the liquidation procedure is complete if there is any left over (and may also receive an interim dividend, prior to the end of the liquidation). In the form of dividends, unsecured creditors may get as little as a few cents per pound or as low as zero.