There are situations where the severity of the financial problems mean that it is not possible for a company to contemplate entering into Administration (Glossary) or a Company Voluntary Arrangement (Glossary) with creditors. Under these circumstances it is important that prompt action is taken to place the company into Creditors Voluntary Liquidation in order to protect the assets for the benefit of creditors. Delay in pursuing this route will inevitably lead to assets being seized by some creditors and could result in the company failing with nothing left for other creditors.
Directors also need to ensure that they take immediate action in order to protect their own personal position. The wrongful trading provisions contained in Section 214 Insolvency Act 1986 mean that a liquidator can take an action to obtain payments from directors personally where they have allowed the company to continue trading when it can be established to the court’s satisfaction that the company should have been placed into creditors voluntary liquidation at an earlier date.
A company is placed into creditors voluntary liquidation by the directors convening meetings of both shareholders and creditors. The shareholders will pass resolutions that put the company into liquidation. At the creditors meeting a statement of affairs will be presented to the creditors and they will be asked to ratify the appointment of the liquidator, or appoint another. It is vital that advice is taken by directors at as early a stage as possible. Full protection from creditors taking action to recover assets is not available until a liquidator has actually been appointed and it is vital that the situation is carefully handled in order to maximise the assets for the benefit of creditors. |