UK Law and Practice Contributed by: Kate Stephenson and Zoe Stembridge, Kirkland & Ellis
nominated by the creditors will be appointed. An MVL requires the directors to make a statutory declaration with respect to the debtor’s solvency. If they do not, a voluntary liquidation will commence as a CVL. An MVL may be converted into a CVL if the liquidators form the view that the debtor is in fact unable to pay its debts in full. Compulsory Liquidation Winding-up petitions for the compulsory liquidation of a debtor are commonly presented by a creditor (often HMRC). Petitions may also be presented by other parties, including the company itself, its shareholders and its directors. Petitions are typically based on the insolvency of the company, on a cash flow or (more infrequently) balance sheet basis. In this regard, a company will be deemed insolvent if it fails to pay a statutory demand within 21 days. Once a winding-up order has been made, the Official Receiver (an officer of the UK Insolvency Service) is appointed as liquida - tor. If most of the creditors wish, a private practitioner can be appointed liquidator, who must be a licensed insolvency practitioner. A voluntary liquidation may commence swiftly, given that only a shareholders’ resolution is required. It is likely to take materially longer to obtain a winding-up order, particularly where the petition is contested. 5.2 Course of the Liquidation Procedure Liquidators are appointed to protect and preserve the assets of the company, collect in debts and generally gather money together (including bringing claims) to pay off the company’s debts in accordance with the statutory hierarchy of claims. The directors’ powers cease, as the liquidators take over the management of the company. The liquidators may also challenge past transactions and reclaim company property, exercising powers under the Insolvency Act 1986. The length of the liquidation varies depending on the complexity of the case and the time it takes to realise the debtor’s assets.
Contracts do not automatically terminate on liquida - tion; however, the liquidators have a power to disclaim onerous property, including unprofitable contracts. Liquidators must have regard to the interests of all creditors. Compulsory Liquidation The business of the debtor ceases, except as neces - sary for the purposes of the winding-up. Employee contracts are automatically terminated. Any disposi - tion of the debtor’s property after the commencement of the winding-up will be automatically void, unless a validation order is obtained from the court. Arbitration Where the debt on which a winding-up petition is based is subject to an arbitration agreement and the relevant debt is disputed, the court, in considering whether to make a winding-up order, only has discre - tion to stay or dismiss the petition in favour of arbitra - tion if the debt is disputed on genuine and substantial grounds. It cannot do so merely by virtue of the fact that the debt is subject to an arbitration clause. 5.3 The End of the Liquidation Procedure(s) Once all assets have been collected in and distribut - ed, and the debtor’s affairs have otherwise been fully wound up, the liquidators must make an account of the winding-up and file a final return with Companies House. The debtor will be automatically dissolved three months later. If the liquidator is the Official Receiver (in a compulsory liquidation), the liquidation will end three months after the Official Receiver noti - fies Companies House that the liquidation has con - cluded. In certain circumstances, a company may be restored to the register following dissolution, in which case it will remain subject to any liabilities that were not dis - charged at the time of dissolution. 5.4 The Position of Shareholders and Creditors in Liquidation Shareholders The shareholders of a debtor have limited involvement in liquidation (except that a voluntary liquidation is commenced by a shareholders’ resolution).
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