This booklet is intended as a simple guide to liquidation and insolvency procedures. Reference should be made to the relevant legislation as appropriate. Neither the Department, nor the Registrar of Companies can accept responsibility for any errors or
omissions.

These notes summarise some of the rules that apply to voluntary and compulsory liquidations, administration orders, receivership and company voluntary arrangements. The rules relating to compulsory winding up apply to registered and unregistered companies (including oversea companies). The provisions of the Insolvency Act 1986 relating to voluntary winding up do not apply to unregistered companies neither do those relating to administration orders. The provisions relating to receiverships do however apply to unregistered companies.

If the liquidation or receivership commenced prior to 29 December 1986, then the law in force at that time will continue to apply.

It is important to remember that if your company is contemplating liquidation, or any other measures to deal with insolvency, you should seek appropriate professional advice and/or consult an authorised insolvency practitioner.

PART 1 - VOLUNTARY LIQUIDATION

There are two kinds of voluntary liquidation - members’ voluntary liquidation and creditors’ voluntary liquidation.

HOW CAN A COMPANY GO INTO MEMBERS’ VOLUNTARY LIQUIDATION?

A majority of the company’s directors must make a statutory declaration of solvency within the five weeks immediately preceding the date of the passing of the winding up resolution.

WHAT IS IN THE DECLARATION?

The statutory declaration will state that the directors have made a full inquiry into the company’s affairs and that having done so, they believe that the company will be able to pay its debts in full within a period not exceeding 12 months from the commencement of the winding up. The declaration will include a statement of the company’s assets and liabilities as at the latest practicable date before making the declaration.

WHEN DOES LIQUIDATION ACTUALLY BEGIN?

The liquidation begins at the time when the members, in general meeting, pass a resolution (usually a special resolution) to wind up the company voluntarily.

MUST NOTICE OF VOLUNTARY LIQUIDATION BE GIVEN TO ANYONE?

Yes. Notice of the special resolution to voluntarily wind up the company must be published in the Edinburgh Gazette within fourteen days of the general meeting. The company must also send a copy of the declaration (form 4.25(Scot)) and the special resolution to the Registrar of Companies within fifteen days of the general meeting.

WHEN MAY A CREDITORS’ VOLUNTARY LIQUIDATION BE APPROPRIATE?

A company may go into creditors’ voluntary liquidation when it cannot pay its debts.

WHAT MUST THE COMPANY DO?

• The company passes an extraordinary resolution to say that it cannot continue in business because of its liabilities and that it is advisable to wind up.

• A copy of the resolution must be sent to the Registrar of Companies within fifteen days.

• A meeting of creditors must be held within the next fourteen days and notice of the meeting must be sent to the creditors not less than seven days before the meeting. The directors must prepare a statement of affairs on form 4.4(Scot) for consideration at the meeting, and appoint one of their number to attend and preside over the meeting.

• When the liquidator is appointed the directors must provide him/her with a statement of affairs, and otherwise co-operate with the liquidator.

DOES THE COMPANY HAVE TO ADVERTISE NOTICE OF THE MEETING?

Yes. The meeting must be advertised in the Edinburgh Gazette and in two newspapers in the area where the company has its principal place of business.

WHAT ARE THE PRINCIPAL DUTIES OF A LIQUIDATOR?

The liquidator is appointed to wind up the company’s affairs. He/she does this by calling in all the company’s assets and distributing them to its creditors. If there is any thing left over he/she distributes it between the members of the company.

DOES THE LIQUIDATOR NEED TO NOTIFY ANYONE OF HIS/HER APPOINTMENT?

Yes. He/she must give notice of his/her appointment in the Edinburgh Gazette and also notify the Registrar of Companies, on form 600, within fourteen days. If the liquidation is to be voluntary he/she must also give notice in a newspaper in the area where the company has its principal place of business.

WHAT DOES THE LIQUIDATOR HAVE TO SEND TO THE REGISTRAR OF COMPANIES?

The Liquidator must send a statement, on form 4.5(Scot) and form 4.6(Scot) of receipts and payments for the first twelve months of liquidation. After that, statements. on the above named forms must be sent every 26 weeks until the winding up is complete.

CAN A MEMBERS’ VOLUNTARY LIQUIDATION BE CONVERTED INTO A CREDITORS’ VOLUNTARY LIQUIDATION?

Yes. If the liquidator decides that the company will not be able to pay its debts in the period stated in the directors statutory declaration of solvency, he/she must call a meeting of the creditors which must be held within twenty-eight days. The liquidation becomes a creditors’ voluntary liquidation from the date of the meeting.

WHAT ARE THE REQUIREMENTS FOR GIVING NOTICE IN SUCH A CASE?

The liquidator must post notices of the meeting to the creditors at least seven days before.

He/she must advertise the date of the meeting in the Edinburgh Gazette and in two newspapers in the area where the company has its principal place of business.

The liquidator must prepare a statement of affairs (form 4.4(Scot)), for consideration at the meeting.

WHAT HAPPENS WHEN THE COMPANY’S AFFAIRS ARE FULLY WOUND UP?

The liquidator presents an account to final meetings of creditors and members of the company. He must advertise the meetings in the Edinburgh Gazette at least one month before.

He/she must send the account to the Registrar of Companies together with a return on form 4.26(Scot) in the case of a members’ voluntary liquidation, or form 4.26(Scot) and 4.17(Scot) in the case of a creditors’ voluntary liquidation, within one week of the meeting taking place.

Unless the court makes an order deferring the dissolution of the company, it is dissolved three months after the return and account are registered at Companies House.

PART II - COMPULSORY LIQUIDATION

WHAT IS A “COMPULSORY LIQUIDATION”?

A compulsory liquidation of a company is one where the company is ordered by a court to be wound up.

WHO CAN ORDER A COMPULSORY LIQUIDATION?

The Court of Session or a Sheriff Court with the appropriate jurisdiction, may order the winding up of a company. This may be , for example, on the petition of a creditor(s) on the grounds that the company cannot pay its debts. A company is deemed unable to pay its debts if, for example, a creditor is owed more than £750 and presents a written demand in the prescribed form (known as a statutory demand) and the company fails to pay the debt or secure or compound it to the creditor’s reasonable satisfaction. There are however other situations where a company is deemed unable to pay its debts.

The court may also order the company to be wound up on the petition of:

• the company itself;

• the company’s directors or one or more members;

• the Secretary of State for Trade and Industry;

• the Securities and Investment Board;

MUST THE PETITION BE ADVERTISED ANYWHERE?

Unless the court directs other arrangements, the petition must be advertised in the Edinburgh Gazette.

WHAT APPEARS ON THE COMPANY RECORD HELD BY THE REGISTRAR OF COMPANIES?

Notice of the making of a winding up order form 4.2(Scot) and the order itself will appear on the company’s public record. The petition is not recorded on the company’s public file.

WHO ACTS AS THE LIQUIDATOR WHEN A PETITION IS MADE TO WIND UP THE COMPANY?

A provisional liquidator may be appointed after the petition is presented. If a winding-up order is made, an interim liquidator is appointed. Both the provisional and interim liquidator must notify the Registrar of Companies of his/her appointment on form 4.9(Scot).

WHAT ARE THE DUTIES OF THE INTERIM LIQUIDATOR?

The Interim Liquidator has a duty to investigate the company’s affairs and will call meetings of creditors and contributories (contributories means every person liable to contribute to the assets of a company in the event of it being wound up) within 28 days of his/her appointment. The meetings appoint the official liquidator who must notify the Registrar of Companies of his/her appointment on form 4.9(Scot) within 7 days. If no liquidator is appointed at the meetings, the court appoints the liquidator.

The liquidator must send a statement on forms 4.5(Scot) and 4.6(Scot) to the Registrar of Companies of receipts and payments for the first twelve months of liquidation and thereafter at twenty six week intervals.

WHAT HAPPENS WHEN THE WINDING UP IS COMPLETE?

When the Registrar of Companies receives notice on form 4.17(Scot) from the liquidator of the result of the final meeting, that winding up is complete, he will register it and also publish notice of its receipt in the Edinburgh Gazette.

Unless the Court directs otherwise, the company will be dissolved three months after the notice is registered.

CAN THE COMPANY EVER BE DISSOLVED EARLY?

Yes. If the liquidator is satisfied that the company's realisable assets will not cover the expenses of winding up and no further investigation of the company's affairs is necessary he/she may apply to the court for early dissolution. In this case, the court order will be delivered to the Registrar of Companies and the company will be dissolved three months after the order is registered.

CAN THE REGISTRAR STRIKE A COMPANY’S NAME OFF THE REGISTER WITHOUT IT GOING INTO LIQUIDATION?

Yes. Where the Registrar has reason to believe that a company is not carrying on business or is not in operation he may strike its name off the register without it going into liquidation. More information about striking off and dissolution of a company is available in (CHN27(S)) “Striking Off, Dissolution and Restoration”.

The Registrar may, in certain circumstances, strike a company’s name off the register where the company is in liquidation but there is no liquidator acting. If you need more information you should write to the Liquidation Section in Companies House Edinburgh.

PART III - ADMINISTRATION ORDERS

WHAT IS AN ADMINISTRATION ORDER?

It is an order made by the court to appoint an administrator to manage the affairs of the company.

WHAT ARE THE PURPOSES OF AN ADMINISTRATION ORDER?

The purpose of an administration order may be to achieve the survival of the whole or any part of the company, the approval of a company voluntary arrangement, the sanctioning of a compromise or arrangement, or a more advantageous realisation of the company’s assets than in a winding up.

WHEN MAY THE COURT MAKE AN ADMINISTRATION ORDER?

The court may make an administration order when the company is, or is likely to become, unable to pay its debts and the court considers that the making of such an order could achieve one of the purposes outlined above.

WHO MAY MAKE A PETITION FOR AN ADMINISTRATION ORDER?

The company itself, its directors or one or more of its creditors, including any contingent or prospective creditors. The petitioner must immediately give notice of the petition to the Registrar of Companies on form 2.1(Scot).

WHAT IS THE EFFECT OF THE ORDER?

Whilst an administration order is in force the company cannot be wound up and a receiver cannot be appointed or if previously appointed must vacate office. There are restrictions on the enforcement of any security over the company’s property, the sale of goods and the institution of any legal proceedings. More details about receivership are given in Part IV of this leaflet.

WHO MUST AN ADMINISTRATOR NOTIFY OF HIS APPOINTMENT?

The relevant legislation imposes certain notification requirements on an administrator, which includes advertising the order in the Edinburgh Gazette and in a newspaper in the area where the company has its principal place of business.

He/she must send a sealed copy of the court order with the form 2.2(Scot) to the Registrar of Companies.

WHAT ARE THE ADMINISTRATOR’S DUTIES?

The administrator takes control of all the property to which the company is or appears entitled. He/she prepares proposals for achieving the purpose for which the administration order was made and summons a meeting of creditors to consider those proposals. If the proposals are approved by the majority of creditors, the administrator will then manage the affairs, business and property of the company in accordance with those proposals.

DOES THE ADMINISTRATOR NEED TO SEND ANYTHING ELSE TO THE REGISTRAR?

Yes. He/she must send details on form 2.7(Scot) of the way the administration is to be carried out and notice on form 2.8(Scot) of the result of the creditors’ meeting.

Every six months the administrator must send an account of receipts and payments, on form 2.9(Scot), to the Registrar.

HOW LONG DOES AN ADMINISTRATION ORDER LAST?

It continues until it is discharged by the court. If there is a court order made to discharge the order, or to make any changes to it, the administrator must send a copy with the appropriate form to the Registrar.

PART IV - RECEIVERSHIP

WHO APPOINTS A RECEIVER?

A receiver of the whole, or substantially the whole, of a company's property is appointed by or on behalf of the holder of a floating charge. He/she has the power to sell or otherwise realise the charged assets of the company and apply the proceeds to the debt owed to the charge-holder.

WHO GIVES NOTICE OF THE RECEIVER’S APPOINTMENT?

The person who appoints the receiver, or has him/her appointed, is responsible for informing the Registrar of Companies, on the prescribed form 1(Scot) or 2 (Scot), as appropriate, within 7 days of the order of appointment. When the receiver ceases to act, he/she must notify the Registrar.

WHAT MUST THE RECEIVER SEND TO THE REGISTRAR OF COMPANIES?

A receiver must make a report on form 3.5(Scot) to the Registrar, to the company’s creditors, and to the holders of a floating charge and to any trustees for secured creditors of the company within three months of his appointment, explaining the circumstances of his/her appointment and the action he/she is taking. The report will include a summary of the statement of affairs that was prepared for the receiver by the officers or employees of the company.

All receivers must send accounts of receipts and payments,on the prescribed form 3.9(Scot), for the first twelve months of receivership to the Registrar and at twelve monthly intervals thereafter.

PART V - VOLUNTARY ARRANGEMENTS

WHAT IS A “VOLUNTARY ARRANGEMENT”?

It is an arrangement in which the company comes to terms with its creditors, by making a proposal for a composition in satisfaction of its debt or a scheme of arrangement of its affairs.

WHO MAY PROPOSE IT?

A voluntary arrangement may be proposed by:

• the administrator, where there is an administration order;

• the liquidator, when the company is being wound up;

or

• the directors, in other circumstances.

WHO CONSIDERS THE PROPOSAL?

When the arrangement has been proposed by the directors, a nominee (who must be an insolvency practitioner) reports to the court on whether in his opinion meetings of the company and of its creditors should be called.

HOW IS A VOLUNTARY ARRANGEMENT APPROVED?

The meetings summoned by the nominee decide whether to approve the voluntary arrangement which, subject to certain restrictions may be approved with modifications. If 75% of the creditors agree to the proposal, it is then binding on all creditors who had notice of the meeting and were entitled to vote, and all creditors who had notice of the meeting are bound by the terms of the arrangement.

WHAT HAPPENS WHEN THE ARRANGEMENT IS APPROVED?

If the meetings of members and creditors approve a voluntary arrangement the nominee, or his replacement, becomes the supervisor of the arrangement.

WHAT NEEDS TO BE SENT TO THE REGISTRAR OF COMPANIES?

The supervisor must send a copy of the chairman’s report on form 1.1(Scot).

At least once every twelve months he/she must send an abstract of receipts and payments, together with a progress report on the form 1.3(Scot), to all interested parties including the Registrar of Companies.

When the arrangement is completed he/she must notify the Registrar on the form 1.4(Scot), not more than 28 days after final completion.

PART VI - SOME USEFUL INFORMATION

WHO CAN BE A LIQUIDATOR, RECEIVER, ADMINISTRATOR OR SUPERVISOR OF A VOLUNTARY ARRANGEMENT?

Unless the liquidation began before 29 December 1986, any liquidator, administrator, receiver or supervisor must be an authorised insolvency practitioner.

Insolvency practitioners may be authorised by:

• the Chartered Association of Certified Accountants;

• the Insolvency Practitioners’ Association;

• the Institute of Chartered Accountants in England and Wales;

• the Institute of Chartered Accountants in Ireland;

• the Institute of Chartered Accountants in Scotland;

• the Law Society;

• the Law Society of Scotland;

or

• the Secretary of State.

WHAT DOES THE INSOLVENCY PRACTITIONER HAVE TO DO BEFORE HE/SHE CAN ACT FOR A COMPANY?

Before acting as an insolvency practitioner for any company the practitioner needs a bond as security for the proper performance of his/her duties. He/she must also have a “certificate of specific penalty” issued under the bond for an amount of at least as much as the company’s assets.

WHERE DOES THE CERTIFICATE HAVE TO BE SENT?

If the practitioner is acting as a receiver, as a provisional liquidator, liquidator, administrator or supervisor of a voluntary arrangement he/she must send a copy of the certificate to the Registrar of Companies within fourteen days.

WHAT IS THE EDINBURGH GAZETTE?

The Edinburgh Gazette is published by HMSO and contains various statutory notices and advertisements. It is published twice weekly and can be obtained from HMSO, 71 Lothian Road, Edinburgh.

HOW DO I GET THE FORMS MENTIONED IN THIS LEAFLET?

All forms mentioned in this leaflet with the exception of 4.4(Scot) are available free of charge from the Registrar of Companies in Edinburgh.

All the other insolvency forms can be obtained from law stationers. A list of law stationers can usually be found in “Yellow Pages”.