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ACCAspace
Provided by ACCA Research Institute
Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台
ACCA F4
Corporate and Business Law (CL)
公司法与商法
ACCA Lecturer: Eli Qiu
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Chapter19 Insolvency and administration
Part G Insolvency Law
Chapter19 Insolvency and administration
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• Explain the meaning of and procedure involved in voluntary
liquidation, including members’ and creditors voluntary
liquidation
• Explain the meaning of grounds for and procedure involved
in compulsory liquidation
• Explain the order in which company debts will be paid off
on liquidation
• Explain administration as an general alternative to
liquidation
• Explain the way in which of an administrator may be
appointed ,the effect of such appointment, and the powers
and duties an administrator.
Chapter guide
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Chapter19 Insolvency and administration
1.Voluntary liquidation
Insolvency
Voluntary liquidation
Members
Creditors
Compulsory liquidation
Administration
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1.What is liquidation?
Liquidation is the dissolution or ‘winding up’ of a company
It means the company must be dissolved and its affairs ‘wound up’
or brought to an end.
The assets are realized, debts are paid out of the proceeds, and
any surplus amounts are returned to members. Liquidation leads
on to dissolution of the company. It is sometimes referred to as
winding up.
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1.Voluntary liquidation
1.1 Members voluntary liquidation
a) special resolution be passed, which marks the commencement
of the winding up process
b) A liquidator is appointed by the company
c) The directors make a sworn statutory declaration of solvency
delivered to the registrar within 15 days.
d) The liquidator convenes a meeting within 3 months from the
commencement of the winding up to report on his transactions
e) A final meeting is called upon completion of the liquidation, with
the laying of the liquidators final accounts.
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1.2 Creditors’ voluntary liquidation
a) An special resolution is passed,
b) A meeting of creditors will be called, with at least 7 days notice
given and advertised in the Gazette
c) A meeting of members is held to resolve to wind up the
company, appoint a liquidator, and nominate five
representative to the liquidation committee.
d) The creditors meeting is held, they may appoint their own
liquidator, and five representatives to the liquidation committee
e) The liquidator convenes a meeting 3 months from the
commencement of the winding up to report on his transactions
Chapter19 Insolvency and administration
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1.3 Difference
Chapter19 Insolvency and administration
Feature Members Creditor
Company’s financial position
solvent insolvent
Choice of liquidator
members Creditor prevail
Approval of liquidators actions
members creditors
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2 Explain the meaning of grounds for, and procedure involved in
compulsory liquidation
2.1 Grounds
Insolvency Act 1986(grounds on which an action for compulsory
winding up)
i) The company has passed a special resolution that it be wound
up by the court;
ii) It is a public company which has not within a year since its
registration obtained a trading certificate with the sharecapital
requirements
iii) It is an ‘old public company’ which has failed to re-register;
Chapter19 Insolvency and administration
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2 Explain the meaning of grounds for, and procedure involved in
compulsory liquidation
2.1 Grounds
iv) It has not commenced business within a year from its
incorporation or has suspended its busniess for a whole year;
v) (except in the case of a private company limited by shares or by
guarantee) the number of members is reduced below two;
vi) The company is unable to pay its debts
vii)The court is of the opinion that it is just and equitable that the
company should be wound up
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The most common of these grounds are(i),(vi)(vii)
If for any person the members of the company no longer wish to
continue the business they will use(i)
Outsiders may apply to have a company wound up under(vi).
Section123 (IA) providers that, if a company with a debt exceeding
£750 fails to pay it within three weeks of receiving a written demand,
then it is deemed unable to pay its debts.
Chapter19 Insolvency and administration
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2.2 Procedure
a) The officer Receiver is appointed by the courts
b) Liquidation is deemed to have commenced from the date the
petition was presented
c) A statement of the company’s affairs will be produced
d) A meeting of the company’s members and creditors is called to
appoint a liquidator, and form a liquidation committee
e) A final meeting of creditors is called at which the liquidator
presents his account.
Chapter19 Insolvency and administration
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2.3 Just and equitable
A member who is dissatisfied with the directors or controlling
shareholders over the management of the comoany may petition
the court for the company to be wound up on the just and equitable
ground
a) Deadlock in management-Yenidje Tabacco Co Ltd
b) Breakdown in quasi-partnership relationship -Re Westbourne
Galleries
c) Failure of substratum- Re German Date Coffee Co ltd
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3 Explain the order in which company debts will be paid off on
liquidation
a) Secured creditors holding fixed charges
b) Liquidator’s expense
c) Preferential creditors- all ranking equally
d) Secured creditors holding floating charges
e) Ordinary unsecured creditors
f) Deferred debts- such as dividends declared, but not paid
g) Members’ capital
h) Any surplus is returned to members in line with the AoA
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4 Explain administration as an general alternative to liquidation
An alternative to liquidation is administration.The process aims to
save the company from liquidation by taking the company out of the
hands of the directors, and placing it in the hands of an
administrator. In essence the company is granted breathing space
in which to trade its way out of difficulty.The administration may last
up 12 months, and when the administrator feels their business is
complete they will resign.
Chapter19 Insolvency and administration
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5 .Explain the way in which of an administrator may be appointed,
the effect of such appointment, and the powers and duties an an
administrator
Administration orders can be sought by the company’s directors or
any of its creditors, and once granted by the courts the following
occurs:
a) Winding up petition are dismissed/refused
b) Assets cannot be reclaimed by secured charge holders
c) Assets held under hire purchase agreements cannot be
repossessed.
Chapter19 Insolvency and administration
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The function of the administrator is to
a) Rescue the company as a going concern
b) Achieve a better result for creditors as a whole than under a
winding up
c) Where it is in the best interests of the creditors, to realise the
assets and make contributions to secured or preferential
creditor.
Chapter19 Insolvency and administration
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5.1.1 Intention: appointment without a court approval
There are three sets of people who might be able to do this:
i) Floating charge holders. The floating charge holders may only
appoint an administrator if
• They have given two days written notice to the holder of any
prior floating charge where the person has the rights to appoint
an administrator.
• Their floating charge is enforceable
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ii) Directors
iii)Company
• The company has not done so in the past 12 month or been
subject to a moratorium as a result of a voluntary arrangement
with its creditors in the past 12 months
• The company is , or is likely to be , unable to pay its debts
• No petition for winding for any administration order in respect of
the company has been presented to the court and is
outstanding.
• The company is not in liquidation
• No administrator is already in office
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5.1.2 Initiation: appointment with a court approval
There are four sets of parties that may apply to the court for an
administration order:
The company (that is, a majority of the members by (ordinary)
resolution.
The directors of the company
One or more creditors of the company
The justice and chief Executive of the Magistrates’ Court following
non-payment of a fine imposed on the company
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5.2 The effect of appointing an administrator
A moratorium over the company’s debts commences
The court must give its permission for security over company properly to
be enforced.
Goods held under hire purchase to be repossessed
A landlord to conduct forfeiture by peaceable entry
Commencement/contribution of any legal process against the company
The power of management are subjugated to the authority of the
administrator and managers can only act with his consent
All outstanding petitions for winding up of the company are dismissed
Any administrative receiver in place must vacate office. No appointments
to this position can be made.
Chapter19 Insolvency and administration
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5.3 Powers
a) Manage the company as they require
b) Remove/appoint directors
c) Pay monies to secured/preferential creditors without court
approval
d) Pay monies to unsecured creditors with court approval
e) Take custody of all company property
f) Dispose of company property
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5.4 Duties
As soon as reasonably practicable after appointment must:
a) Send notice of appointment to the company
b) Publish notice of appointment
c) Obtain a list of company creditors and send notice of
appointment to each
d) Within 7 days of appointment, send notice of appointment to
Registrar.
e) Require certain relevant people to provide a statement of
affairs of the company
Chapter19 Insolvency and administration
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f) Ensure that every business document of the company bears the identity
of the administrator and a statement that affairs, business and properly of
the company are being managed by him
g) Consider the statement of affairs submitted to him and set out his
proposals for achieving the aim of administration. The proposals must sent
to the Registrar and the company’s creditors, and be made available to
every member of the company as soon as is reasonably practicable, and
within eight weeks
h) Whilst preparing their proposals ,the administrator must manage the
affairs of the company.
Chapter19 Insolvency and administration