This guide is to consider can you stop a Liquidation or not.
In this article you’ll learn about:
- What a Liquidation is.
- What the Liquidator does.
- How a company goes into Liquidation.
- Can the process be stopped.
Let’s get cracking.
What Is A Liquidation?
Liquidation is the death of a trading business when it reaches its final resting place.
Trading will cease, employees released from their contracts and made redundant, creditors’ claims collected, assets assembled for sale and a Liquidator appointed to liquidate everything.
What Does The Liquidator Do In A Liquidation?
When a company goes into Liquidation the Liquidator has to:
- realise the company assets that have been disclosed by the Directors;
- investigate the legitimate concerns of creditors that highlight any potentially undisclosed assets;
- work out who the creditors are so that after the costs of Liquidation have been paid a distribution can be provided to creditors.
Can You Stop Different Types Of Liquidation?
There are three types of Liquidation and different considerations apply. However, in general, once a Liquidation has formally started it usually cannot be reversed.
The reason is the passing of a winding up resolution or making of a winding up order are generally not decisions that are flexible. They are not light switches that you can turn on and off. They have finality.
A winding up resolution in a Voluntary Liquidation is a formal decision passed by the company’s members (shareholders) to wind up the company. It has serious consequences for the company, its members and creditors. Tax consequences flow from such decisions as well.
Although companies are separate legal persons; they are not people. They are operated by people. However, whilst the analogy of the death of a person is not perfect, in effect if you were able to readily stop a Liquidation then companies that had started to die would be given new life.
Generally, you cannot stop a Liquidation once it is started.
Stopping A Compulsory Liquidation
In the case of a Compulsory Liquidation, you usually cannot stop the Liquidation process.
However, it is possible but it is regarded as an exceptional event and legally referred to as rescission of the winding up order.
In order to rescind a winding up order the following principles would apply:
- The power to rescind is discretionary and is only to be exercised with caution.
- The burden is on the person seeking rescission to convince the Court the order should be rescinded.
- It will only be an appropriate case where the circ*mstances are exceptional.
- There is no limit to the factors that the Court can take into account.
- The debt of the petitioning creditor will need to be paid.
- The costs of the Liquidation process incurred so far will need to be paid.
- Evidence provided the Company is able to pay its debts.
- No irregular trading activities have taken place.
Not many rescission applications succeed. An example of how the Court dealt with one is in a post on this site called How To Rescind A Winding Up Order which shows why a particular application to rescind failed.
Staying A Compulsory Liquidation
It is possible to return a company back to its Directors using the stay or sist winding up provision in Section 147 of the Insolvency Act 1986.
The legislation says:
The court may at any time after an order for winding up, on the application either of the liquidator or the official receiver or any creditor or contributory, and on proof to the satisfaction of the court that all proceedings in the winding up ought to be stayed or sisted, make an order staying or sisting the proceedings, either altogether or for a limited time, on such terms and conditions as the court thinks fit.
This is not a particular commonly deployed procedure either and as the legislation evidences, it is a discretionary remedy that the Court has control of.
It is expected that the Court would have regard for similar principles as the conditions required to rescind a winding up order. It is also considered likely that the Court would want to see for it generally to be in the public interest to grant a stay.
The notable words of Section 147 to bear in mind are: “such terms and conditions as the court thinks fit”. This suggests that when a stay is granted the Court will retain a supervisory function so that it might reverse the stay at any time.
So serious is putting a company into Liquidation that it should not be a decision taken lightly.
It is one of the most important decisions that a company might take and it is usually irreversible.
As a result before leaping in and seeking to put a company into Liquidation, it is important to take professional advice. Oliver Elliot can help you with such matters as we have over 20 years of insolvency experience. Make sure when you opt for Liquidation you know you are making the right decision.
