Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,.
He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.
A liquidator is a licensed insolvency practitioner who oversees a company’s winding up. Appointment becomes necessary when a company can no longer meet its financial obligations or when shareholders decide to end the business. Directors must appoint a liquidator to manage asset disposal, settle debts, and dissolve the company.
In this guide, I’ll examine the statutory procedures for appointing a liquidator under UK insolvency law, addressing the key legal obligations and potential liabilities directors face.
The procedure for appointing a liquidator varies according to the type of liquidation. This section outlines the distinct processes for each scenario:
Appointing a Liquidator in a Members’ Voluntary Liquidation (MVL):
Directors must first make a statutory declaration of solvency, confirming the company’s ability to settle all debts within 12 months. This declaration must be sworn before a solicitor or notary public and filed with Companies House.
Subsequently, shareholders must pass a special resolution to wind up the company and appoint a liquidator at a general meeting. ‘Appointing’ in this context means formally naming and engaging a licensed insolvency practitioner to act [1]Trusted Source – GOV.UK – The Insolvency Act 1986, Sections 91-93.
The appointment becomes effective once the resolution is passed. Within 14 days, the company must advertise the appointment in the Gazette and file the necessary forms (Form 600 and LQ01) with Companies House. The appointed liquidator must also be notified in writing of their appointment.
This process legally transfers control of the company to the liquidator, who then has the authority to wind up the company’s affairs.
Appointing a Liquidator in a Creditors’ Voluntary Liquidation (CVL)
The process commences with a board meeting where directors propose liquidation. Shareholders then pass a winding-up resolution at a general meeting.
While directors may nominate a liquidator, creditors hold the ultimate authority to approve this nomination or appoint an alternative liquidator at a creditors’ meeting [2]Trusted Source – GOV.UK – The Insolvency (England and Wales) Rules 2016, Part 15.
Appointing a Liquidator in a Compulsory Liquidation
This process is initiated when a creditor petitions the court for a winding-up order. Upon granting the order, the court appoints the Official Receiver as liquidator. The Official Receiver may subsequently appoint an insolvency practitioner to act as a liquidator.
Each of these processes requires meticulous preparation of documentation, including board and shareholder resolutions, a statement of affairs, and a comprehensive creditor list.
It is imperative to ensure all statutory notices are properly served, and meetings correctly convened to preclude potential challenges to the liquidator’s appointment.
Directors are advised to seek professional guidance if uncertain about any aspect of these procedures.
Key Considerations When Appointing a Liquidator
When appointing a liquidator, directors should carefully consider the following:
Timing of Appointment:
The timing of the liquidator’s appointment is crucial. Delaying unnecessarily when the company is insolvent may lead to allegations of wrongful trading. Conversely, appointing a liquidator prematurely for a solvent company may be challenged by shareholders.
Choice of Liquidator
Whilst directors may nominate a liquidator, it’s important to remember that in a Creditors’ Voluntary Liquidation, creditors have the final say. Directors should be prepared to justify their choice to creditors.
Documentation
Ensure all necessary documentation is properly prepared. This includes:
Directors’ resolution to propose liquidation
Notice of general meeting to shareholders
Special resolution for winding up
Nomination of liquidator
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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