A company can be placed in liquidation in several ways. The most common are the petition to the Court by a creditor to liquidate the company for failure to pay a debt, or a shareholders resolution placing the company into liquidation.

Creditors Petition

When a creditor petitions the Court to liquidate a company for non payment of a debt, the action is normally preceded by serving of a statutory demand for payment. Non payment of this demand within the time allowed is generally grounds for the creditor to petition the Court to wind up the debtor company.

If payment of the statutory demand is not made in time, the creditor will serve a formal notice that it has petitioned the Court to liquidate the debtor. The debtor company has 10 working days after service of this notice to appoint a liquidator of its choice by shareholder resolution, failing which it must await the outcome of the Court hearing of the creditors petition.

Unless the debtor company can provide sound evidence at the Court hearing, that the winding up petition is unwarranted, the judge will normally appoint the liquidator nominated by the petitioning creditor.

Shareholders Resolution

To be valid, a shareholders resolution to liquidate a company must be signed by persons holding 75% of the shares in the company. The resolution must also be made no later than 10 working days after receipt of a petition to liquidate, as noted above.

General Effects

The outcome of either method of liquidation is basically the same. The directors lose control of the company’s assets, which then pass to the liquidator. It will be the liquidators responsibility to realise the assets of the company and to distribute any surplus funds to creditors, applying the preferences set down in the 7th Schedule of the Companies Act 1993.

Bank accounts will be closed as at the date of liquidation, and the liquidator may disclaim as onerous any contracts which are not deemed beneficial to the liquidation.

An area which is not considered by many shareholders, is the position of overdrawn shareholder current accounts with the company. If these are an issue you should take advice before placing the company into liquidation. We are happy to discuss this matter with shareholders before liquidation.

Personal Guarantees

Placing a company into liquidation does not protect shareholders or directors who have given personal guarantees of its debts. Creditors holding personal guarantees are entitled to look to the guarantor if they are not fully repaid from the liquidation. If you have given personal guarantees, we suggest you contact us to discuss the matter prior to liquidation.