FREQUENTLY ASKED QUESTIONS
Providing clarity on insolvency and business recovery
Commonly asked questions
The administrator is personally liable for all the obligations of the company during the period of the administration.
The liquidator is personally liable for all the obligations of the company during the period of the administration.
During the period of the administration creditors’ rights are severely curtailed. For example, the landlord cannot re-enter, suppliers cannot recover product and guarantors cannot be called upon to meet the company’s obligation.
Am I still able to appoint an Administrator when a creditor has applied to the court to put the company into liquidation?
It is normal for the directors of the company to appoint an Administrator. The appointment is valid, even though an application is made to liquidate the company, provided the appointment is made within 10 working days of the company being served with the liquidation documents. Timing is critical as the freedom to choose Administration is lost after the 10-day period. The 10-day limitation period does not apply to a secured creditor who may appoint an Administrator at any time.
The duration of the administration can be extended by consent of the court. This often happens in complex commercial situations where 20 working days is not enough to get a thorough understanding of the business and prepare a report for the creditors.
For voting purposes, shareholders who have contributed funds to the company are probably creditors and have equal footing to third party creditors.
No – the law does not make a shareholder liable for the costs of the liquidation. However, liability may occur for some other reason – such as taking money from the company. There may also be some circumstances in which the shareholders agree to meet some of the costs of the liquidation, but this will be an understanding reached between the appointing shareholders and the liquidator.
No, not automatically. If a director has committed breaches, however, the liquidator may require the director to cover the costs of these.
The liquidator has control of the company and has a legal entitlement to deduct reasonable costs and fees from the sale value of any of the company’s property. However, the liquidator does not have any right in any property that is pledged to a secured creditor.
An unsecured creditor is a person who has provided goods or services to the company which has not been paid for, and they have no right in the property of the company.
A preferred creditor is also an unsecured creditor, but they have some rights in the property ahead of other creditors. This is not a direct right and will be administered by the liquidator. Typical preferred creditors are employees and Inland Revenue. A preferred creditor’s rights are likely to come after the rights of the liquidator to meet costs and fees of the liquidation.
A contract of guarantee sits outside the insolvent circumstance. The insolvency practitioner has no involvement in this matter because the guarantor has effectively said that they would perform the obligation of the company if the company cannot. It is worthwhile to note that a guarantor is protected in Voluntary Administration.
This is entirely dependent upon the issues that the liquidator has to deal with. For simple liquidations, the process can be completed within three months, but in more complicated circumstances it may take years to finalise all matters.
No – not automatically. However, Inland Revenue does have a law that can make another taxpayer liable for the taxpaying obligations of the company. Normally actions of this kind are initiated by Inland Revenue when large sums are involved or when misbehaviour has occurred.
No – not automatically. However, recent law changes suggest liquidators are expected to scrutinise more carefully the activity of the company’s directors. Note that if a director appoints an Administrator and starts the Voluntary Administration process, the directors are partially protected for acting in that responsible manner.
That depends on the arrangements that have been established between the creditor and the company. If the supplier of goods or services has made supply on open terms (supplied without defining any particular rights) then no. However, more and more, suppliers of goods and services are protecting their interests by providing for a right in property (often the very property they have supplied) to recover their losses.
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Absolutely. We offer a free and confidential consultation, with no pressure to commit to anything.
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BWA Insolvency was founded 20 years ago with Bryan Williams’ desire to help businesses in times of crisis. Armed with his past experiences as a businessman and his MBA & MComLaw qualifications, Bryan began his insolvency resolve.