Does a creditors voluntary liquidation put an automatic stop to existing claims against the company?
Unlike a compulsory liquidation or an administration, there is no automatic stop on legal proceedings being bought against a company in voluntary liquidation.
It should however be borne in mind by any claimant who wants to pursue a claim against a company in voluntary liquidation, that a judgment does not give that claimant a priority over any of the other creditors in the liquidation. Continuing a claim may therefore not advance their chances of being repaid, but will probably just increase costs, which they are unlikely to recover.
The liquidation process is designed so that a liquidator will collect all the assets of the company and distribute them for the benefit of creditors in the statutory order provided in insolvency legislation. That order is non negotiable.
However, if a debt is disputed by the company, then it may not be agreed by a liquidator, and so it might be necessary to continue the claim. We would suggest that any creditor in this position should have a discussion with the liquidator to see if an agreement can be reached outside of proceedings, before spending money on expensive litigation that they may not get back.
Whilst there is no automatic stay on legal proceedings against a company in voluntary winding up, a liquidator or another contributory or creditor may apply to the court to ask for the court to use its discretion to stay those proceedings in any event. The court has wide powers to do so.
There is no prohibition on a creditor or anyone else presenting a winding up petition against a company that is already in voluntary liquidation. However, any creditor following this route would need to give very good reason given to the court to persuade it to make a winding up order when the company is already in liquidation.
In essence, if proceedings are brought that dispute a company’s liability to a creditor, it may well be that the claim should continue so that a court can decide its merit. However, if the dispute is only on how much is owed (rather than liability itself), then this should be dealt with by the creditor proving their debt in the liquidation and reaching agreement with the liquidator, not put through court.
Contact the company liquidation experts today
If you are a business owner or a creditor concerned about a claim against a company that is either in liquidation or looks like it is heading for liquidation, then we recommend that you speak to an expert as soon as possible about the best ways to protect your position. Contact our friendly team today to have a chat about your options.