It is vital for both directors and shareholders to understand their roles and responsibilities if a company goes into liquidation. Our expert legal advice help minimise the risk of personal claims and reduce potential losses. Call us today.
In a compulsory liquidation the company is insolvent. As such
- the shareholders will no longer have control over the company. All control passes instead to the liquidator and the creditors. This can be contrasted with a members’ voluntary liquidation, which is a solvent liquidation where the shareholders can appoint their own liquidator;
- in an insolvent liquidation, such as compulsory winding up, then the creditors’ rights are paramount, not the shareholders;
- it is no longer possible for shares in that company in liquidation to be transferred unless shareholders can obtain consent of the liquidator. Shareholdings must remain in place.
In any insolvent liquidation process such as compulsory liquidation, all the assets are gathered for the company and are used to pay the creditors owed money by the company. Because the company is insolvent it is unlikely that there will be enough money to repay all creditors including interest. As a result, it is unusual in an insolvent liquidation that shareholders will receive any of their shareholding back. However, this is not unheard of. For example, in the Lemans liquidation, assets collected were enough to repay all creditors with a surplus back to the shareholders. This is however quite an unusual situation.
Directors position on a compulsory liquidation
As soon as the company is wound up by the court, it ceases to trade, and a liquidator is appointed over the company.
- once a winding up order has been made and the liquidator appointed, the directors’ role is ended. They can no longer dictate what happens within the company;
- however, it is very important that directors cooperate with the liquidator in the liquidation. It is only the directors who will know the full details of the company’s ins and outs and it is important that they liaise with the liquidator to help them gather in assets in order to repay creditors;
- a liquidator must, by law, make a report on the conduct of directors. This relates not only to the conduct of directors when they ran the company prior to the winding up order, but also extends to their conduct following and during the liquidation.
- lack of cooperation with the liquidator and hiding assets and paperwork can lead to a director facing disqualification as a company director for anywhere between 2 and 15 years, depending on the magnitude of the misconduct.
In any event, directors retain duties over the company and should be willing to help the liquidation to be completed as quickly as possible, which usually means with less expense, and to allow for creditors to be paid as far as possible. This can benefit directors who may wish to continue to trade with particular creditors in the future by maintaining goodwill.
Our team of liquidation experts at Francis Wilks & Jones deal with all aspects of liquidation on a daily basis, including the impact on directors and shareholders. If you are a director or a shareholder of a company in liquidation, contact us to discuss your roles and duties further to protect your position.