A liquidator appointed by shareholders or by the board is chosen by the people whose company has failed. Sections 293 to 295 of the Companies Act 1997 give the creditors a chance to change that.
Section 293 — the meeting and its purpose
(a) where the liquidator was appointed by shareholders or the board — of resolving whether to appoint another liquidator in place of that liquidator;
(b) where the liquidator was appointed by the Court — of resolving whether to apply to the Court for the appointment of a liquidator in place of that liquidator;
(c) in either case, of determining whether to pass a resolution for the purposes of section 308(1)(b).
(2) Written notice to every known creditor — given with the report and notice under section 305(2)(c) where that applies, and forthwith where a creditor has required a meeting under section 295(1)(b)(iii).
(3) Public notice not less than five days before the meeting.
(4) The meeting shall be held within one month of the appointment, or within such longer period as the Court may allow.
(5) Every meeting shall be held in accordance with Schedule 7.
Where the liquidator was appointed by shareholders or the board and the creditors resolve to appoint someone else, that person — subject to the section 330 consent requirement — becomes the liquidator (s 293(6)). No Court order is needed.
Where the liquidator was appointed by the Court, the creditors cannot replace them directly. The liquidator must forthwith apply to the Court for the appointment of the person resolved on, and the Court may appoint that person if it thinks fit (s 293(7)).
Under section 293(1A), where a shareholder or board appointment is not confirmed at the meeting and no replacement is appointed, the original liquidator continues in office until another is appointed. The company is not left without one.
Section 293(8) — the solvent liquidation exception
Nothing in section 293 applies to a liquidator appointed by shareholders or the board where, within one month before the appointment, the board resolved that the company would, on the appointment, be able to pay its debts as they become due in the ordinary course of business, and a copy of the resolution is submitted to the Registrar for registration.
The directors who vote in favour shall forthwith sign a certificate stating that opinion and the grounds for it. A director who fails to do so commits an offence, penalty under section 413(1).
Where a company is solvent and is being wound up simply to bring its life to an end, creditors will be paid in full and have nothing to decide. The board’s declaration — resolution, certificate, and filing within the one-month window — removes the meeting requirement.
The certificate carries real exposure. Under section 152(5), signing a certificate required by this Act without reasonable grounds is conduct that is unfairly prejudicial. And section 294 gives the liquidator a duty to act on it if the declaration proves unfounded.
A liquidator who was not required to call a meeting because of section 293(8) shall forthwith call one where satisfied that —
(a) the directors who voted in favour of the resolution did not have reasonable grounds for their belief; or
(b) the company is not able to pay its debts as they become due in the ordinary course of business.
Section 295 — dispensing with the meeting
(a) the liquidator considers, having regard to the assets and liabilities of the company, the likely result of the liquidation, and any other relevant matters, that no such meeting should be held; and
(b) the liquidator gives written notice to the creditors stating (i) that view, (ii) the reasons for it, and (iii) that no meeting will be called unless a creditor gives written notice requiring one within one month after receiving the notice; and
(c) no such notice is received within that period.
Notice under paragraph (b) goes to every known creditor — either together with the report and notice under section 305(2)(c), or, where that paragraph does not apply, at the time the report would have been due (s 295(2)).
In most insolvent liquidations there are no assets, no prospect of a dividend, and no purpose in convening creditors who will not be paid. Section 295 lets the liquidator say so in writing, with reasons, and put the burden on any creditor who disagrees to demand a meeting within one month.
A single creditor’s written notice is enough. It is worth using where creditors suspect the liquidator was chosen to avoid scrutiny — the same concern that produced section 291A.
Section 295A — when a related creditor swings the vote
(a) a resolution at a meeting of creditors was passed, defeated, or required to be decided by a casting vote; and
(b) it would not have been if the votes of a particular related creditor or creditors were disregarded; and
(c) the outcome (i) is contrary to the interests of the creditors, or a class of creditors, as a whole; and (ii) has prejudiced, or is reasonably likely to prejudice, the interest of a creditor who voted the other way to an unreasonable extent, having regard to the benefits accruing to the related creditor, the nature of the relationship, and any other related matter.
On the application of the liquidator or a creditor: (a) that the resolution be set aside; (b) that a new meeting be held; (c) that specified related creditors must not vote on the resolution or on one to vary or amend it; and (d) any other orders the Court thinks necessary.
A promoter (as defined in the Securities Act 1997), a relative or spouse of a promoter, and a relative of a promoter’s spouse; a director or shareholder, their spouse, and a relative of that spouse; a related company; a beneficiary under a trust of which the company is or has been trustee, and that beneficiary’s relatives and spouse; a company sharing a director with the company in liquidation; and a trustee of a trust under which a related entity is a beneficiary.
Directors who lend to their own company are creditors, and their votes can decide who investigates them. Section 295A is the answer.
Sections 362 and 363 — meetings and liquidation committees
Section 362 governs meetings of creditors or shareholders during the liquidation generally; section 363 provides for a liquidation committee, whose proceedings are governed by Schedule 11. A committee gives creditors continuing input without the cost of repeated meetings, and under section 324 it has a role in fixing the liquidator’s remuneration.
The committee’s actual out-of-pocket expenses necessarily incurred are payable in the first tier of the Schedule 9 priority order, alongside the liquidator’s own fees and expenses.
Under section 308 a liquidator must have regard to the views of creditors and shareholders. Section 293(1)(c) is the hook: the first meeting may pass a resolution for the purposes of section 308(1)(b), by which creditors direct the liquidator’s attention to matters they want considered. That is discussed with the liquidator’s duties.
Sources
- Companies Act 1997 — ss 152, 291A, 293–295A, 305, 308, 324, 330, 362, 363, 413; Schedules 7, 9 and 11
- Securities Act 1997 — s 2(1), definition of “promoter”
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.