Part XVIII of the Companies Act 1997 is the Act’s longest Part. It governs what happens when a company’s life is brought to an end and its assets are collected in and distributed.
Section 291 — how a liquidation begins
(1) A company may be put into liquidation by the appointment as liquidator of a named person.
(2) A liquidator may be appointed by —
(a) special resolution of those shareholders entitled to vote and voting on the question; or
(b) the board of the company on the occurrence of an event specified in the constitution; or
(c) the Court, on the application of the company, a director, a shareholder or other entitled person, a creditor (including any contingent or prospective creditor), or the Registrar.
(4) The liquidation commences on the date on which the liquidator is appointed.
Under this Act a liquidation is constituted by the appointment of a named person, not by an order that the company be wound up. A Court application under paragraph (c) therefore asks the Court to appoint a liquidator, and must name someone who has consented under section 330.
Note also that a special resolution under paragraph (a) is passed by 75% of the votes of those entitled to vote and voting — see section 2. Shareholders who do not vote are not counted.
Section 291(3) — the grounds for a Court appointment
(a) the company is unable to pay its debts as they become due in the ordinary course of business; or
(b) the company or the board has persistently or seriously failed to comply with this Act; or
(c) the company does not comply with section 11 (the requirement that a company have at least one shareholder); or
(d) it is just and equitable that the company be put into liquidation.
Paragraph (d) is the flexible one. It covers deadlock between equal shareholders, the loss of the substratum — the business the company was formed to carry on has become impossible — and the breakdown of a relationship of mutual trust in a quasi-partnership company.
It overlaps with the section 152 unfair prejudice remedy, and the Court will generally consider whether the less drastic relief available under section 153 — a buy-out, an order regulating the company’s affairs — would meet the case. Note that section 153(1)(g) expressly includes an order putting the company into liquidation among the remedies for unfairly prejudicial conduct.
Section 291A — no shareholder appointment after an application is filed
Where an application has been filed for a Court appointment under section 291(2)(c), a liquidator may be appointed under section 291(2)(a) or (b) only if appointed within 10 working days after service on the company of the application.
Where one is so appointed, the creditor who filed the application may apply to the Court under section 331 for review of that appointment, as if the words “successor to a liquidator” in section 331 read “liquidator”. The restriction ceases once the application has been finally disposed of.
This closes an old abuse. Faced with a creditor’s application, a board could once install a friendly liquidator of its own choosing. Section 291A confines that to a short window and subjects it to review.
Section 291B — the date and time must be recorded
(1) The date and the time of the appointment must be recorded — in the special resolution, in the board’s instrument of appointment, or in the Court’s order, as the case may be.
(2) Where a question arises whether an act was done or a transaction entered into before or after the time of appointment on that date, it is, in the absence of proof to the contrary, deemed to have been done after that time.
The same rule applies to an interim liquidator under section 296(5) and (6). The presumption matters because so much turns on the moment of commencement — the four-month wage priority in Schedule 9, the specified period for voidable transactions, and the section 298 restrictions below.
Section 298 — the effect of commencement
(a) the liquidator has custody and control of the company’s assets;
(b) the directors remain in office but cease to have powers, functions, or duties other than those required or permitted by this Part;
(c) unless the liquidator agrees or the Court orders otherwise, a person shall not (i) commence or continue legal proceedings against the company or in relation to its property, or (ii) exercise or enforce a right or remedy over or against property of the company;
(d) unless the Court orders otherwise, a share shall not be transferred;
(e) an alteration shall not be made to the rights or liabilities of a shareholder;
(f) a shareholder shall not exercise a power under the constitution or this Act except for the purposes of this Part;
(g) the constitution shall not be altered.
Subsection (1) does not affect the right of a secured creditor, subject to section 353, to take possession of, and realise or otherwise deal with, property of the company over which that creditor has a charge.
This is the same theme that runs through the whole Act: the statutory moratorium binds unsecured creditors, not chargeholders. A receiver may still be appointed or continue to act under section 280, unless the Court orders otherwise.
Section 353 is the condition attached: a secured creditor must elect between realising its security, valuing it and claiming for the balance as an unsecured creditor, and surrendering it to the liquidator.
Paragraph (b) is often misread. Directors are not removed — they remain in office, stripped of powers. That matters because obligations continue to attach to them: to make records and information available under section 311, to identify and give up company property under section 322, and to answer for insolvent trading under sections 348 and 348A.
Section 292 — two or more liquidators
Section 290(2) confirms that a power to appoint a liquidator includes the power to appoint two or more persons. Under section 292 they shall act jointly unless the special resolution, the board resolution, or the Court order appointing them states that they may exercise their powers individually. Compare section 258(2), where joint receivers may act severally unless the document says otherwise — the default is the opposite way round.
Section 299 — when a liquidation is complete
(a) complies with section 307(1)(b) — sending the final report and accounts and notifying the Registrar; or
(b) submits to the Registrar for registration a certified copy of an order under section 307(2)(a), or a certified copy of an order under section 307(2)(b) together with the documents required to comply with it.
Completion is not the end of the company’s legal existence. Under section 366, the Registrar removes a company from the register once the liquidation is complete — and it is removal, not completion, that dissolves it.
A liquidation can also be stopped. Under section 300 the Court may, on the application of the liquidator, a director, a shareholder or other entitled person, a creditor, or the Registrar, terminate the liquidation — discussed with the Court appointment provisions.
Sources
- Companies Act 1997 — ss 2, 11, 152, 153, 280, 290–292, 291A, 291B, 296–300, 307, 311, 322, 330, 331, 348, 353, 366; Schedule 9
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.