Two of the three routes into liquidation are internal — a shareholders’ special resolution, or a board resolution on an event in the constitution. The third is an application to the Court under section 291(2)(c) of the Companies Act 1997.
Who may apply
The Court may appoint a liquidator on the application of —
the company; a director; a shareholder or other entitled person; a creditor of the company, including any contingent or prospective creditor; or the Registrar.
Standing does not require a presently due debt. A person holding a guarantee that has not yet been called, a claimant in unresolved litigation, or a landlord with future rent may apply. That is consistent with the definition of creditor in section 290, which picks up anyone who would be entitled to claim under section 351.
A secured creditor counts as a creditor for section 291(2)(c) — section 290(1) says so expressly — as it does for sections 297, 300 and 337. For most other purposes a secured creditor is a creditor only to the extent it claims as unsecured under section 353.
The four grounds in section 291(3) are inability to pay debts, persistent or serious failure to comply with the Act, non-compliance with section 11, and the just and equitable ground.
Section 296 — the interim liquidator
(1) Where an application has been made to the Court for an order that a company be put into liquidation, the Court may, if satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, appoint a named person as interim liquidator.
(2) An interim liquidator has the rights and powers of a liquidator to the extent necessary or desirable to maintain the value of those assets.
(3) The Court may limit those rights and powers as it thinks fit.
(4) to (6) The appointment takes effect on the date and at the time the order is made; the Court must record both; and an act on that date is presumed, absent proof to the contrary, to have occurred after that time.
The purpose is confined: maintaining the value of assets owned or managed by the company. An interim liquidator is appointed where assets are being dissipated, stock is perishing, a business needs to keep trading to retain value, or records are at risk — not to begin distributing to creditors.
Note that “liquidator” in section 290(1) includes an interim liquidator, so the qualification, consent, supervision and reporting provisions apply to one.
Section 297 — stopping proceedings in the meantime
At any time after the making of an application under section 291(2)(c) and before a liquidator is appointed, the company or any creditor or shareholder may —
(a) in the case of an application or proceeding against the company pending in the Court or the Supreme Court, apply to that court for a stay; or
(b) in the case of any other application or proceeding pending in any court or tribunal, apply to the Court to restrain it,
and the court may stay or restrain the proceeding on such terms and conditions as it thinks fit.
Section 297 fills the gap before commencement. Once a liquidator is appointed, section 298(1)(c) takes over automatically: no proceedings may be commenced or continued without the liquidator’s agreement or the Court’s leave.
Sections 301 and 302 — creditors who have already levied execution
A creditor is not entitled to retain the benefit of any execution process, distress, or attachment over the property of a company unless it is completed before —
(a) the passing of the special resolution under section 291(2)(a), or the date the creditor had notice of the calling of a meeting at which such a resolution was proposed, whichever occurs first; or
(b) the passing of the board resolution under section 291(2)(b), or notice of the calling of that meeting, whichever occurs first; or
(c) the making of an application to the Court under section 291(2)(c).
(a) execution or distraint against personal property — by seizure and sale;
(b) attachment of a debt — by receipt of the debt;
(c) execution against land — by sale, and in the case of an equitable interest, by the appointment of a receiver.
A creditor whose bailiff has seized goods but not sold them, or who has served a garnishee order but not received the money, has not completed the process. If the company goes into liquidation, the benefit must be given up.
Note the “whichever occurs first” rule in paragraphs (a) and (b). A creditor who learns that a meeting has been called to appoint a liquidator cannot rush to complete: the clock stops at the notice, not the resolution.
Two people are protected under section 301(2): a person who in good faith purchases property from an officer charged with an execution process, and a person who in good faith purchases property on which distress has been levied. Each acquires good title as against the liquidator. Under section 301(3) the Court may set aside the operation of subsection (1) on such terms as it thinks fit, and under subsection (5) nothing in the section limits section 340.
(1) Where property is taken in an execution process and, before completion, the officer charged with it receives notice that a liquidator has been appointed, the officer shall, on being required by the liquidator, give or transfer the property and any money received to the liquidator.
(2) The costs of the execution process are a first charge on what is transferred, and the liquidator may sell some or all of the property to satisfy that charge.
(3) Where property is sold in an execution process on a judgment exceeding K500 (or such other amount as may be prescribed), or money is paid to the officer to avoid a sale, the officer shall retain the proceeds for one month.
(4) Where within that month the officer has notice of a meeting called to appoint a liquidator, or of a Court application, and the company is put into liquidation, the officer shall deduct the costs of the execution and pay the balance to the liquidator.
(5) The liquidator is entitled to retain that money as against the execution creditor.
Under section 302(6) the Court may set aside the application of these provisions on such terms as it thinks fit. The scheme reflects the central principle of a liquidation: the assets are distributed according to the statutory order, not to whichever creditor moved fastest.
Section 300 — terminating a liquidation
(1) The Court may, at any time after the appointment of a liquidator, if satisfied that it is just and equitable to do so, make an order terminating the liquidation.
(2) Applicants: the liquidator, a director or shareholder or other entitled person, a creditor, or the Registrar.
(3) The Court may require the liquidator to furnish a report on any relevant facts or matters.
(4) The Court may make such other orders as it thinks fit in connection with the termination, then or later.
(5) The applicant shall, within one month, submit a certified copy of the order to the Registrar — failure is an offence under subsection (7), penalty under section 413(2).
(6) On the order being made, the company ceases to be in liquidation and the liquidator ceases to hold office, from the making of the order or such other date as it specifies.
Typically where the debts have been paid or a compromise has been approved — note that a liquidator may propose one under section 242(1)(c) — where the liquidation was commenced on a mistaken view of solvency, or where a disputed debt underlying a Court appointment has been resolved.
It is discretionary and the standard is just and equitable. The Court will want to be satisfied that creditors are protected, that the company can meet its obligations going forward, and that the section 298 restrictions have not left transactions in doubt.
Sources
- Companies Act 1997 — ss 11, 242, 290, 291, 296–302, 337, 340, 351, 353, 413
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.