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Liquidation and Insolvency (Scotland) - GBW1(s)

January 2008 – version 16

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This booklet is a simple guide to liquidation and other insolvency procedures. It summarises some of the rules that apply to corporate voluntary arrangements, moratoria, administrations , receivers, voluntary liquidations, compulsory liquidations and EC regulations. Please also refer to the relevant legislation, which you will find in the Companies Act 1985 (as amended in 1989 and later), the Insolvency Act 1986, the Insolvency Rules (Scotland) 1986, Insolvency Act 2000, the Enterprise Act 2002, the Insolvency (Scotland) Amendment Rules 2002, the Insolvency (Scotland) Amendment Rules 2003, the Insolvency (Scotland) Regulations 2003, the Act of Sederunt (Sheriff Court Company Insolvency Rules 1986) Amendment 2003, and Council Regulation (EC) No 1346/2000.

The winding up, liquidation, insolvency, cessation of payments and similar procedures that apply to a PLC also apply to a European company, ‘Societas Europaea’ (SE) registered in GB. For general information on SEs, please see our booklet, ‘The European Company: Societas Europaea (SE)’.

Please remember that if your company is considering liquidation, or any other measures to deal with insolvency, you should seek appropriate professional advice or consult an authorised insolvency practitioner.> We can only assist with queries relating to filing statutory documents with the Registrar of Companies..

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CHAPTER 1
General information

1. What are insolvency proceedings?

These are formal measures taken to deal with company debt. There are many different types of company insolvency proceedings. All are covered in this booklet.

Please note: the initiation or termination of insolvency procedures involving a European company (SE), or any decision to continue operating the SE, must be notified to Companies House on Form SE82(1)(b). This is in addition to the other requirements mentioned in this booklet. For more information about SEs, please see our booklet, ‘The European Company: Societas Europaea (SE).

No. If the Registrar has reason to believe that a company is not carrying on business or is not in operation, its name may be struck off the register and dissolved without going through liquidation. A private company that is not trading may apply to the Registrar to be struck off the register. This procedure is not an alternative to formal insolvency proceedings.

More information about striking off and dissolution of a company is available in our booklet, 'Strike-off, Dissolution and Restoration (Scotland)'.

4. Can anyone supervise insolvency procedures?

All liquidators, administrative receivers, administrators and supervisors taking office on or after 29 December 1986 must be authorised insolvency practitioners.

Insolvency practitioners may be authorised by:

• the Chartered Association of Certified Accountants;
• the Insolvency Practitioners' Association;
• the Institute of Chartered Accountants in England and Wales;
• the Institute of Chartered Accountants in Ireland;
• the Institute of Chartered Accountants of Scotland;
• the Law Society;
• the Law Society of Scotland; or
• the Secretary of State for Trade and Industry.

• continuing the company's trading when the company was insolvent;
• failing to keep proper accounting records;
• failing to prepare and file accounts or make returns to Companies House; and
• failing to send in returns or pay to the Crown any tax that is due.

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• the administrator, if there is an administration order;
• the liquidator, if the company is being wound up; or
• the directors, in other circumstances.

Please note: These forms are not available from Companies House. They can be obtained from legal stationers or by visiting the Insolvency website at www.insolvency.gov.uk.

7. Corporate voluntary arrangement moratorium

The Insolvency Act 2000 introduced the option of a moratorium into the existing corporate voluntary arrangement procedures.

The courts decide whether a company is eligible for a moratorium. The moratorium will normally last for a period of 28 days and will be managed by a nominee, who may or may not be a registered insolvency practitioner.

The Insolvency (Scotland) Amendment Rules 2002 came into force on 1 January 2003 and introduced the following statutory forms that are required to be filed with the Registrar of Companies:

Please note: These forms are not available from Companies House. They can be obtained from legal stationers or by visiting the Insolvency website at www.insolvency.gov.uk.

At the end of a moratorium a company may (or may not) proceed to a corporate voluntary arrangement.

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CHAPTER 3
‘In Administration’ and ‘administration orders’

The current law concerning administration was introduced with effect from 15 September 2003. For details of the previous law, see Part 2 of this chapter. Under the new regime, a company will usually be described as being 'in administration' - under the old regime a company would be described as subject to an 'administration order'. We have used these two terms to describe the different regimes.

What follows is a brief outline of the process of administration: it is not a complete statement of the law.

Part 1: Cases beginning on or after 15 September 2003: ‘In administration’

1. What is 'in administration'?

Administration is when a person, ‘the administrator’, is appointed to manage a company’s affairs, business and property for the benefit of the creditors. The person appointed must be an insolvency practitioner and has the status of an officer of the court (whether or not he or she is appointed by the court).

The objective of administration is to:

• rescue a company as a going concern;
• achieve a better price for the company’s assets or otherwise realise their value more favourably for the creditors as a whole than would be likely if the company were wound up (without first being in administration); or
• in certain circumstances, realise the value of property in order to make a distribution to one or more preferential creditors.

2. How does a company enter administration?

A company enters administration when the appointment of an administrator takes effect. An administrator may be appointed by:

• an administration order made by the court;
• the holder of a floating charge; or
• the company or its directors.

When a company enters administration:

• any pending winding-up petitions will be dismissed or suspended;
• there will be moratorium on insolvency and on other legal proceedings;
• if an administrative receiver has been appointed, he or she must vacate office;
• if a receiver of part of the company’s property has been appointed, he or she must vacate office(if the administrator requires this).

As soon as reasonably practicable, an administrator must send a notice of his or her appointment to the company and each of its creditors and publish notice of his or her appointment in the Gazette and in a newspaper in the area where the company has its principal place of business.

What is the Gazette?
The Gazette is the official newspaper of record which contains various statutory notices and advertisements. References to the Gazette are to the Edinburgh Gazette in respect of companies registered in Scotland. It is published twice weekly and can be obtained from The Stationery Office, 73 Lothian Road, Edinburgh EH3 9AW. Visit www.gazettes-online.co.uk for more information.

The administrator must send a notice of his or her appointment to the Registrar on Form 2.11B (Scot).

While a company is in administration, every business document issued by or on behalf of the company or the administrator must state the name of the administrator and that he or she is managing the affairs, business and property of the company.

5. What does the process of administration involve?

The administrator will request a statement of the company’s affairs from relevant people (e.g. an officer or employee of the company).

No later than 8 weeks after the company enters administration, the administrator must make a statement setting out proposals for achieving the purpose of the administration or explaining why they cannot be achieved. The proposals may include a voluntary arrangement or a compromise or arrangement with creditors or members.

• The Registrar of Companies.
• Every creditor of the company with an invitation to an initial creditors' meeting, if one is to be held. The business of the initial creditors meeting will be to approve (with or without modifications) the statement of proposals. Following the initial meeting, the administrator may hold further creditors' meetings, form a creditors committee, or deal with matters in correspondence between the administrator and creditors.
• Every member of the company unless the administrator undertakes to provide a copy free of charge to any member of the company who applies in writing for a copy. Any revisions to the proposals following a creditors' meeting must, likewise, be notified to members.

Decisions taken at creditors' meetings must be reported to the Register of Companies on Form 2.33B(scot) is End of Administration form.

6.When does administration end?

There are several ways in which administration can come to an end.

Administration can end automatically when the administrator's term of office expires and must be notified to the Registrar on Form 2.21B (Scot). The appointment of an administrator expires after 1 year. However, this may be extended with the consent of creditors or the court. Any extension must be notified to the Registrar on Form 2.22B(Scot).

An administrator appointed under a court order may apply to the court to end administration if he or she thinks that the purpose of the administration cannot be achieved or the company should not have entered administration, or a creditors' meeting requires the application. The court will discharge the administration order and the administrator must notify the Registrar on Form 2.24B(Scot).

An administrator appointed by the holders of a floating charge or by the company or its directors may end administration when the purpose of administration has been sufficiently achieved. The administrator must file notice with the court and with the Registrar on Form 2.23B (Scot).

Administration may end on the application of a creditor to the court alleging an improper motive on the part of the person who appointed the administrator or applied to the court for an administration order. The administrator must send a copy of the order with Form 2.33B to the Registrar within 14 days of the order being made.

Administration may end when the company moves into creditors' voluntary winding up. This can happen where the administrator thinks that each secured creditor is likely to be paid and a distribution will be made to unsecured creditors, if there are any. The administrator must notify the Registrar on Form 2.25B(Scot) and send copies to the court and each creditor. The company will then be wound up as if a resolution for voluntary winding up had been passed on the day on which notice is registered with the Registrar.

Administration may end when the company moves into dissolution. This can happen if the administrator thinks that a company has no property with which to make a distribution to its creditors. The administrator must send notice to the Registrar on Form 2.26B(Scot) and send copies to the court and each creditor. 3 months after the date the form is registered with the Registrar, the company will be dissolved unless, on application to the court, an order is made to extend or suspend the period or stop the dissolution. Notice of the order must be notified to the Registrar on Form 2.27B(Scot).

7. Which forms should be used?

The Insolvency Scotland (Amendment) Rules 2003 came into force on 15 th September 2003, and introduced new statutory forms for filing with the Registrar, some of which are listed below:

Please note: These forms are not available from Companies House. They can be obtained from legal stationers or by visiting the Insolvency website at www.insolvency.gov.uk.

'In administration' does not apply to Limited Liability Partnerships (LLP's). LLP's will enter Administration under the old style Administration Order (see part 2)

Part 2: Cases that began before 15 September 2003: Administration orders

1. What was the purpose of the administration order?

Its purpose may have been to:

• save the whole or any part of the company as a going concern; or
• approve a corporate voluntary arrangement; or
• sanction (agree to) a compromise or arrangement; or
• get a better price for the company's assets or otherwise realise their value more favourably than in a winding up.

2. What are the administrator's duties?

As with the current law, the administrator would take control of all the property to which the company was, or appeared to be entitled. He or she would have prepared proposals for achieving the purpose for which the administration order was made and called a meeting of creditors to consider those proposals. If the majority of creditors approved the proposals, the administrator would then manage the affairs, business and property of the company in accordance with the proposals.

3. Would the administrator send anything else to Companies House?

Yes, as now, the administrator would have sent details of the proposals to the Registrar. This would have been done within 3 months after the administration order was made. Then, every 6 months, the administrator must send an account of receipts and payments.

4. When does administration end?

It continues until the court discharges the administration order - in other words, decides that the order is no longer needed. If there is a court order to discharge the order, or to vary its terms, the administrator must send a copy to the Registrar within 14 days after the order was made.

5 Which forms would be used?

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• the company's creditors;
• the holders of a floating charge; and
• any trustees for secured creditors of the company.

• explain the circumstances leading to the appointment of the receiver;
• give information about any action being taken by the receiver;
• include a summary of the statement of affairs prepared for the receiver by the officers or employees of the company.

Please note: These forms are not available from Companies House. They can be obtained from legal stationers or by visiting the Insolvency website at www.insolvency.gov.uk.

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CHAPTER 5
Voluntary liquidation

There are two kinds of voluntary liquidation:

• members' voluntary liquidation (MVL) - which means the directors have made a statutory declaration of solvency;
• creditors' voluntary liquidation (CVL) - which means that the directors have not made such a declaration.

*The liquidation starts when the members, in general meeting, pass a special resolution (Companies Act 1985 or Companies Act 2006) (usually a special resolution) to wind up the company voluntarily.

*Please note, Companies Act 1985 booklet provides general information which could still be relevant to your company.

• advertised in the Edinburgh Gazette within 14 days; and
• sent to the Registrar and AIB within 15 days.

• post a notice of the meeting to each creditor at least 7 days before the date of the meeting;
• advertise the date of the meeting in the Edinburgh Gazette and in 2 newspapers in the area where the company has its principal place of business; and
• prepare a statement of affairs for consideration at the meeting. A copy of the statement must be sent to the AIB within 7 days of the meeting.

Please note: With the exception of form 600, these forms are not available from Companies House. They can be obtained from legal stationers or by visiting the Insolvency website at www.insolvency.gov.uk.

• Forms 600, 4.4, 4.5 and 4.6 to be sent to AIB. ** Forms 4.17, 4.26, 4.27 and 92 to be sent to Companies House Edinburgh and AIB.

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CHAPTER 6
Compulsory liquidation

1. What is 'compulsory liquidation'?

Compulsory liquidation of a company is when the company is ordered by a court to be wound up.

2. Which courts can order a compulsory liquidation?

The Court of Session, or Sheriff Court with the appropriate jurisdiction, may order the winding-up of a company. This may be, for example, on the petition of a creditor or creditors on the grounds that the company cannot pay its debts.

• the company itself;
• the company's directors or one or more members;
• the Secretary of State for Trade and Industry; or
• the Financial Services Authority (formerly the Securities and Investment Board).

In the case of a European company (SE) registered in GB, the Secretary of State may petition the Court for a winding up order on the grounds that it appears that the SE does not have both its head office and registered office in GB. For more information on SEs, please see our booklet, 'The European Company: Societas Europaea (SE)'.

3. Must the petition be advertised?

Unless the court directs other arrangements, the petition must be advertised in the Edinburgh Gazette.

4. What appears on the company record held by Companies House?

If the petition is successful, the company must send Form 4.2 (Scot) and a copy of the winding-up order to the Registrar and AIB straightaway and it will be placed on the company's public record.

The petition itself is not presented to the Registrar so it will not appear on the public records.

5. Who acts as the liquidator when an order is made to wind up the company?

A provisional liquidator may be appointed after the petition is presented. If a winding up order is made, an interim liquidator is appointed. Both the provisional and interim liquidator must notify AIB of their appointments.

6. What are the duties of the interim liquidator?

Within 28 days of the appointment, the interim liquidator investigates the company's affairs and will call meetings of creditors and contributories (that is, those people liable to contribute to the assets of a company in the event of it being wound up). The meetings appoint the official liquidator who must notify AIB within 7 days. If no liquidator is appointed at the meetings, the court appoints a liquidator.

The liquidator must send to AIB a statement of receipts and payments for the first 12 months of liquidation and thereafter every 6 months until the winding up is complete.

7. What happens when the winding-up is complete?

When the Registrar and AIB receive notice from the liquidator of the final meeting that winding-up is complete, the Registrar will register it and publish its receipt in the Edinburgh Gazette.

Unless the Court directs otherwise, the company will be dissolved three months after the notice was registered at Companies House.

Please note: with the exception of form 600, these forms are not available from Companies House. They can be obtained from legal stationers or by visiting the Insolvency website at www.insolvency.gov.uk.

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CHAPTER 7
European cross-border insolvency proceedings

Council Regulation (EC) No.1346/2000 became effective on 31 May 2002. The Regulation is directly applicable and an integral part of each member state’s law (except Denmark where parallel legislation will apply). To implement the Regulation in the UK, it was necessary to make some limited changes to the Insolvency Act 1986 and the Insolvency Rules.

What is the effect of the Regulation?

The Regulation restricts where insolvency proceedings can be opened to the country where the debtor has his “centre of main interests”. It requires insolvency proceedings opened under the Regulation to be recognised, and liquidators to be able to exercise their powers, in all member states.

The relevant company insolvency proceedings covered by the Regulation in the UK are –

• Winding up by or subject to the supervision of the court
• Creditors’ voluntary winding up (with confirmation by the court)
• Administration
• Corporate voluntary arrangements under insolvency legislation

The Regulation does not apply to receiverships – administrative or otherwise – nor to members’ voluntary winding up or to winding-up orders.

As a result of the regulations a number of statutory forms (relating primarily to the opening of insolvency proceedings) have been amended and one new form has been introduced.

1. Companies incorporated in Great Britain

Insolvency proceedings opened in this country will continue as normal. However, insolvency proceedings may be opened in another EU Member State if the company has its centre of main interests there. The public records of companies registered in England and Wales will show insolvency proceedings opened in another Member State of the EU. This will be the only indication that there are insolvency proceedings taking place abroad – the ‘L’ (for liquidation) marker will not appear against the company name on the Registrar’s index of company names.

2. Companies incorporated in other EU member states

Insolvency proceedings may be opened in the UK and be governed by UK law if the company has its centre of main interests here. Alternatively, insolvency proceedings may be opened in another Member State.

The public records of EU companies that have registered a place of business or branch within England and Wales will show insolvency proceedings opened in another Member State of the EU. This will be the only indication that there are insolvency proceedings taking place abroad - the 'L' (for Liquidation) marker will not appear against the company name on the Registrar's index of company names.

EU companies that have not registered a place of business or branch within England and Wales can submit details of insolvency proceedings opened in another Member State of the EU. These documents may be searched on the Register of EC Insolvency Orders by contacting Companies House on +44 (0)303 1234 500.

3. Where can I obtain copies of the relevant legislation and get further information?

Copies of the Council Regulation and relevant UK Statutory Instruments are available on the Insolvency Service web-site (www.insolvency.gov.uk)

Enquiries about the Regulation should be forwarded to the Insolvency Service Policy Unit at
Policy.Unit@insolvency.gsi.gov.uk or telephone 020 7291 6740

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CHAPTER 8
Frequently Asked Questions

Liquidation and other insolvency procedures can be lengthy and complex. This booklet cannot answer every query but these are some of the most frequently asked questions.

1. Do I need to send the Court Order appointing a provisional liquidator to Companies House?

A Form 4.9 (Scot) is completed on the appointment of a Provisional Liquidator and delivered to Companies House Edinburgh. This is required by Rule 4.2 of the Insolvency (Scotland) Rules 1986.

When the Registrar receives a liquidator’s final documentation under sections 201 and 205 of the Insolvency Act 1986, it must be registered straightaway. After a period of approximately three months, the company is dissolved. However, it may be possible to defer the date at which the dissolution is to take effect.

In order to do so, the Registrar must receive either a direction to defer from the Secretary of State (in compulsory liquidation cases – s.205) or an order of court to defer (in voluntary cases – s.201). You should immediately apply for whichever is appropriate. Please note that whilst it may be possible to extend the deferment period by making a further application, it is not possible to shorten it. You should, therefore, select the period of the deferment with care.

We must receive the document in time to allow us to examine and register it before the company is dissolved.

Once a company goes into liquidation and the statutory liquidation documents are registered at Companies House, there is no need to file annual accounts and annual returns. However, until Companies House receives notification that the liquidation has commenced the annual accounts and annual returns will still be deemed to be due.

If the company comes out of Liquidation, via a court order to sist (see below) and is returned to the live companies register then annual accounts and annual returns should then be filed up to date. Failure to comply could result in the company being struck off the register.

Any other queries relating to filing annual accounts and annual returns should be referred to Compliance Section at Companies House by contacting Companies House on +44 (0)303 1234 500.

Companies House will accept correctly completed forms 288b relating to the resignation of directors even if the company has gone into liquidation.

Any other queries relating to filing Forms 288b should be referred to Document Examination Support Section at Companies House by contacting Companies House on +44 (0)303 1234 500.

The Court may make an Order staying, or sisting (meaning, stopping) winding up proceedings, either altogether or for a limited period of time, pursuant to Section 112 and Section 147 of the Insolvency Act 1986.

The Order is to be sent to the Registrar forthwith for entry onto the records relating to the company. The Registrar records the Order onto the public records in the following ways:

• The Order itself is placed on the public record for the company. It is listed as a ‘miscellaneous’ document on the list of documents received by the Registrar.

• The Liquidation status flag is removed from the company’s public record. A searcher will still be able to obtain a copy of the winding up order. In addition, the insolvency details can still be obtained from the insolvency section of the electronic search products.

• Once the stay Order has been recorded, any outstanding accounts and annual returns must be filed, as for any other live and active company. Failure to comply may result in the company being struck off the register.

Companies House is unable to answer this query. Please contact the liquidator.

This information is provided free on the Companies House web-site (www.companieshouse.gov.uk) or by calling +44 (0)303 1234 500.

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1. What happens to documents sent to Companies House?

The documents and forms you deliver to Companies House are scanned to produce an electronic image. The original documents are then stored, and the electronic image is used as the working document.

When your business contacts view the company record, they see the electronic image reproduced on-line. So it is important not only that the original is legible, but that it can also produce a clear copy.

This chapter lays down a few quality guidelines to follow when preparing a document for filing at Companies House.

2. What happens if my documents do not meet the guidelines?

Section 706 of the Act allows Companies House to reject documents that cannot be captured electronically, giving a notice saying why they are unacceptable. An acceptable copy must be delivered within 14 days of the notice (otherwise we treat the original as not having been delivered).

3. How should documents be set out?

Every document delivered to the Registrar must state in a prominent position the registered number of the company, and must comply with any requirements specified by the Registrar relating to the legibility of that document.

Briefly, documents should be on A4 size, plain white paper between 80gsm and 100gsm in weight with a matt finish. Text should be black, clear, legible, and of uniform density. Letters and numbers must not be less that 1.8mm high, with a line width of not less than 0.25mm.

Important: coloured ink can drop out (disappear) when a document is scanned to produce an image. To prevent this - always use black ink to complete and sign all documents.

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1. Where can I go for help?

Staff at Companies House in Edinburgh and AIB will be able to advise you on general matters, but if you are considering liquidation or insolvency proceedings you should seek the advice of an insolvency practitioner or the Insolvency Service.

Complaints about the conduct of a licensed insolvency practitioner should be sent, in writing, to:

The Insolvency Practitioners' Section
The Insolvency Service
Area 1.10
PO Box 203
21 Bloomsbury Street
London
WC1B 3QW

They will then forward the complaint to the practitioner's authorising body.

2. Where do I get forms and guidance booklets?

This is one of a series of Companies House booklets, which provide a simple guide to the Companies Act.

Guidance booklets are available free of charge from Companies House. The quickest way to get them is through our website or by telephoning +44 (0)303 1234 500.  

3. How do I send information to the Registrar?

• Documents, including court orders, should display the correct company name and registration number, where appropriate.
  
• Companies House will only acknowledge receipt if you provide a stamped addressed envelope.
  
• You should supply documents in portrait format (that is, with the shorter edge across the top).

Documents may be delivered by post, by hand (personally or by courier) or bythe Document Exchange service.

The relevant addresses are:

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