Liquidation creditors meetings: what is the process and what really happens?
Prior to entering liquidation
Once we have agreed with the board of directors that a voluntary liquidation is the most appropriate route, we will agree a suitable date and time for the liquidation creditors meetings. This is generally between 9 and 21 days time.
We will send notice to:
- The company’s creditors and shareholders
- The London Gazette (for companies in England and Wales)
Once the notices are submitted:
- The company’s bank accounts will be frozen
- Parties with contracts may issue default notices
- Some suppliers may attempt to have a last ditch attempt to elicit payment from you or try to recover goods previously supplied: all attempts should be resisted and the suppliers should simply be referred to our office
At this stage the company should have completely ceased trading. As a director you should ensure:
- Any staff contracts are terminated. (See our guide to redundancy in liquidation for assistance)
- No further funds are paid from the company account
- The books and records of the company are prepared and ready to be delivered to us
- The assets of the company are protected to be delivered for liquidation
In readiness for the liquidation meetings, our staff will work with you to prepare
- The statement of affairs (a statement of the company’s financial position), and
- The directors’ report (a narrative of the company’s history and reasons for liquidation)
These documents will be put to the creditors at the creditors’ meeting.
The liquidation meetings
Our creditor meetings are held on a remote basis meaning you can attend the meeting by telephone or by SKYPE. Normally between 9 and 21 days notice is given for the meetings, and both the shareholders and the creditors meetings are usually held on the same day; the creditors’ meeting is usually held straight after the shareholders meeting finishes. Our liquidation timeline will give you an idea of how this might work for you.
Meeting of shareholders
This is the first of the two liquidation meetings. Contrary to popular belief it is the shareholders of the company and not its creditors that decide whether a company is placed into liquidation.
The following will happen at the shareholders meeting:
- The statement of affairs and the director’s report will be laid before the shareholders
- A resolution will be passed for the company to be placed into liquidation
- The shareholders will nominate a liquidator to be appointed over the company
In practical terms, one or more shareholders attend by telephone, and those who want to vote but cannot attend will vote by proxy.
The company is placed into liquidation at the shareholders meeting, and the creditors’
meeting follows straight on
Meeting of creditors
Creditors’ meetings now take place in any of the following formats:
- Telephone call or meeting between the director and the liquidator (where no creditors are in attendance)
- Conference call where only a small number of creditors are in attendance.
- A larger meeting using conferencing software where a large number of creditors are in attendance
The creditors’ meeting usually lasts approximately 40 minutes, but if there are complicated issues that arise in discussions with the creditors, this can increase to a couple of hours.
Although we have yet to see this happen, creditors with a large enough vote do have the right to request a physical meeting which can take place at:
- The company’s registered or trading office
- A convenient conferencing facility, particularly for larger meetings
- The liquidator’s office
You, or another director of the company, will be the chair of the meeting however the appointed liquidator will generally conduct the meeting on your behalf.
The following business matters will be covered:
- Any prior relationships between the liquidator and the company will be disclosed
- The statement of affairs and directors report will be laid before the creditors
- Creditors will be invited to ask the directors questions (see below)
- They will be invited to highlight anything they would like the liquidator to investigate
- The creditors may offer alternative nominations for the liquidator
- They may decide to form a liquidation committee
- If no committee is formed, resolutions may be passed to agree the liquidator’s remuneration
Questions from creditors
The questions must be topical and must be linked to the company which is being placed into liquidation. You should attempt to answer any questions in a professional manner and try to answer the points raised by the creditors. The liquidator will intervene if the line of questioning becomes inappropriate, as creditors are also expected to conduct themselves in a professional manner. (Any threats of violence or bad language are grounds for being ejected from the meeting.)
Creditors may choose to have a solicitor or insolvency practitioner attend the meeting to raise questions on their behalf. Likewise, a director may choose to have their solicitor present to advise them in relation to their answers. In practical terms, we try to guide the meetings so that there is a fair balance reached between directors and creditors concerns.
A liquidator is required to investigate the actions of the directors of the company prior to liquidation. As a part of this investigation, the liquidator will ask the creditors if there are any matters they would like to raise for investigation.
Many creditor’s concerns will have a straightforward explanation, however, if there is an action you are concerned about you should discuss it with us as soon as possible.
Nominations for Liquidator at the creditors meeting
Creditors may choose to nominate another person to act as liquidator at the meeting instead of the shareholders’ choice. Although this is quite rare, creditors may choose to do this for a number of reasons:
- They may have a contractual agreement to do so in exchange for representation at the meeting
- If they believe their choice of liquidator has a particular area of expertise to increase realisations
- They believe a creditor chosen liquidator may be more objective
The liquidator is chosen by whoever gets more than 50% of the vote of the creditors at the meeting.
It’s possible that if three or more creditors are represented at the meeting, they may choose to form a liquidation committee. The purpose of a liquidation committee is to:
- Represent the interests of creditors as the whole
- Approve the liquidator’s fees
- Act as a sounding board for the liquidator on matters of contention
The meeting will end at this point if a committee is formed.
If no committee is formed, we will often seek to establish the basis of the post-liquidation fees at this stage. Please note that the directors are not liable for these, rather they are payable out of any assets that are realised within the liquidation. If no further assets are realised, no further fees are drawn regardless of the resolution passed.
Closure of the creditor’s meetings
Once all of the above resolutions have been dealt with, the meeting will be brought to a close. We need to make sure the chair has signed all of the documents for the meeting at this stage. If the meeting was held remotely, the director will need to immediately provide the documents signed to our office.
Although meetings are of course particular to each case, the above should give you a clearer idea of what to expect. However, if you have any questions, contact one of our business rescue experts directly.