What is the court liquidation process and who can start the procedure?
Company liquidation in Scotland is still often initiated by the directors, even though it utilises the court process. It is the directors who effectively start the court liquidation process.
Typically, the first step will be for the directors to put a special resolution to the shareholders that the company be wound up through the court liquidation process. At this stage, they will need to consider who to appoint as interim liquidator and whether it is necessary to appoint them initially as provisional liquidator. When a company enters liquidation in Scotland, the Official Receiver will not take office as liquidator. Therefore, it is necessary to instruct a licensed insolvency practitioner to oversee the matter.
Where do I present the winding up petition?
Once the resolution has been passed, it is necessary to instruct a solicitor to prepare and file the petition.
Only a company that is either registered in Scotland or has its centre of main interests in Scotland can enter liquidation in Scotland. There are two options for where to present the petition:
- The Sheriff court local to the company (based on the last 6 months).
- The court of session in Edinburgh.
There is often an option to use the court of session in Edinburgh. However, this will always need to be the case if the company share capital is greater than £120,000.
What happens when the petition is presented?
Once a petition for liquidation is presented to the court and has been accepted, a copy of it will be, literally, placed on the walls of the court. The petition will also be advertised in the next edition of the Edinburgh Gazette and in local newspapers. Notice will be served on the company, and there will need to be a minimum of 8 days before the court will consider the winding up order.
This is also the opportunity to appoint a provisional liquidator. Due to the increased use of the court liquidation process, provisional liquidators are much more common in Scottish liquidation. They can be appointed where:
- The company assets need to be safeguarded.
- There are perishable goods which need to be dealt with.
With the consent of the court, a provisional liquidator can also be used to facilitate a pre pack sale of the company’s assets. The court will effectively rubber-stamp whether the pre pack sale should go ahead, and whether it represents the best possible value for creditors.
The winding up order
For liquidation in Scotland, there is no fixed date when the winding up petition will be considered unless the petition is defended. After the expiry of the 8 day period, the instructed solicitor can go back to court to request the winding up order be made. At this point, the interim liquidator will be appointed and take control of the company affairs.
If a provisional liquidator has been in office, their appointment will come to an end when the winding up order is made. However, usually, the provisional liquidator will become the interim liquidator. The date of the liquidation will be backdated to the date the petition was presented. The interim liquidator will then require you to provide them with a Statement of Affairs within 21 days and will provide you the form to do this.
The interim liquidator will write out to creditors arranging an initial meeting within 28 days of being appointed. You will not be required to attend this meeting unless the interim liquidator requires you to do so, which will rarely be the case. At the meeting, the liquidator who will oversee the remainder of the case will be appointed. Again, this will usually remain the interim liquidator unless creditors decide otherwise.
The court liquidation process in Scotland is very streamlined, making it the preferred option for winding up a company. In addition, it is not uncommon for a court to ratify a pre pack sale using a provisional liquidator. If there are no further issues once a liquidator has been appointed, the matter can often be finalised quickly through early dissolution.
In terms of the cost of liquidating your company, this will depend on the complexity of the case. It can start from insolvency practitioner costs of £2,500 plus VAT and disbursements, in the region of £1,300 depending on your locality. If you would like to find out more about liquidation in Scotland or the court liquidation process, please contact one of our business rescue experts.