Insolvency Quiz for Business and Law Learners

When a company struggles financially, two primary legal paths exist under UK insolvency law: administration and liquidation. Administration focuses on rescuing the company as a going concern, while liquidation winds up operations and sells assets to pay creditors. The choice depends on whether the business is still viable or must cease entirely.

A voluntary liquidation begins when members pass a resolution to dissolve the company under section 84 of the Insolvency Act 1986. An ordinary resolution applies when the company’s fixed duration expires, while a special resolution is needed for other cases. This process enables voluntary winding up without court intervention.

Section 84 IA 1986 defines two voluntary liquidation types: members’ voluntary liquidation (for solvent companies) and creditors’ voluntary liquidation (for insolvent ones). The distinction ensures that solvent companies can distribute assets efficiently, while insolvent ones prioritize creditor repayment under structured supervision.

Section 84 specifically outlines the process for members’ voluntary winding up, where shareholders initiate the liquidation. Unlike compulsory liquidation by court order, this procedure is voluntary and used when the company can meet its debts within 12 months.

Section 84 of the Insolvency Act 1986 governs voluntary liquidation, allowing a company to wind up by resolution of its members. This process provides flexibility for companies that prefer a controlled closure rather than court-imposed dissolution.

A winding-up petition in compulsory liquidation freezes all debt recovery actions, crystallises floating charges, and halts new legal proceedings. Directors lose operational power, and employees are made redundant unless re-employed by the liquidator. The aim is to protect creditor interests and ensure fair asset distribution.

After a court orders compulsory liquidation, a liquidator is appointed to manage asset realization and debt settlement. The process involves selling company assets, settling liabilities, and distributing remaining funds to creditors in priority order as defined by insolvency law.

Administration involves appointing an insolvency practitioner to manage company affairs and property. It offers protection from creditor action, allowing time to restructure or sell parts of the business to preserve value. It was introduced under Schedule 16 of the Insolvency Act 1986 and revised by the Enterprise Act 2002.

The objectives of administration include rescuing the company as a going concern, achieving better outcomes for creditors than liquidation would, and realizing property to pay secured or preferential creditors. This ensures value preservation while prioritizing financial recovery.

An administrator can be appointed by the court, company directors, or a qualifying floating charge holder. Each has specific rights under insolvency law. The process ensures that appointments are legitimate and intended to facilitate corporate recovery or structured winding down.

The court appoints an administrator only if the company is or is likely to become unable to pay its debts and if administration can realistically achieve its objectives. This condition prevents misuse of administration and ensures it serves as a rescue mechanism rather than a delay tactic.

Administration ends when its objectives are achieved or when the administrator is formally discharged by the court. Normally, this occurs within 12 months but may be extended with creditor or court approval. The administrator must notify creditors and the registrar upon discharge to maintain transparency.