Monday, February 02, 2015
It’s all in the timing
What have MVLs and Administrations got in common from a reporting perspective? Quite simply, if you have not closed the case by the date that triggers the requirement to issue a progress report, then the legislation requires you to prepare one, even if you have started the closure process. Contrast that to the treatment in CVLs, where as long as you issue a draft final report before the anniversary date, you do not have to issue the progress report at all.
Dealing with Administrations first, rule 2.47 sets out the reporting requirements and makes it clear that a progress report is required for each 6 month reporting period up until the Administrator ceases to act, albeit that you then have 1 month to issue it. You need to bear that requirement in mind when deciding when to bring an Administration to an end, as not having ceased to act by a 6 month reporting date means that you will need to prepare a progress report to that reporting date.
The same issue arises when the Administration has been extended, and this is the area that we most often see this cause problems. Rule 2.47(3B) says that where you have issued a report to extend an administration, the period end in that report starts your next 6 month reporting period. Since you will usually be seeking a six or 12 month extension and you have to ask before the period expires, that always means that there will be a progress report due just before expiry of the extension. So, if you do not close the case early enough before the end of the extension you will have to issue both a progress report and also a final report for the period to closure, including a short period from the progress report end date to the final closure date.
The problem is that you are often not in control of the timing of the ending of the Administration, unless it comes to an end automatically by effluxion of time. Where you exit by way of conversion to CVL (para 83) you are entirely dependent upon the timing of the registration of the notice of move to CVL by Companies House. Since that can take several days, you need to factor in that delay when deciding upon the timing of the exit, sending the notice sufficiently in advance of the 6 month reporting date to ensure that Companies House register it before that date.
Similar considerations apply when you exit by way of dissolution (para 84), or by way of a couple of less common routes, namely by giving notice that you have achieved the purpose of the Administration (para 80), or by way of Court Order (para 79). In the first two you are dependent upon the timing of the registration of the notice by Companies House in the same way as when moving to CVL, whilst in the latter you are dependent upon the hearing date set by the Court, which could still end up being adjourned in any event.
In MVLs section 92A requires a progress report to be prepared if the liquidation continues for more than 1 year, and rule 4.49C(7) gives the liquidator 2 months to issue it. If the liquidator is still in office as at the anniversary of their appointment they will need to issue one. The requirement for a liquidator to issue an annual progress report ends when they cease to act, which on closure of the case will be when the final meeting has been held and a Form 4.71 has been sent to Companies House (section 171(6)). So even if the notice of the final meeting is issued prior to the anniversary date, then where the meeting is not actually held until after the anniversary date there will still be a requirement to issue an annual progress report. As a result, you need to take into account the anniversary date of your appointment when setting the date of the final meeting in order to avoid having to prepare an additional report.
These comments in respect of MVLs will definitely apply where the date of commencement of the liquidation and the date of appointment of the liquidator are one and the same, which is the most common situation, and also where the liquidator is removed or replaced, say by way of a block transfer, once the first anniversary of the liquidation has passed. However, where the liquidator is removed during the course of the first year of the liquidation then the position is less certain in view of the imprecise wording of the legislation and the conflicting guidance received from the Insolvency Service, such that it is uncertain as to whether it is the date of the liquidation or the date of the liquidator’s appointment that is the key date by which the final meeting has to have been held. We have previously Blogged about this and you can read the most recent article by clicking here.
In summary, therefore, whenever you are planning the closure of an Administration or MVL, you should try to make sure it is closed before the progress report period end to avoid having to produce the progress report and a more complicated final report with additional short period disclosure. Remember that in Administration, that may mean allowing extra time for the Court or Companies House to conclude their part of the process.