With the exception of the final CT bill, where there can be some benefit for the members in paying it post-appointment, it is usually preferable for the directors to get everything paid off before the winding up resolution. Not only does it save you work but it also saves the members money in that they do not have to pay statutory interest out of the funds that would otherwise be returned to them. Further, it will mean that you are able to distribute the company funds to the shareholders much more quickly. There will always be cases however where there are some residual liabilities which have not been paid. Often it will be the CT for the final period to the date of the liquidation. Remember that if you do end up paying the CT in the liquidation earlier than the normal due date, you can then use rule 14.44 which is explained below. However, there will also be cases where there are residual utility bills which require payment or, where the directors have simply overlooked an outstanding invoice.
As you aware, you are required to Gazette the winding up resolution and your appointment within 14 days of appointment. For reasons which will become apparent later, it also makes sense to Gazette a notice inviting creditors to submit their claims at the same time. Within 28 days of appointment you should then send notice of your appointment to all creditors of whom you are aware.
When the directors swear the declaration of solvency, they do so having made a declaration to the effect that they have made a full inquiry into the company’s affairs and that, having done so, they have formed the opinion that the company will be able to pay its debts in full, together with statutory interest, within a period not exceeding 12 months from the commencement of the winding up. Section 189 states that any surplus remaining after the payment of the debts proved in a winding up shall, before being applied for any other purpose, be applied in paying interest on those debts in respect of the periods during which they have been outstanding since the company went into liquidation. Remember also that section 189 defines statutory interest as “whichever is the greater of the rate specified in section 17 of the Judgements Act 1838 on the day on which the company went into liquidation, and the rate applicable to the debt apart from the winding up”. So, if the contractual interest payable on the debt is higher than 8%, you will need to pay that rate instead. There may be cases where a creditor has waived their right to receive payment of statutory interest, but you need to ensure that you get this confirmed in writing so that the waiver can be evidenced on your case file. The most common situations we see where that arises are where the directors are creditors and they don’t want to receive statutory interest, or where the IP or the referring accountant are owed pre-appointment fees that were approved by the directors but remained outstanding when the winding up resolution was passed. The referring accountant will usually want to keep the members sweet and waive statutory interest, while the IP has to waive the interest to avoid the ethical problem that would arise if they profit from their own delay in making the payment.
Clearly, unless the creditors have waived their right to it, you will want to pay any outstanding liabilities as quickly as possible in order to minimise the level of statutory interest payable. Indeed, if you do not you could be subject to criticism and potentially a complaint by the members. When paying creditors, don’t forget that if the debt is being paid before the due date, you should discount the amount payable in accordance with rule 14.44. The formula you should use is;
X
1.05ⁿ
1.05ⁿ
where “x” is the value of the admitted proof, and “ⁿ” is the period beginning with the relevant date, which is the date of the passing of the winding up resolution, and ending with the date on which the payment of the creditor’s debt would otherwise be due, expressed in years (and part of a year being expressed as a decimal fraction of a year).
We have been recently considering the correct process for declaring a dividend in an MVL. Rule 14.3(1)(b) says that a creditor in an MVL need only submit a proof if required by the liquidator. However, rule 14.29 says that the liquidator must send a notice of intended dividend or distribution to all creditors who have not proved, and there are no statutory exceptions to that rule. In addition, rule 14.28 states that where the officeholder intends to declare a first dividend or distribution, he must Gazette a notice of his intention to do so unless he has previously Gazetted a notice inviting creditors to prove their debts. Again, there are no statutory exceptions to that rule.
Rule 14.28 is easily dealt with by Gazetting for claims on appointment as indicated above. However the interaction between the other two rules appears to mean that if the liquidator has agreed that they do not need creditors to lodge a proof under rule 14.3, they still have to issue a notice of intended distribution to those creditors under rule 14.29, unless they have actually lodged a proof! The problem is compounded by rule 14.34, which says that the liquidator must declare the dividend within 2 months of the last date for proving, which potentially means that the liquidator cannot declare it before the last date for proving. That regime just does not work in practice in MVLs where the aim is to pay all creditors without delay in order to minimise the level of statutory interest payable. Sealy & Milman suggests that the notice of intended dividend issued under rule 14.29 is a “last chance to claim” reminder, so if there has been no previous requirement to prove, then the reminder would be unnecessary.
So, where does that leave us? We can see two different scenarios in MVLs. The most common scenario is where the company is clearly solvent and it is just a matter of tidying up a few small creditors, and the less frequent scenario where the company is ostensibly solvent, but where there are potential problems, say with an inability to agree the outstanding tax lability with HMRC, a pension scheme where a contribution might be required, or with contingent or disputed creditors.
In the first scenario, we cannot see that you will be criticised for paying creditors as soon as you have agreed their claims, whether submitted on a formal proof or by way of copy invoices, statement of account, or some other means, in order to minimise statutory interest payable, and without issuing a notice of intended dividend. Indeed, you would leave yourself open to a complaint from a member if you did go through the formal process of issuing a notice of intended dividend and then delayed making a distribution until after the last date for proving had passed. So, what documentation should you have on the file? Assuming that such an approach is possible, then one suggestion would be to declare a dividend on day one. There is no requirement for a dividend to be paid on the day that it is declared, although in practice that will usually be the case in other case types. Instead, you can pay the dividend as and when the claims are received from creditors and agreed. When you pay creditors, prepare and issue a notice of declaration of dividend to them. The notices will always show the original date for the declaration of dividend, but each one would differ slightly as regards the total amount distributed, being the total amount distributed to date, and the amount retained to provide for known claims that have not been paid to date. As suggested above you should Gazette for claims on appointment.
In the second scenario, it is safest to go through the formal process of issuing a notice of intended dividend to all known creditors and either Gazette for claims on appointment or Gazette the notice of intended dividend. If the notice of intended dividend is Gazetted then it needs to include the additional wording required by rule 14.28(1)(c), indicating that the distribution may be made without regard to the claim of any person in respect of a debt not proved. Claims are then agreed, or provided for, in the normal way and once the last date for proving has passed a first and final dividend is declared, assuming that a dividend of 100p in the £ with statutory interest can be paid. If it cannot, then conversion to CVL will follow.
Finally, as with all decisions made on cases, in order to comply with regulation 13 of the IP Regulations 2005 and SIP 1, prepare a file note explaining the reasons for the approach that you take.
