CM December 2023

INSOLVENCY
TIMED OUT
Can a company really go into liquidation
in a matter of days?
AUTHOR – Giuseppe Parla
IF Directors of an insolvent
business wish to initiate a
Creditors’ Voluntary Liquidation
(CVL), the first step will be for the
board to engage an insolvency
practitioner. However, there are
clearly defined procedures that must be
followed. So what do creditors need to
know?
Most credit managers are familiar
with this type of insolvency scenario. A
business that owes them money is on the
brink of insolvency and the Directors want
to wind up the company. An insolvency
practitioner is appointed to manage the
liquidation process and creditors are
informed of the proposed CVL. However,
creditors do not get much time – so it
could be a case of blink, and you could
miss it.
Decision Procedure or Deemed
Consent
In 2016, the Insolvency Act 1986 was
amended to include the new Decision
Procedures for use in all insolvency
situations. The aim was to streamline
and expedite the liquidation process by
eliminating the need for unnecessary
in-person meetings and using virtual
meetings as the alternative.
Creditors are invited to attend the
virtual meeting on a minimum of three
business days’ notice. This meeting must
be advertised in the London Gazette. The
appointment of the member’s nominated
insolvency practitioner is then ratified
by a majority of creditors who attend the
meeting in person or by proxy.
The other route into a CVL is the
Deemed Consent process. In this
scenario, creditors receive the same
notice period, but this route indicates
that if no objections are received within
the specified time, then the CVL goes
ahead as planned with the nominated
insolvency practitioner. There is
no requirement to advertise the
Deemed Consent and there is no
requirement for creditors to ratify
the appointment. The Deemed
Consent can be objected to, but
this can only happen if sufficient
creditors agree.
Whilst creditors can object
and request a physical meeting,
there are pros and cons. For
There is no
requirement to
advertise the
Deemed Consent
and there is no
requirement for
creditors to ratify
the appointment.
The Deemed
Consent can be
objected to, but
this can only
happen if sufficient
creditors agree.
example, if a late penalty notice for
a large sum of money was sent to the
failing business several months earlier,
the creditor affected may want to
understand more about the sequence
of events leading to the Directors’
decision to liquidate the business at a
later stage. They might wish to ask the
Directors whether the decision could
have been taken sooner. The best way
to achieve this would be to object to the
Deemed Consent and request a physical
meeting. However, such a meeting is
likely only to delay the inevitable, that the
company will still end up in a CVL.
The 10/10/10 rule
In a situation where Deemed Consent
is being sought and questions need
answering, creditors must request
a meeting quickly – ie. within three
business days of receiving notice
of the Deemed Consent. They can
only do this by following the ‘10/10/10
rule’, which requires either 10 percent
of all creditors in value, 10 percent
by number or 10 individual creditors
requesting a meeting.
Even if creditors do not want a meeting,
it is best practice to check the Statement
of Affairs to establish the likelihood of a
return to creditors and always file a Proof
of Debt.
In certain situations, credit managers
will have little choice but to accept that
the unpaid invoices will probably have
to be written off. However, there may
be good reason to intervene, and they
should avoid being timed out. Therefore,
robust postal processes will be required,
to ensure that notices arrive with decision
makers in good time.
In summary, whether you see a notice of
Decision Procedure or a Deemed Consent
CVL, it is likely that the convening
insolvency practitioner will be
relying on the postal system to
make the initial contact with the
company’s creditors, so make sure
you act FAST.
Giuseppe Parla is a Business
Recovery Director and Licensed
Insolvency Practitioner at Menzies
LLP.
Brave | Curious | Resilient / www.cicm.com / December 2023 / PAGE 10