A company has outstanding debts and it seems they are struggling financially. What can you do to try and get your debts settled? Is applying to have the company wound up the answer? Here, we take a look at what you will need to consider before a decision is made and we take a look at the key steps in the process.

What is winding up?

Winding up is also known as compulsory liquidation. It is action taken by creditors of the company which (if successful) will result in the company ceasing to trade and being closed down.

Introduction

In the recent case of Global Corporate Ltd v Hale , the Court of Appeal was asked to assess whether sums, described as “interim dividends”, paid to Mr. Hale (the “Respondent”) in his capacity as both a director and shareholder of Powerstation UK Limited (the “Company”), had been made in accordance with section 830 of the Companies Act 2006 (the “Act”) prior to the Company’s insolvency.

On August 26, 2018, the UK government issued its response to its consultation on insolvency and corporate governance. The consultation sought views on how the risk of company failure could be reduced by improving the corporate governance and insolvency framework.

Profits made by a limited company are distributed to shareholders through the declaration of dividends. Quite often, for example in the case of SME businesses, the directors and shareholders of the company are one and the same. In such businesses, directors might take a minimum salary and pay the rest of their remuneration by way of dividend. For some time, this has been a tax-efficient means for directors to be remunerated.

However, before a company is able to pay a dividend, two main criteria must be met:

The Government will consult on new laws to give consumers greater protection on retailer insolvency, but has confirmed that consumer prepayments will not be given preferential status in insolvency.

This was announced on 27 December 2018 in the Government's Response to the Law Commission's July 2016 Report on Consumer Prepayments on Retailer Insolvency.

The Law Commission's Report

The Law Commission's Report recommended that:

We are yet to see the true impact of Christmas trading in the retail industry although HMV is already a victim of the tough conditions for retailers. Additionally, Boots has announced a fall in sales and the launch of a “transformational costs management program” to save more than $1 billion and Next has confirmed that profits in store have fallen and although online sales are up, the uncertainty about the UK economy after Brexit makes forecasting difficult. Only one thing is clear – consumers remain at risk in the event of a retail business entering administration.

Whether liquidated damages (LDs) can be claimed after termination is a question which comes up regularly. It is very relevant in the current climate where contracts are often terminated following contractor insolvency. If I were devising a construction law exam paper, this classic question would undoubtedly appear.

The Court of Appeal has issued a welcome clarification of rules regulating the payment of dividends to shareholders in Global Corporate Ltd v Hale [2018] EWCA Civ 2618.

Facts

The case was appealed from the ruling of Judge Matthews in the High Court [2017] EWHC 2277 (Ch). At issue were several payments made by Powerstation UK Limited (the “Company”) to Mr Hale, who was a director and shareholder of the Company at the relevant times.

To no great surprise, the Global Corporate v Hale appeal decision has gone against the director. The Court of Appeal handed down the eagerly awaited judgment on 27 November 2018.

Since the introduction of The Companies Act 2014, directors have relied on the Summary Approval Procedure as a means of sanctioning certain activities that are otherwise prohibited.

While it has been a welcome development in simplifying financial transactions, directors need to be mindful of the appropriate steps to be taken so they are not leaving themselves open to committing an offence or being personally liable for the debts of a company.

Background