In all cases where you are considering enforcement action against an individual or a company that may be insolvent you should seek advice through your line management to the legal liaison points who may in turn contact Solicitor's Office.
Bankruptcy
Bankrupt individuals
Bankruptcy proceedings under the jurisdiction of a bankruptcy court allow the property of a debtor to be seized. That property may then be realised and, subject to certain priorities, distributed rateably amongst the people to whom the debtor owes money1.
Bankruptcy is only applicable to individuals and not to companies. Bankruptcy orders must be published in the London Gazette.2
A debtor may enter into a "voluntary arrangement" with creditors regarding payment of his/her debts3. Such an arrangement ceases in the event that a debtor is made bankrupt.
There is no bar to initiating a prosecution against individuals who are bankrupt.4
However issues may very well arise as to the payment of fines, costs or compensation imposed on a bankrupt, for the bankrupt's property and funds will be in the hands of his/her trustee in order that the latter may distribute them to the creditors. Questions of public interest may nevertheless weigh in favour of prosecution as, for example, it may be more appropriate to invoke the court's power to disqualify a person as a director.
An undischarged bankrupt is in any event prohibited from acting as a director or taking part or being concerned directly or indirectly in the promotion, formation or management of a company except with the permission of the court by which he was adjudged bankrupt during the currency of his bankruptcy.5 Solicitor's Office guidance should be sought in cases where it is proposed to prosecute a bankrupt.
Bankrupt partners
In the case of partnerships, proceedings may be commenced or continued against individual partners who are bankrupt, but guidance should be sought.
A search at Companies House should reveal whether a company is the subject of one of the several procedures connected with company insolvency. Of these, the most important are:
administration;
voluntary winding up;
compulsory winding up.
A company in the course of either form of winding up is said to be "in liquidation".
At the completion of the winding up process, the company is dissolved.
Administration may be succeeded by winding up, but a company that is in liquidation may not be placed under administration.
These procedures can be initiated by the company or by its creditors, and are effected by an order of the court, the High Court and certain County Courts having jurisdiction.
Once a company is subject to insolvency procedures, certain steps must be followed before prosecuting the company, which vary according to the type of procedure in question.
Administration
The rules governing administration were amended under the provisions of the Enterprise Act 2002 (EA 2002). A company goes into administration when an administrator is appointed to manage the company’s affairs, business and property. A person may be appointed as administrator of a company in one of three ways: by an order of the court; as the holder of a floating charge, or by the company (or its directors).6
Alternatively, the holder of a floating charge, or the company itself or its directors can appoint an administrator by filing a notice of appointment with the court. From the time of filing the notice, an interim moratorium on insolvency and other legal proceedings being taken against the company is effective. In all cases the administrator appointed will be an officer of the court and the court will therefore have supervisory jurisdiction over administrators (which is a significant distinction from the case of administrative receivers).
The administrator must perform their function with the objective of (a) rescuing the company as a going concern; or (b) achieving a better result for the company’s creditors than would be likely if the company was wound up; or (c) realising property in order to make a distribution to one or more secured/preferential creditors.7 The administrator must perform their functions with the objective of rescuing the company as a going concern unless they think that it is not reasonably practicable to do so - or objective (b) would achieve a better result for the company’s creditors as a whole.8
Where the court is satisfied that a company is or is likely to become unable to pay its debts, it may make an administration order in relation to it, if it considers that the order is reasonably likely to achieve the purpose of the administration as set out in paragraph 16 above.9 The holder of certain types of ‘floating charge’10 in respect of a company’s property and the company itself (or its directors) may, in limited circumstances11, appoint an administrator.
No legal proceedings may be instituted or continued against a company in administration except with the consent of the administrator or the permission of the court.12
A company in administration cannot go into liquidation (i.e. be wound up), except in very limited circumstances.13 Where the company is already in liquidation (i.e. being wound up) the company cannot also go into administration unless:
in the case of a voluntary winding-up, the court makes an administration order upon the application of the liquidator
in the case a compulsory winding-up, the court makes such an order upon the application of the liquidator or holder of a floating charge.14
If the court makes an order in respect of a company in compulsory liquidation, they must discharge the winding-up order.15 A company in administrative receivership (see below) cannot go into administration except in limited circumstances. Where these circumstances apply and the company do go into administration, the administrative receiver must vacate their post. If the company has a receiver at the time that they go into administration, the receiver shall vacate their post if required to do so by the administrator.
voluntary winding-up by resolution of the company or its creditors;
compulsory winding-up most commonly on the application of a creditor to the court.
In voluntary winding up the registrar of companies must be notified by the liquidator as soon as s/he forms the opinion that the company will be unable to pay its debts.16
A compulsory winding up must also be notified to the registrar.17
The particulars from Companies House18 should specify the form of winding-up where a company is in liquidation. To double check whether a compulsory winding-up order has been made, you should telephone the general enquiry line of the Insolvency Service (020 7291 6895) quoting the company number.
Proceeding against a company in voluntary winding-up
It is possible to proceed against a company in voluntary liquidation. There is no prohibition on doing so where there has been no winding-up petition made to a court or winding-up order made. Whether this is an appropriate course of action will depend on the circumstances of each case. It may be desirable for example where the directors of the company intend to set up a new company after the present company is wound up, or where the winding up is part of a takeover.
Where there is evidence that one or more directors have a history of setting up new companies, after winding up their previous company, it may be appropriate to bring proceedings under section 37 HSWA, against the directors as well as the company.
Proceeding against companies in compulsory winding-up
Once the `winding up' petition has been presented, the court may restrain proceedings commenced prior to the petition.19 No proceedings can be commenced or continued against a company, once the order has been made and the company is in compulsory liquidation, without the leave of the court which made the order.20 Whether it would be appropriate to seek leave will depend on the circumstances of each case.
Receivership
A company's creditors who have advanced money to it in the past are likely to hold "debentures", that is a document acknowledging the debt, which usually provide for a charge on the company's assets. This charge will be called a `fixed charge' where it is secured on particular property, or a `floating charge' where it is secured on the assets generally.
Remedies are available to debenture holders who are concerned about the recovery of their debt. A holder of a debenture secured by a fixed charge may appoint a receiver to deal with the disposal of the property charged only. A debenture holder who is secured by a floating charge may appoint an administrative receiver who will be responsible for the administration of the company.21
An official receiver may be appointed22 on an application to the court by debenture holders where a compulsory winding-up is in progress. An administrative receiver is appointed to control the financial dealings of the directors, and to ensure that the debenture holder's interest is not prejudiced by the way the company is run. An administrative receiver must advertise his appointment in the London Gazette.23
A company in receivership is not necessarily in liquidation, and the appointment of a receiver or an administrative receiver does not necessitate of itself the company's winding up, (although the winding up of the company may well follow). Therefore if the company is simply in receivership it may be prosecuted.
As it is possible that the company is both in liquidation (being wound up) as well as in administrative (or other) receivership, it is essential that you have clear information as to the true position. When you discover a company is in receivership you should, therefore, check whether they are also in liquidation.
Winding up in the interest of the creditors may proceed notwithstanding the appointment of a receiver on behalf of a debenture holder(s). The role of administrative receiver will be vacated if the company is made subject of an administration order.
Proceeding against the Receiver
It will not usually be appropriate to proceed against the receiver personally, though the terms of appointment may be so wide as to make the receiver a 'person in control' of premises for the purposes of s.4, HSWA. No proceedings against a receiver should be commenced without consulting the Solicitor's Office.
Once a company is dissolved it ceases to exist and therefore cannot be prosecuted. Under Section 651 Companies Act 1985 any person appearing to the court to be interested can apply for an order declaring that the dissolution of the company is void. If such an order is made proceedings may be taken as if the company has never been dissolved.
Where there is a voluntary winding-up, a liquidator is appointed to distribute the assets of the company to creditors and then to distribute any surplus to those entitled to it. As soon as the company's affairs are fully wound up, the liquidator must make an account of what they have done and call a general meeting of the company.
After such a meeting, the liquidator sends the account and confirmation of the meeting to the registrar of companies, who registers this on the company register.24 The company is then deemed to be dissolved on the expiry of 3 months from the date of the registration. Any interested person may apply to the court for an order deferring the date at which the company is dissolved.25
Where there is a winding up by the court, the company will be dissolved at the expiry of 3 months following the registrar registering:
an application by the Official Receiver (where the Official Receiver is the liquidator) for an early dissolution of the company on the ground that the Official Receiver believes that the company's realisable assets are insufficient to meet the expenses of the winding up and that no further investigation is required 26; or
a liquidator's notice that the final meeting of creditors has taken place and that the liquidator is vacating the office of liquidator 27; or
a notice from the Official Receiver that the winding up of the company by the court is complete 28.
Striking Off of Non-Trading Private Companies
Where a private company has not been trading for three months, the directors may make an application for its name to be struck off the Companies Register, subject to a number of conditions.29 The registrar will first publish a notice in the Gazette warning of the intention to do so and inviting objections.30 Three months later, a further notice will advise that the company has been struck off and at this point the company is dissolved.31
A similar power is given to the registrar of companies to dissolve a company on notice.32 Such dissolution does not affect the continuing liability of directors, managing officers or members of the company under companies legislation.33
When an application is made to strike off a non-trading company, notice of this fact must be given to certain persons, including employees and creditors.34 You may therefore receive notice from an injured employee that an application has been made, or you may receive notification directly, although the directors are not obliged to notify you. In such cases, you should contact Solicitor's Office.
HSE may consider making representations to the registrar to show cause why the company should not be struck off the register35, on the ground that proceedings against it are either contemplated, or in progress. The registrar then has a discretion to refuse the application.
When carrying out a company search at Companies House you may see that the register for a company categorises it as a “non-trading company”. It can be non-trading in the sense that it isn’t doing business but it may still have other accounting transactions going through its books, which means that it is not dormant in a legal sense. There is no bar to taking legal action against a company described as “non-trading”. However, in such a case you should make further enquiries about the company e.g when it became “non-trading”, if it is going through any insolvency process, whether an application has been made to strike it off Companies Register, what assets it has etc. in order to inform any decision on legal action. Note that a dormant company will not have any accounting transactions except specific allowable ones that can be disregarded and if it is to remain dormant there can be no paid employees because their wages would have to be recorded in the accounting records.
Footnotes
Sections 252-256 Insolvency Act 1986
Insolvency Rules SI 1986/1925 r.6.47(2) as amended. The Gazette can be consulted online at their website.
Sections 264-371 Insolvency Act 1986
The Insolvency Act 1986 s.285 sets out a power of a court to stay legal action against a bankrupt, but this is discretionary, and aimed at protecting the bankrupt's estate for his creditors.
Company Directors Disqualification Act 1986 s.11(1)
Insolvency Act 1986, Schedule B1, paragraph 2
Insolvency Act 1986, Schedule B1, paragraph 3(1)
Insolvency Act 1986, Schedule B1, paragraph 3(1)
Insolvency Act 1986, Schedule B1, paragraph 11
see para 28 below
see Insolvency Act 1986, Schedule B1, paragraphs 14-39
Insolvency Act 1986, Schedule B1, paragraph 43(6)
Insolvency Act 1986, Schedule B1, paragraph 42
Insolvency Act 1986, Schedule B1, paragraphs 8, 37 and 38
Insolvency Act 1986, Schedule B1, paragraphs 37(3)(a) and 38(2)(a)
Insolvency Act 1986 s.95(3) & Insolvency Rules SI 1986/1925 r.4.34
Insolvency Act 1986 s.130(1)
See above for details of how to search the Companies Register.
