What is the Impact of Centrebind Liquidation?
The new insolvency rules were introduced earlier this year to consolidate the existing rules, make amendments to the rules in line with the Small Business Enterprise and Employment Act 2015 as well as encourage all parties involved in a liquidation process to communicate faster and more effectively, using up-to-date technology. The expectations are that creditor engagement in the process will increase, and the burden of administrative red tape will be reduced, which in turn will cut costs and maximise returns to creditors.
Decision-Making Procedures – Changes
Under the new rules, physical meetings where insolvency practitioners (IPs) were previously appointed and once appointed obtained decisions from creditors on fees, amongst other issues have been replaced with alternative and more modern decision-making procedures, such as correspondence or email, electronic voting and virtual meetings.
Physical meetings can now only be convened if requested by creditors. This can be done if creditors meet the 10/10/10 rule. This means 10% of creditors (in value) or 10 individual creditors or 10% of creditors (in number) must support the request for this type of meeting for it to go ahead.
The deemed consent procedure was also introduced alongside the other qualifying processes.This is where the decision is ‘deemed to have been approved’ if no creditors object within the specified time period. However, the deemed consent process can’t be used to approve liquidation fees and an alternative ‘qualifying’ decision-making process must be used here instead.
Decision-Making Procedures – Timing
The limitations of the deemed consent process can pose a problem for the liquidator who wants to gain the approval of creditors on his or her appointment and fees at the same time. In this scenario, a virtual meeting process, such as a conference call or video conferencing can be used.
The use of deemed consent also increases the possibility of delay through creditor objections or a potential request for a physical meeting.Virtual meetings also have disadvantages as they may be delayed owing to technical difficulties These different scenarios create an element of uncertainty for the liquidator in terms of planning, which can have a knock-on effect on controlling the timing of a Creditors’ Voluntary Liquidation (CVL) process.
It is expected that a higher number of centrebind liquidations will arise due to the limited powers of the liquidator during the period, where he or she is trying to gain the approval of creditors. In a centrebind liquidation, the liquidator has the right to manage the company’s affairs and start disposing of the company’s assets before the approval of creditors has been given. It is an accelerated process and an appropriate course of action when the company’s assets are perishable goods, for example.
The Main Differences Between a CVL and a Centrebind
During a regular CVL, shareholders must receive 14 days notice of the shareholders’ meeting unless 90% of shareholders (by value) agree to the meeting taking place at ‘short notice’. If agreement is reached to hold the shareholders’ meeting at short notice, it is held no later than seven days after consent has been given. At the meeting, shareholders pass a number of resolutions, such as to wind up the company.
When a centrebind procedure is adopted, directors issue a notice to creditors, seeking their approval on the resolutions passed on the same day as the shareholders’ meeting. The ‘decision date’ for creditors on the resolutions is also brought forward to take place no later than seven days after the resolutions were passed. In a regular CVL, the decision date takes place no later than 14 days after the shareholders’ meeting.
If you would like to know more about liquidating your company and adopting a centrebind procedure, please call 08000 746 757 or email firstname.lastname@example.org for free and confidential advice from one of our professional advisers. Read more about liquidation.