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The short answer to both is YES, but - "you would say that" - I hear you say!
Nevertheless, there are important reasons WHY and in some circumstances, that are not uncommon, it could prove very costly to your clients.
Starting point:
Although a liquidation is a liquidation, obviously there are some differences such as who is the liquidator, the costs of the process, when the bank account will be frozen, etc. However, the most important difference, and one which is often overlooked, is the date of commencement and therefore the date from which transactions are void...
Compulsory Liquidation: Petition issue date
Voluntary Liquidation (CVL): Shareholders' resolution date (usually creditors' meeting date)
Often, a winding up petition is issued some weeks before the Company is ready to cease to trade and that exposes many transactions and asset/business sales.
Directors' Exposure
The simple point here is that the start date of each liquidation is important because:
- If there are any transactions, such as asset purchases, sales, payments, drawings, etc, that are in the post commencement period then they are VOID (S.127 of the Insolvency Act 1986) and therefore easily reversible - leading to financial exposure;
Alternatively, a court validation order can be applied for but...
- It is expensive, requires a high level of evidential proof and has to consider creditors.
Alternative
Seek the petitioning creditor's permission for a Voluntary Liquidation. This is usually agreed to if the petitioning creditor has his costs paid (HMRC petition costs are fixed at only £920) – this can be money well spent!
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