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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.

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!
2016 Validation Order application case

Express Electrical Distributors Limited -v- Beavis and Others [2016] EWCA CIV 765, the Court of Appeal held that the overriding principle of unsecured creditors being on an equal and pro-rata basis, is paramount.
A validation order should only be made in special circumstances which demonstrate that the payment is of benefit to the general body of creditors. (This decision in this case seems to go against the previously held view that payments made in good faith, without knowledge of the winding up proceedings and in the ordinary course of business, will be validated.)

Not only must there be special circumstances but also evidence of the benefit to the general body of creditors. Examples of special circumstances cited are: a payment which is required to obtain a supplier’s materials required to complete a profitable contract; or which allows a company to carry on its business, with a view to selling the business as a whole.
ThorntonRones is happy to discuss any case free of charge and with no obligation to you and your clients so they can be advised of their options to enable informed decisions in their best interests.
ThorntonRones  -  Companies, Directors and your Insolvency Options
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"ThorntonRones are suitably professional but appropriately informal where necessary."
D. Flood, Rowland Hall Chartered Certified Accountants
ThorntonRones – we put the solve into insolvency

ThorntonRones is a specialist insolvency practice experienced in advising on both corporate and personal scenarios.  The principal of ThorntonRones, Richard Rones, is a Licensed Insolvency Practitioner, a Fellow of R3 and a Fellow of the ICAEW. 

Richard has extensive experience in the SME market that includes trading as ThorntonRones Insolvency Practitioners since 1999. He and his staff fully understand the difficult pressures faced by anyone running their own business and relish the opportunity to be of assistance.

We look forward to taking care of you.
Copyright © 2017 ThorntonRones Ltd, All rights reserved.

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