In light of last night’s Mark Daly revelations about Mr Whyte recording David Grier of D&P making allegedly incriminating admissions, I wanted to list the rules and regs and procedures to be followed regarding the liquidation process.
I hope this might be of some assistance!
The starting point was the “virtual” creditors’ meeting on 12th October. The creditors were to vote on two resolutions, the terms of which are noted below.
From Duff and Phelps’ Final Report to Creditors (accessible via Rangers.co.uk)
The following resolutions are proposed by the Joint Administrators and should be voted upon using the form at Appendix 8.
15.1 That the Creditors approve the remuneration, expenses and outlays of the Joint Administrators in respect of all accounting periods not previously approved, being, in respect of remuneration only, £2,930,644 for the period 14 February 2012 to 29 June 2012 and £191,039 for the period 10 August 2012 to 14 September 2012.
15.2 Without prejudice and subject to (i) the statutory priority in respect of the Joint Administrators’ remuneration and expenses under paragraph 99 of Schedule B1 of the Insolvency Act 1986, and (ii) the determination of any appeal or application by the Joint Administrators to the Court under the Insolvency (Scotland) Rules 1986 for determination of their remuneration and fees to the extent that these have not been agreed by the Creditors;
(1) that the Joint Administrators do make an immediate application to the Court seeking the discharge of the Administration Order in accordance with paragraph 79 of Schedule B1 to the Insolvency Act 1986, and;
(2) to seek the winding up of the Company in accordance with section 124 of the Insolvency Act 1986.
Following the “meeting” the BBC reported here http://www.bbc.co.uk/news/uk-scotland-glasgow-west-19981266 on 17th October:-
The former Rangers Football Club is to be put into liquidation after creditors approved an end to the administration process which began on 14 February.
Administrators Duff and Phelps will now apply to the Court of Session to have BDO appointed as liquidators.
Announcing moves to end the administration period, joint administrator Paul Clark said: “Creditors have today given their approval for the administrators to bring the administration process to an end and to place the company into liquidation.
“As a result, we as administrators have instructed our legal team to prepare the necessary application for lodging in the Court of Session as a matter of urgency.
“Should the application be approved, then Malcolm Cohen and James Bernard Stephen of BDO will be appointed liquidators of RFC 2012 plc, and will undertake the process of liquidation of the ‘oldco’ company and the continued recovery of funds for creditors.”
Mr Clark said the administration process had been “comparatively short” and had been handled by Duff and Phelps to “the highest professional standards”.
“We have co-operated fully with inquiries into our appointment by Lord Hodge at the Court of Session and the Insolvency Practitioners’ Association,” he added.
Now you will note that he addresses the outcome of the meeting as regards part of the application before the meeting but …
No mention of fees!
Did the creditors approve or reject the fees of over £3.1 million?
As D&P are not saying, we might just have to await the matter going into open court.
The statutory process involves two elements – the first is exit from administration, and the second is the step into liquidation.
The relevant legislation is the Insolvency Act 1986.
The rules for “Discharge of Administration” are contained in Rule 79 of Schedule B1 to the Insolvency Act. Extracts are below.
Court ending administration on application of administrator
79 (1) On the application of the administrator of a company the court may provide for the appointment of an administrator of the company to cease to have effect from a specified time.
(3) The administrator of a company shall make an application under this paragraph if—
(a) the administration is pursuant to an administration order, and
(b) the administrator thinks that the purpose of administration has been sufficiently achieved in relation to the company.
(4) On an application under this paragraph the court may—
(a) adjourn the hearing conditionally or unconditionally;
(b) dismiss the application;
(c) make an interim order;
(d) make any order it thinks appropriate (whether in addition to, in consequence of or instead of the order applied for).
As far as liquidation, or winding-up, goes, this too is governed by the Insolvency Act. Section 124 lays down the formalities of an application for winding up.
124 Application for winding up.
(1) Subject to the provisions of this section, an application to the court for the winding up of a company shall be by petition presented either by the company, or the directors, or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories or by a liquidator (within the meaning of Article 2(b) of the EC Regulation) appointed in proceedings by virtue of Article 3(1) of the EC Regulation or a temporary administrator (within the meaning of Article 38 of the EC Regulation) or by the designated officer for a magistrates’ court in the exercise of the power conferred by section 87A of the Magistrates’ Courts Act 1980 (enforcement of fines imposed on companies)], or by all or any of those parties, together or separately.
Subsection 1 is the only relevant part for this purpose. The application to wind up the company is being presented by D&P who are acting as the company.
Liquidation procedure is contained in the Act.
Circumstances in which company may be wound up by the court.
(1) A company may be wound up by the court if—
(f) the company is unable to pay its debts,
(fa) at the time at which a moratorium for the company under section 1A comes to an end, no voluntary arrangement approved under Part I has effect in relation to the company
(g) the court is of the opinion that it is just and equitable that the company should be wound up.
(2) In Scotland, a company which the Court of Session has jurisdiction to wind up may be wound up by the Court if there is subsisting a floating charge over property comprised in the company’s property and undertaking, and the court is satisfied that the security of the creditor entitled to the benefit of the floating charge is in jeopardy.
For this purpose a creditor’s security is deemed to be in jeopardy if the Court is satisfied that events have occurred or are about to occur which render it unreasonable in the creditor’s interests that the company should retain power to dispose of the property which is subject to the floating charge.
Presumably the application would be under S122 (f) (fa) and/or (g) or any combination of them.
As far as appointment of a liquidator goes, it is a “few step” process.
Section 135 Appointment and powers of provisional liquidator.
(1) Subject to the provisions of this section, the court may, at any time after the presentation of a winding-up petition, appoint a liquidator provisionally.
(3) In Scotland, such an appointment may be made at any time before the first appointment of liquidators.
(4) The provisional liquidator shall carry out such functions as the court may confer on him.
(5) When a liquidator is provisionally appointed by the court, his powers may be limited by the order appointing him.
Section 138 Appointment of liquidator in Scotland.
(1) Where a winding-up order is made by the court in Scotland, a liquidator shall be appointed by the court at the time when the order is made.
(2) The liquidator so appointed (here referred to as “the interim liquidator”) continues in office until another person becomes liquidator in his place under this section or the next.
(3) The interim liquidator shall (subject to the next subsection) as soon as practicable in the period of 28 days beginning with the day on which the winding-up order was made or such longer period as the court may allow, summon separate meetings of the company’s creditors and contributories for the purpose of choosing a person (who may be the person who is the interim liquidator) to be liquidator of the company in place of the interim liquidator.
(4) If it appears to the interim liquidator, in any case where a company is being wound up on grounds including its inability to pay its debts, that it would be inappropriate to summon under subsection (3) a meeting of the company’s contributories, he may summon only a meeting of the company’s creditors for the purpose mentioned in that subsection.
(5) If one or more meetings are held in pursuance of this section but no person is appointed or nominated by the meeting or meetings, the interim liquidator shall make a report to the court which shall appoint either the interim liquidator or some other person to be liquidator of the company.
(6) A person who becomes liquidator of the company in place of the interim liquidator shall, unless he is appointed by the court, forthwith notify the court of that fact.
Therefore, on D&P applying to the court for winding-up, the court would normally order publication of a notice in the Edinburgh Gazette, and Herald or Scotsman. The court could appoint a “provisional liquidators” under s135 at that stage.
The case would come back to court after at least 8 days since publication of the notices has passed, and at that stage the court can grant the winding-up order, and appoint an “interim liquidator”.
The interim liquidator has a duty to summons a creditors’ meeting to appoint a liquidator.
The provisional, interim and “full” liquidators can all be the same person.
The detailed rules regarding the winding up procedure, as regards the winding up order and appointments, are contained in Chapter 74 of the Rules of the Court of Session.
WINDING UP OF COMPANIES
Interpretation of this Part
74.20. In this Part, “the petition” means a petition under section 124 of the Act of 1986 (petition to wind up a company).
Petition to wind up a company
74.21.-(1) The petition shall include averments in relation to-
(a) the petitioner, if other than the company, and his title to present the petition;
(b) in respect of the company-
(i) its current and any previous registered name;
(ii) the address of its registered office, and any previous such address within six months immediately before the presentation of the petition so far as known to the petitioner;
(iii) a statement of the nature of its business and objects, the amount of its capital (nominal and issued) indicating what part is called up, paid up or credited as paid up, and the amount of the assets of the company so far as known to the petitioner;
(iv) where the centre of main interests of the company is and whether the company has any other establishments in another Member State;
(c) whether, to the knowledge of the petitioner, a receiver has been appointed in respect of any part of the property of the company or a liquidator has been appointed for the voluntary winding up of the company;
(d) the grounds on which the petition proceeds; and
(e) the name and address of the person proposed to be appointed, and his qualification to act, as interim liquidator;
(f) whether there are insolvency proceedings elsewhere in respect of the company and whether those proceedings are main or territorial proceedings.
Intimation, service and advertisement under this Part
74.22.- (1) Unless the court otherwise directs, the order under rule 14.5(first order in petitions) for intimation, service and advertisement of the petition shall include a requirement-
(a) to serve the petition-
(i) where the petitioner is not the company, on the company;
(ii) where the company is being wound up voluntarily and a liquidator has been appointed, on the liquidator; and
(iii) where a receiver or administrator has been appointed, on the receiver or administrator, as the case may be;
(c) to advertise the petition forthwith-
(i) once in the Edinburgh Gazette; and
(ii) once in one or more of such newspapers as the court shall direct.
(2) Subject to rule 14.6(2) (application to shorten or extend the period of notice), the period of notice for lodging answers to the petition shall be 8 days.
(3) An advertisement under paragraph (1) shall include-
(a) the name and address of the petitioner and, where the petitioner is the company, its registered office;
(b) the name and address of the agent for the petitioner;
(c) the date on which the petition was presented;
(d) the nature of the order sought;
(e) where a provisional liquidator has been appointed by the court, his name, address and the date of his appointment;
(f) the period of notice for lodging answers; and
(g) a statement that any person who intends to appear in the petition must lodge answers within the period of notice.
74.25.- (1) An application to appoint a provisional liquidator under section 135 of the Act of 1986 may be made- (a) by the petitioner, in the prayer of the petition or, if made after the petition has been presented, by note; or
(b) by a creditor or contributory of the company, the company, the Secretary of State, a member State liquidator appointed in main proceedings or a person entitled under any enactment to present a petition, by note.
(2) The application mentioned in paragraph (1) shall include averments in relation to-
(a) the grounds for the appointment of the provisional liquidator;
(b) the name and address of the person proposed to be appointed, and his qualification to act, as provisional liquidator; and
(c) whether, to the knowledge of the applicant, an administrator has been appointed to the company or a receiver has been appointed in respect of any part of its property or a liquidator has been appointed voluntarily to wind it up.
(3) Where the court decides to appoint a provisional liquidator-
(a) it shall pronounce an interlocutor making the appointment and specifying the functions to be carried out by him in relation to the affairs of the company; and
(b) the applicant shall forthwith send a certified copy of such interlocutor to the person appointed.
(4) On receiving a certified copy of an interlocutor pronounced under paragraph (3), the provisional liquidator shall intimate his appointment forthwith-
(a) once in the Edinburgh Gazette; and
(b) once in one or more of such newspapers as the court has directed.
(5) An application for the discharge of a provisional liquidator shall be made by note.
Appointment of a liquidator
74.26.- (1) Where the court pronounces an interlocutor appointing a liquidator-
(a) the Deputy Principal Clerk shall send a certified copy of that interlocutor to the liquidator;
(b) the court may, for the purposes of rule 4.18(4) of the Insolvency Rules (liquidator to give notice of appointment), give such direction as it thinks fit as to advertisement of such appointment.
(2) An application to appoint a liquidator under section 139(4) of the Act of 1986 shall be made by note.
Finally, from Companies House – http://www.companieshouse.gov.uk/about/gbhtml/gpo8s.shtml
Chapter 6 – Compulsory liquidation
1. What is ‘compulsory liquidation’?
Compulsory liquidation of a company is when the company is ordered by a court to be wound up.
2. Which courts can order a compulsory liquidation?
The Court of Session, or Sheriff Court with the appropriate jurisdiction, may order the winding-up of a company. This may be, for example, on the petition of a creditor or creditors on the grounds that the company cannot pay its debts.
A company is regarded as unable to pay its debts if, for example, a creditor:
- is owed more than £750;
- presents a written demand in the prescribed form (known as a statutory demand (Form 4.1 (Scot)) to the company; and
- the company fails to pay, secure or agree a settlement of the debt to the creditor’s reasonable satisfaction.
The court may also order the company to be wound up on the petition of:
- the company itself;
- the company’s directors or one or more members;
- the Secretary of State for Business, Innovation and Skills; or
- the Financial Services Authority (formerly the Securities and Investment Board).
3. Must the petition be advertised?
Unless the court directs other arrangements, the petition must be advertised in the Edinburgh Gazette.
4. What appears on the company record held by Companies House?
If the petition is successful, the company must send Form 4.2 (Scot) and a copy of the winding-up order to the Registrar of Companies for Scotland and AIB straightaway and it will be placed on the company’s public record.
The petition itself is not presented to the Registrar of Companies for Scotland so it will not appear on the public records.
5. Who acts as the liquidator when an order is made to wind up the company?
A provisional liquidator may be appointed after the petition is presented. If a winding up order is made, an interim liquidator is appointed. Both the provisional and interim liquidator must notify the Registrar of Companies for Scotland and AIB of their appointments.
6. What are the duties of the interim liquidator?
Within 28 days of the appointment, the interim liquidator investigates the company’s affairs and will call meetings of creditors and contributories (that is, those people liable to contribute to the assets of a company in the event of it being wound up). The meetings appoint the official liquidator who must notify AIB within 7 days. If no liquidator is appointed at the meetings, the court appoints a liquidator.
The liquidator must send to AIB a statement of receipts and payments for the first 12 months of liquidation and thereafter every 6 months until the winding up is complete.
7. What happens when the winding-up is complete?
When the Registrar of Companies for Scotland and AIB receive notice from the liquidator of the final meeting that winding-up is complete, the Registrar of Companies for Scotland will register it and publish its receipt in the Edinburgh Gazette.
Unless the Court directs otherwise, the company will be dissolved three months after the notice was registered at Companies House Edinburgh.
If the liquidator is satisfied that the company’s realisable assets (that is, assets which could be sold or disposed of to raise money) will not cover the expenses of winding-up and that no further investigation of the company’s affairs is necessary, he or she may apply to the Registrar of Companies for Scotland for early dissolution of the company. The company will be dissolved 3 months after the application is registered at Companies House Edinburgh
All in all therefore we still have a couple of weeks, most likely, until the petition to wind up Rangers Football Club PLC (as it formerly was) owing over £100 million is dealt with.
Anyone expecting quick results by BDO will be disappointed. The liquidators will pore and trawl through everything to see what they should devote attention to. Liquidations of a company, especially where there is a possible case of wrong-doing by the company, directors or management, can take years before taking action
Vital Security was Craig Whyte’s company in connection with which he was barred from holding a directorship for 7 years in 2000. It took 5 years for the directorship ban to be put in place, following the winding up of the company!
Posted by Paul McConville