There Is A Stop On Proceedings Against A Company In Compulsory Liquidation Absent Court Approval

Overview Of The Insolvency Stay On Proceedings

What Is The Insolvency Stay On Proceedings? There is a stop on “actions” and/or “proceedings” being brought against a company in Compulsory Liquidation without the permission of the Court.

The company is in the hands of a Liquidator who is expected to carry out his or her duties in respect of the collection, realisation and distribution of the company’s assets in an orderly and responsible way in the best interests of creditors

The idea is that those assets should not have to be used and depleted in dealing with unnecessary actions and proceedings outside of the Liquidation process.

This is set out in Section 130 of the Insolvency Act 1986:

(1) On the making of a winding-up order, a copy of the order must forthwith be forwarded by the company (or otherwise as may be prescribed) to the registrar of companies, who shall enter it in his records relating to the company.

(2) When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose.

What Is The Purpose Of The Insolvency Stay On Proceedings?

The purpose of this provision is:

  • The property of the company or individual stands under the statute to be realised and distributed, among the creditors on a pari passu (equal footing) basis, the insolvency stay on proceedings prevents any creditor from obtaining priority and thereby undermining the pari passu basis of distribution.
  • Both Liquidation and Bankruptcy contain provisions for the adjudication of claims by persons claiming to be creditors, the insolvency stay on proceedings protects those procedures and prevents unnecessary and potentially expensive litigation.

These points were discussed in the case of The Financial Conduct Authority v Carillion Plc [2021] EWHC 2871 (Ch) when it considered the limits or scope of what constituted ‘proceedings’ for the purpose of Section 130(2) of the Insolvency Act 1986.

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