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Is a liquidation valid where notice is not given to a qualifying floating charge holder?

Empty vintage court's room with table, chairs and microphones. Print publication

25/05/2018

A voluntary winding up of a company is commenced by its members passing a special resolution that the company be wound up voluntarily (section 84 of the Insolvency Act 1986). Before a company passes a resolution for voluntary winding up, it must give written notice of the resolution to the holder of any qualifying floating charge. This is to allow the charge holder the opportunity to appoint an administrator before the resolution to wind up can take effect.

In Re Domestic & General Insulation Limited [2018] EWHC 265 (Ch), the High Court considered whether failure to give such notice invalidated the liquidation. Domestic & General Insulation Ltd passed a special resolution to wind the company up voluntarily but notice was not given to HSBC which was the holder of a qualifying floating charge.

The liquidators became concerned as to the validity of their appointment and asked the court for direction. The court held that the lack of notice provided to HSBC did not invalidate the liquidation. Once a special resolution has been passed to wind a company up, that resolution is effective to put the company into liquidation notwithstanding any failure to give notice to a qualifying floating charge holder. The lack of notice may well provide a qualifying floating charge holder with a remedy if dissatisfied with the result of the liquidation, for example petitioning for the compulsory winding-up of the company or applying for a stay of the winding-up so as to enable an administrator to be appointed. However the validity and effect of the resolution cannot be questioned so long as it is passed in accordance with the company’s articles of association.

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