Page 230 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 10: Liquidation of Companies: Preparation of Accounts

The realisable assets of the company are determined to be: notes

`
Good trade debtors 170,000
Five vans 25,000
Office equipment 2,000
Goodwill ?
Total realisable value of assets 197,000

The amounts owed out by the company are found to be:
` `
Bank (secured by a debenture) 160,000
VAT 120,000

PAYE 60,000
Other unsecured creditors 20,000
200,000
Total creditors 360,000
The adviser explains that since a change in the law on 15th September 2008 VAT and PAYE
are no longer classed as preferential creditors. The advisor prepares a statement of affairs
which (ignoring the new rules on “top slicing”) shows the order of priority of distributing
the realisable assets should a compulsory liquidation ensue.
`
Realisable value of assets 197,000
Less: Payable to bankers under their floating charge 160,000

Surplus cash available for other creditors which
total ` 200,000 (subject to settling liquidators costs) 37,000
Clearly the ` 200,000 of creditors could not expect much of a dividend in the liquidation
after costs were deducted from the ` 37,000 net sum available to any liquidator.
possible solutions
If it is assumed that the company has been restored to profitability, but is subject to
the creditors overhang, then the company directors would have explained to them the
following alternatives:
1. Freezing the situation by obtaining an administration order – since new laws
were introduced on 15th September 2008 the appointment of an administrator is
a much simplified process. The administration “freezes” creditors actions and
gives a breathing space to decide what to do. The appointment of an administrator
automatically adjourns the winding up petition.
2. Freezing the situation by proposing a company voluntary arrangement (CVA) – the
advisor points out that since 1 January 2008 there are two types of CVA that can
st
be proposed. The advisor explains the pros and cons of each type. Only one of the
CVA’s creates an “automatic freeze” on the winding up petition.

Contd...

lovely professional university 225