A Guide to Liquidation in Scotland

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Winding-up Proceedings in Scotland by a Petitioning Creditor

Much like in other jurisdictions the winding up a company (liquidation) is possible in Scotland. This guide sets out the grounds for a company to be liquidated and the process for doing so.

Key grounds for a winding up by the court

  1. The debtor is unable to pay its debts as they fall due
    • The primary way to establish this is for a creditor (who is owed an amount exceeding £750.00) to serve a Statutory Demand for payment on the debtor. If the creditor does not receive payment or genuine dispute from the debtor within three weeks of service, then the expiry of the Statutory Demand constitutes the debtor being unable to pay its debts as they fall due.
  2. A charge for payment has been served on the debtor and has expired
    • A charge for payment is a formal demand for payment of money within 14 days of service (by Sheriff Officers).
    • A charge for payment can be served following a court decree (judgment) or if payment is due under an agreement which has been registered for preservation and execution in the Books of Council and Session.
    • If the 14-day period expires without payment or challenge from the debtor, a winding-up petition can be presented.
  3. The value of the debtor’s assets is less than the amount of its liabilities, and this can be proved to the satisfaction of the court.

Process for a winding-up petition

  1. Decide whether to appoint an ‘interim’ or ‘provisional’ liquidator
    • A provisional liquidator should be appointed where there is reason for the company’s assets to be safeguarded; otherwise, an interim liquidator should be sought.
  2. Obtain the liquidator’s consent to act
    • The chosen Insolvency Practitioner must provide a written undertaking confirming their consent to act in the liquidation, together with their Insolvency Permit and Insolvency Practitioner Licence Bond must be lodged with the petition.
  3. Prepare and Lodge the winding-up petition together with Inventory of Productions with the court.
    • If the company’s share capital is less than £120,000 then it should be raised in the Sheriff court in the place of the company’s Registered Office. If the company’s share capital is £120,000 or more it can be raised in the Court of Session.
  4. If the debtor company has a caveat lodged with the court, it will be notified of the petition prior to any consideration by the Sheriff or Judge.
    • A caveat is a document which provides a measure of protection against applications for interim orders, including the appointment of an interim or provisional liquidator without notice first being given to the debtor’s solicitors, who will be given an opportunity to make representations on the debtor’s behalf before the Judge or Sheriff decides the application.
  5. If no caveat has been lodged, the Sheriff or Judge will consider whether to grant first orders for the petition to be served and to be advertised on the walls of court, an appropriate newspaper and the Edinburgh Gazette.
    • The petitioner must take steps to advertise in the newspaper and the Gazette. The court will advertise on the walls of court.
    • Within 8 days of the service and advertisement, the debtor must lodge Answers with the court as to why the petition should not be granted.
  6. Following the 8-day period for Answers
    • If no Answers have been lodged, the petitioner should return the papers to the court and ask for the Judge or Sheriff to grant the winding-up order. No court hearing will be necessary.
    • If Answers have been lodged, a hearing will be fixed in order to hear both parties and to consider the merits of the petition.
  7. After the winding-up order is granted
    • The liquidator’s appointment is approved by a subsequent meeting of creditors.
    • The liquidator performs their functions and duties of ingathering and distributing assets.
    • The liquidation ends via dissolution, and the company is struck off by the Registrar of Companies.

At MBM, we represent clients in every tier of the Scottish court system, and act as agents for law firms in the rest of the UK and beyond in litigation with a Scottish element. We can offer you clear and concise advice on any issues concerning insolvency in Scotland.

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