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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Danvers Ltd has passed a resolution for voluntary winding up and a liquidator has been appointed. Which statement describes the effect on the company and its directors?

After a liquidator is appointed in a voluntary winding up, the directors' powers largely cease and the liquidator controls the company. The company still exists legally until dissolution and trades only as far as needed for a beneficial winding up. Secured creditors keep their security.

  1. AThe directors continue to manage the business as before, with their powers unchanged
  2. BThe company ceases to carry on business except so far as needed for beneficial winding up, and the directors' powers largely end on the liquidator's appointmentCorrect
  3. CThe company immediately loses legal personality and cannot be sued
  4. DAll secured creditors lose their security and rank as unsecured

Explanation

On appointment of a liquidator in a voluntary winding up, the directors' powers generally cease and the liquidator takes control of the company's affairs. The company continues to exist as a legal person until dissolution, and it keeps trading only if that helps a beneficial winding up. Secured creditors keep their security rights, so the last option is wrong. The first option wrongly leaves the directors in control.

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