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Voluntary Liquidation Of A Company

Voluntary liquidation of a Company. Written by John A Waller. Director. Reviewed July 31st,2022.

What is voluntary liquidation?

A limited company can only be voluntary liquidated by its shareholders. The appointed liquidator must be an authorised licensed insolvency practitioner.

How do I liquidate my company?

So, two types of voluntary liquidation exist:

Creditors’ Voluntary Liquiation (CVL)

When the company’s shareholders decide to liquidate, but there aren’t enough assets to pay the creditors in full. i.e., the business insolvent. The liquidation begins at the time of approval of the resolution.

If most directors do not declare solvency or insolvent, shareholders can still vote for voluntary liquidation, referred to as a creditors’ voluntary liquidation.

So, to vote on voluntary liquidation, shareholders must carry out:

  • holding a general meeting of the company and
  • pass a resolution for voluntary winding up.

The directors on behalf of the company can nominate a licensed insolvency practitioner as a liquidator. It also needs to hold a creditors meeting (usually on the same day as the shareholders’ meeting) to obtain its financial affairs. However, creditors can nominate a liquidator, and their nomination usually overrides the shareholders, if different.

Voluntary Liquidation of a Limited Company

Members’ Voluntary Liquidation (MVL)

A Members Voluntary Liquidation applies when the company’s shareholders vote to liquidate its assets to pay all the debts.

A Members’ Voluntary Liquidation MVL applies only to a solvent company. The directors must make a formal declaration of solvency, which must:

  • Be made by a majority of directors on a date no more than five weeks before passing the resolution for voluntary winding up;
  • Filed at Companies Registry;
  • State that the directors have made a full inquiry into the company’s affairs and believe the company can pay its debts and interest within a maximum of 12 months;
  • Include an up-to-date statement of the company’s assets and liabilities.

It remains a criminal offence to declare solvency without reasonable grounds.

So, shareholders must hold a general meeting of the company, passing a resolution for:

  • voluntary winding up;
  • appointing one or more liquidators of the company.

The shareholders pass a special resolution for winding up, unless the: –

  • company resolves that it cannot continue its business because of its liabilities when an extraordinary resolution required.;
  • The articles of association of the company provide that it be dissolved at a specific time or following a particular event when an ordinary resolution  required.

With an insolvent company, the liquidator calls a meeting of creditors, and the liquidation becomes a creditors’ voluntary liquidation.

What happens when a limited company enters voluntary liquidation?

Once appointed, the liquidator takes control of the company’s affairs, and almost all directors’ powers cease.

The liquidator realises all the company assets, allowing a final distribution minus liquidation costs to creditors.

Members’ voluntary liquidation (MVL)

In a member’s voluntary liquidation, the liquidator holds a company meeting each year and provides details of their actions, dealings, and the conduct of the winding up in the preceding year.

Creditors’ voluntary liquidation (CVL)

In a creditors’ voluntary liquidation, the liquidator must hold annual creditors’ meetings for the same purpose. In all cases, the liquidator must submit a confidential report to the Secretary of State on the conduct of every person who served as director or shadow director in the last three years before the liquidators appointment.

Once liquidated, the liquidator holds the final meeting with creditors.

What are the duties of a company director in voluntary liquidation?

In a voluntary liquidation, directors must:

  • Impart information about the company’s affairs to the liquidator and attend interviews with the liquidator if and when necessary.
  • Take care of the company’s assets and hand them over to the liquidator, together with all its books, records, bank statements, insurance policies and other documents related to its assets and liabilities.

When will the liquidation end?

A liquidation completes once dissolution occurs, after the liquidator’s final meeting.

How long the liquidation takes depends on the circumstances of the individual case (e.g. the nature of the assets involved). So, once the process completes, the company remains dissolved and ceases to exist.

Understanding a Creditors’ Voluntary Liquidation

If a limited company remains insolvent, meaning:- 

  • debts remain more significant than its assets, or 
  • unable to pay its bills and other outgoings when they fall due.

The directors must decide whether the company remains viable and a realistic opportunity to be turned around or liquidated.

Worried about your Bounce Back Loan?

As a company director concerned about your directors liabilities and how you will repay your Bounce Back Loan, The team at HBG Advisory provide help. As licensed insolvency practitioners, we can discuss your options in total confidence regarding repaying your outstanding Bounce Back Loan and handling all negotiations with creditors on your behalf. Call our team today on 0800 612 5448.

What happens during liquidation?

When a company liquidates assets, the proceeds shall be distributed among outstanding creditors. The company will eventually be dissolved and cease to exist as a legal entity. An insolvent company can liquidate through compulsory court order or voluntary process, a Creditors’ Voluntary Liquidation (CVL).

Who can put a company into liquidation?

A CVL remains as a director-initiated liquidation process, which a licensed insolvency practitioner must administer. Once the director – or directors – of a limited company knows the insolvency of the business. They can decide to voluntarily shut down the company by placing it into a CVL. They will select an insolvency practitioner who will work towards realising company assets, ensuring the orderly wind down per the Insolvency Act 1986.

Advantages Of Voluntary Liquidation

Advantages of voluntary liquidation include: –

  • You draw the line and start afresh debt free.
  • Give the directors peace of mind.
  • Creditor’s demands cease.
  • Write off 100% of unsecured company debt.
  • The potential risk of wrongful trading action against directors reduces.

Options other than liquidation

Informal arrangement

The company could write to all its creditors to see if both parties can reach a mutually acceptable agreement. Including a timetable of when the creditor will make payments is beneficial.

Company Voluntary Arrangement (CVA)

A CVA remains a formal arrangement, rather than as above. A CVA enables a struggling financial company to agree on a binding agreement with creditors about payment of all, or part of, its debts over an agreed period.

The administrator can propose a CVA where the company is in administration, the liquidator when the company is being wound-up or the directors in other circumstances. Before preparing the proposal, issue a court application for a moratorium, preventing creditors from taking action against the company or its property for up to 28 days. If an administrator is in office, the moratorium already covers the company arising from the administration.

Creditors or shareholders cannot propose a CVA.

Meeting of creditors

Once the directors propose an arrangement, a nominee (who must be an insolvency practitioner) reports to the court whether a meeting is needed to consider the proposal with creditors and shareholders.

The meeting decides whether the voluntary arrangement will be approved. To do so requires 75 per cent or more of the creditors to agree to the proposal. It is then binding, and all creditors who had notice of the meeting were entitled to vote. The terms of the arrangement bind all creditors who had notice of the meeting.

If the meeting of creditors and shareholders approves a voluntary arrangement, the nominee is appointed supervisor of the arrangement.

Once the CVA competes, the company’s liability to its creditors ceases (who had notice of the meeting of creditors). The company can maintain trading during the CVA and afterwards. A CVA may operate when a company liquidates, administration, or otherwise.

Administration

The company or its directors may appeal to the High Court for an administrative order appointing an administrator to manage the company’s affairs, business and property. Commonly known as a company administration.

Once appointed by the court, the administrator can: –

  • Maintain the company, in whole or in part, as an ongoing business
  • arrange with creditors a voluntary arrangement or compromise.
  • achieve a higher realisation of the company’s assets than if liquidated.

A licensed insolvency practitioner manages the procedure as the administrator.

Contains public sector information licensed under the Open Government Licence v3.0.

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