Voluntary Liquidation Of A Company

Voluntary liquidation of a Company. Written by John A Waller. Director. Reviewed June 29th, 2024.

What is voluntary liquidation?

A limited company can only be voluntarily 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 Liquidation (CVL)

When the company’s shareholders decide to liquidate, there aren’t enough assets to fully pay the creditors, making the business insolvent. The liquidation begins upon the approval of the proposal.

If most directors do not declare solvency or insolvency, shareholders can still vote for voluntary liquidation, also known as 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 can nominate a licensed insolvency practitioner as a liquidator on behalf of the company. To obtain its financial affairs, the company must hold a creditors’ meeting (usually on the same day as the shareholders’ meeting). However, creditors can nominate a liquidator, and their nomination usually overrides the shareholders’ nomination if different.

Voluntary Liquidation of a Limited Company

Members’ Voluntary Liquidation (MVL)

Once a company’s shareholders choose to liquidate it and its assets are sufficient to pay off all debts, it confirms its solvency. However, a member’s voluntary liquidation (MVL) can only happen with a solvent company.

A Members’ Voluntary Liquidation MVL applies only to a solvent company. The directors must, however, 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 House;
  • 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;
  • Appoint one or more liquidators for the company.

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

  • An extraordinary resolution is required, and the company resolves that it cannot continue its business because of its liabilities.;
  • The company’s articles of association state that it should be dissolved at a specific time or following a particular event when requiring an ordinary resolution.

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 arranges for its assets to be sold to repay creditors, and the business closes down, allowing a final distribution minus liquidation costs to creditors.

The company name remains active on Companies House, but its status changes to ‘Liquidation’. The name is only removed upon dissolution, which takes place about three months after the finalisation of the liquidation.

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 a director or shadow director in the last three years before the liquidator’s 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:

  • Provide information about the company’s affairs to the liquidator and attend interviews if and when necessary.
  • Take care of the company’s assets and hand them over to the liquidator, including 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 however, 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). 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 can demonstrate a realistic opportunity to be turned around or liquidated.

Worried about your Bounce Back Loan (BBL)?

As a company director concerned about your director’s liabilities and how you will repay your BBL, The team at HBG Advisory provides help. As licensed insolvency practitioners (IP), we can discuss your options in total confidence regarding repaying your outstanding BBL 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 are distributed among outstanding creditors. The company eventually dissolves and ceases to exist as a legal entity. An insolvent company can liquidate through a compulsory court order or a voluntary process, such as a CVL.

Who can put a company into liquidation?

A CVL remains a director-initiated liquidation process, which an IP must administer. Once the director—or directors—of a limited company knows the business’s insolvency, they can decide to voluntarily shut down the company by placing it into a CVL. They will select an IP working 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 is reduced.

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. It would be beneficial to include a timetable for when the creditor will make payments.

Company Voluntary Arrangement (CVA)

A CVA remains a formal arrangement rather than as above. It enables a struggling financial company to reach a binding agreement with creditors about paying all or part of its debts over an agreed-upon 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 IP) reports to the court on whether to arrange a meeting with the 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 stands appointed supervisor.

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 and after the CVA. 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
  • and arrange with creditors a voluntary arrangement or compromise.
  • Achieve a higher realisation of the company’s assets than if liquidated.

An IP manages the procedure as the administrator.

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

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