VOLUNTARY LIQUIDATION
What is voluntary liquidation
A company can only be put into voluntary liquidation by its shareholders. The liquidator appointed must be an authorised insolvency practitioner. There are two types of voluntary liquidation:
- Members' Voluntary Liquidation - This is when the shareholders of a company decide to put it into liquidation and there are enough assets to pay all the debts. ie. the company is solvent.
- Creditors' Voluntary Liquidation - This is when the shareholders of the company decide to put the company into liquidation, but there aren't enough assets to pay the creditors in full. ie. the company is insolvent. The liquidation begins from the time the resolution to wind up is passed.
Members' voluntary liquidation
A members' voluntary liquidation can only take place if the company is solvent. The directors must make a formal declaration of solvency, which must:
- be made by the majority of directors on a date no more than 5 weeks before the passing of the resolution for voluntary winding up;
- be filed at Companies Registry;
- state that the directors have made a full inquiry into the company's affairs and are of the opinion that the company can pay its debts and interest within a maximum of 12 months; and
- include an up-to-date statement of the company's assets and liabilities.
It is a criminal offence to make a declaration of solvency without reasonable grounds.
The shareholders must hold a general meeting of the company that passes a resolution:
- for voluntary winding up; and
- appointing one or more liquidators of the company.
The shareholders must 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 is required; or
- the articles of association of the company provide for it to be dissolved at a certain time, or following a certain event, when an ordinary resolution is required.
If it later turns out that the company is not solvent, the liquidator will call a meeting of creditors and the liquidation becomes a creditors' voluntary liquidation.
Creditors' voluntary liquidation
If the majority of directors do not make a declaration of solvency, or the company is insolvent, the shareholders can still vote for a voluntary liquidation. This type of liquidation is called a creditors' voluntary liquidation. To vote for a voluntary liquidation, the shareholders must:
- hold a general meeting of the company; and
- pass a resolution for voluntary winding up (as for members' voluntary liquidation).
The company can nominate an authorised insolvency practitioner as liquidator. It must also call a meeting of creditors (usually on the same day as the shareholders' meeting) at which they receive details of its financial affairs. The creditors can nominate a liquidator and their nomination will usually override that of the shareholders, if different.
What happens when a company goes into voluntary liquidation?
The liquidator takes control of the company's affairs and almost all powers of the directors cease.
The liquidator disposes of all the company's assets and, after paying the costs and expenses of the liquidation, distributes any remaining money to the creditors.
- In a members' voluntary liquidation, the liquidator must hold a meeting of the company each year and provide details of his or her actions and dealings, and of the conduct of the winding up in the preceding year.
- In a creditors' voluntary liquidation, the liquidator has to hold annual creditors' meetings for the same purpose. He also has a duty to make a report to the Department, under the Company Directors Disqualification (Northern Ireland Order) 2002, regarding the conduct of the company's director.
As soon as the affairs of the company are fully wound up, the liquidator will hold final meetings of the company and its creditors.
What are a company director's duties in a voluntary liquidation?
In voluntary liquidation proceedings, the company's directors must:
- provide information about the company's affairs to the liquidator and attend interviews with the liquidator as and when reasonably required; and
- look after and hand over the company's assets to the liquidator, together with all its books, records, bank statements, insurance policies and other papers relating to its assets and liabilities.
When will the voluntary liquidation end?
Liquidation ends when the company is dissolved after the final meeting held by the liquidator.
How long the liquidation takes will depend on the circumstances of the individual case (e.g. the nature of the assets involved), but once the process has been completed the company will be dissolved and cease to exist.
