What is voluntary liquidation?
A company can be wound up voluntarily, (without the need for a court order), with the agreement of its members or its creditors. A voluntary liquidation agreed by the members is called a members’ voluntary liquidation. Where the winding up is agreed by the creditors it is called a creditors’ voluntary liquidation.
What is the difference between members’ and creditors’ voluntary liquidation?
A company may only be wound up by its members where its objectives have been achieved and/or it is solvent, i.e. its assets exceed its liabilities and this is supported by a declaration of solvency. Alternatively an insolvent company must have the agreement of its creditors to be wound up voluntarily.
What is a declaration of solvency?
The declaration of solvency must be in a form prescribed by statute. The declaration of solvency states the directors, having enquired into the company’s affairs, have formed the opinion that it will be able to pay its debts, together with interest at the official rate, within the stated period which must not exceed 12 months. The declaration of solvency includes a statement of the company’s assets and liabilities as at the latest practicable date before the making of the declaration. As the company’s liabilities may be paid with the help of third party funds the declaration of solvency does not have to state that the company is solvent.
What happens if a company in members’ voluntary liquidation becomes insolvent?
The liquidator must call a meeting of creditors within 28 days of discovering the company’s insolvency. The liquidator must prepare a statement of affairs for the meeting. On completion of the meeting the liquidation becomes a creditors’ voluntary liquidation.
What are is the role and powers of a voluntary liquidator?
The voluntary liquidator’s role is to realise the assets and has the power to distribute the funds to the creditors and shareholders. The liquidator has the power to carry on the company’s business, to sell the company’s property, to pay any class of creditors in full and to take or defend any legal proceedings.
How is a voluntary liquidator paid?
The liquidator’s remuneration is decided by the company in general meeting (members’ voluntary liquidation) or by a liquidation committee or meeting of creditors (creditors’ voluntary liquidation). The level of remuneration is set at either as a percentage of the value of assets realised or distributed or by reference to the time properly spent by the liquidator and his/her staff. In addition in a members’ voluntary liquidation the liquidator’s remuneration may be a set amount.
Is the liquidator’s remuneration and expenses paid out of the company’s assets?
All of the liquidator's expenses, including his/her remuneration are payable out of the company’s assets in priority to all other claims if properly incurred.
What happens if a winding-up order is made against a company in voluntary liquidation?
The voluntary liquidator is replaced by the official receiver who becomes liquidator. The voluntary liquidation and compulsory liquidation form one continuous proceeding with the date of the resolution for voluntary liquidation remaining the date of commencement of the winding up. All "proceedings" taken in the voluntary liquidation are deemed to be valid unless the court, on proof of fraud or mistake, directs otherwise. The action to be taken on the making of a winding-up order is contained in paragraph 56.3.85.