Part 3 – Members’ voluntary liquidation
A company’s members’ may voluntarily wind up their company where the articles of association specify a fixed period for the duration of the company and that period expires, or the members wish to retire and realise their investment, or where the purpose for which the company was formed has come to an end. Where the company’s assets exceed the liabilities and the directors make a declaration of solvency (see paragraph 56.3.38) the company, by resolution at a general meeting, may be voluntarily wound up. This is referred to as a members’ voluntary liquidation or MVL.
Where a company wishes to pass a resolution for an MVL the directors, or a majority of directors where greater than two, must make a statutory declaration of solvency. The declaration of solvency must be in the prescribed form and state that 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 but not exceeding 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. The declaration of solvency does not have to state that the company is solvent. For example, where the company is able to pay its debts with the assistance of third party funds, the directors can still make a declaration of solvency The declaration of solvency must be filed with the registrar of companies within 15 days of the MVL resolution being passed [Note 1].
The directors are solely responsible for the company’s declaration of solvency. If a director makes a false or inaccurate declaration of solvency without having reasonable grounds for that opinion he/she will be liable, on conviction, to imprisonment of up to two years or a fine, or both [Note 2].
The declaration of solvency must be prepared and presented to the general meeting at which the members will pass a resolution for the winding up of the company. The declaration should be prepared no earlier than five weeks before the date of meeting. The winding up commences on the passing of the resolution (see paragraph 56.3.11) [Note 3].
56.3.41 The liquidator’s appointment
The meeting of the company after receiving the declaration of solvency will appoint the liquidator [Note 4]. In the event of a vacancy (see paragraphs 56.3.31 to 56.3.32) the company in general meeting may, subject to any arrangement with its creditors, appoint his/her replacement [Note 5].
The liquidator’s role is to realise the assets and distribute the funds to the creditors and shareholders. In order to achieve this, the liquidator has the powers and duties outlined in paragraphs 56.3.15 to 56.3.17.
The powers of the directors cease on the appointment of the liquidator. However, the company in general meeting, or the liquidator, may allow the directors to continue to exercise their powers [Note 6].
The method of calculating the liquidator’s remuneration will be agreed by the company in general meeting, usually when the resolution for winding up is passed. The remuneration may be calculated as follows:
Where the liquidation commenced on or after 6 April 2010, remuneration may be calculated as any one or more of the three bases set out above, with different bases and/or varying percentages set for different activities carried out by the liquidator [Note 8]. If the liquidator considers that the basis of remuneration fixed by the company in general meeting is insufficient or inappropriate he/she may apply to court to change it [Note 9].
In pre-6 April 2010 MVLs where the liquidator’s remuneration is not fixed by the company in general meeting the liquidator is entitled to remuneration calculated in accordance with the scales set out in Schedule 6 to the Rules. If the liquidator considers that his/her remuneration is insufficient, he/she may apply to the court for it to be increased [Note 10].
In MVLs commencing on or after 6 April 2010, where the liquidator’s remuneration has not been agreed by the company in general meeting he/she must apply to the court to fix it. Such an application must be made within 18 months of the appointment of the liquidator [Note 11].
Where the resolution for voluntary winding up was passed on or after 6 April 2010 members of the company have a right to challenge the liquidator’s remuneration. Members with at least 10% of the total voting rights of those entitled to vote at general meetings, or any member with the permission of the court, may apply to the court on the grounds that the remuneration and/or expenses of the liquidator are excessive or that the basis of the liquidator’s remuneration is inappropriate [Note 12]. The court may dismiss the application if it considers that no sufficient cause is shown for a reduction [Note 13]. If the court considers the application to be well-founded it must make one or more of the following orders. An order:
The company’s property must, after payment of the liquidation costs (see paragraph 56.3.20) and expenses together with the preferential debts (see Part 4 of Chapter 40 for further details), be applied in satisfaction of all the company’s liabilities. For further details of the order of payment see Chapter 36 [Note 15].
Where the creditors have been paid in full within the specified period any surplus should be distributed to members. There is no statutory procedure for making a distribution to members. As a result any distribution to members will be carried out according to the company’s articles of association. When the affairs of the company are fully wound up the liquidator will call a final meeting of the company as detailed in paragraph 56.3.28.
If, at any stage, the liquidator forms the opinion that the company will be unable to pay its debts in full he must call a meeting of creditors to be held within 28 days of forming that opinion [Note 16].
It is the duty of the liquidator to deal with the formalities of calling and advertising the meeting within the time limits, to preside at the meeting and to prepare the statement of affairs (see paragraphs 56.3.57 to 56.3.62). The meeting of creditors will have the same effect as a meeting held under section 98 (see paragraph 56.3.54).
From the day on which the creditors’ meeting is held the winding up becomes a creditors’ voluntary liquidation. The commencement date, however, remains the date of the original resolution to wind up [Note 17].