What is creditors voluntary liquidation?
It is used by a company that has reached the difficult decision that it is irretrievably insolvent and that the right thing to do is to cease trading and start the orderly winding up of the company, so that creditors can be paid as far as possible out of the company’s assets.
When can a company use the creditors voluntary liquidation process?
The process is available to any company that is insolvent.
How do I start the creditors voluntary liquidation process?
The board of directors, in a general meeting will first consider whether a resolution to wind up the company is appropriate.
- if the board of directors decide that the company should go into liquidation, the company members will then pass a resolution that it be wound up.
- any floating charge holder should have written notice of the resolution of the company to wind up before the resolution is actually passed, in case they prefer to carry out one of their own enforcement options instead.
- once the resolution is passed, the company enters liquidation.
- the resolution to wind up must be advertised in the London Gazette no later than 14 days after the resolution is passed, or there can be penalties for both the company and the directors personally.
- within seven days of the resolution the directors will need to provide to all creditors what is known as a “statement of affairs” which provides full details of the company, its share capital and a summary of the assets and liabilities of the company as well as a list of the creditors. This will help creditors in reaching a decision regarding the company and the liquidator. Insolvency legislation states all the details that are required in this statement, and the team at Francis Wilks & Jones can guide you on this further in full.
Both the company and the creditors can nominate a person to be the liquidator. The directors will notify the creditors of who they would like to be a liquidator, and will ask the creditors to consent to this.
- within 14 days of the winding up resolution being passed the creditors should make a decision on the liquidator.
- if more than 10% in value of the creditors object to the liquidator nominated by the company, then the liquidator must call a meeting of creditors, and if the creditors decide to nominate an alternative liquidator then that liquidator takes priority over the liquidator suggested by the company.
- once the liquidator has been chosen their appointment takes effect from the date of the resolution for voluntary liquidation.
The liquidator’s role, put simply, is then to collect in the assets of the company and distribute them to creditors according to the statutory order of priority. The liquidator has very wide powers when doing this. It is the liquidator that has control of the company following the date of their appointment, not the shareholders or the directors, whose role falls away on liquidation.
If you are considering whether a creditors voluntary liquidation is the right route for your company, speak to our friendly team of experts at Francis Wilks & Jones who can talk you through the process in more detail, and whether it is the right option for you.