Solvent winding-up

Members voluntary liquidation

A solvent winding up is also known as a members voluntary liquidation. This is where the members, i.e. the shareholders, of a company that is solvent make the decision that the company must be wound up.

When to use a members’ voluntary liquidation?

A members’ voluntary liquidation is typically used by a company that has been trading and has assets, but wishes to cease trading and place the company into liquidation.

A members voluntary winding up may well be used by a company where the shareholders are effectively a quasi-partnership, meaning that the business owners and the directors all take a part in the management of the company. If there is a diversion of interests, particularly if the directors have fallen out and wish to follow different business routes, then a members’ voluntary liquidation may be an appropriate method of winding up the company in an orderly fashion and distributing the assets among the shareholders.

A members voluntary liquidation has the advantage that an independent insolvency practitioner is appointed to gather in the assets and pay creditors and then shareholders, thus avoiding the chances of dispute if this were left to the shareholders or directors.

How to use a members voluntary liquidation?

Members voluntary liquidation can only take place once a special resolution of the company members has been passed. This means a majority of more than 75% in value of shareholders must vote for the voluntary winding up. Inevitably, this is therefore not a suitable method for a minority shareholder to resolve a shareholder dispute. The majority of the members must be in favour of this.

• once the members have resolved to wind up the company, then the directors must swear a declaration of solvency.
• this confirms that they are confident that the company will be able to pay its debts in full, together with interest at the official rate, within 12 months from the commencement of the voluntary liquidation.

Any director who makes a false declaration of solvency, i.e. they are not confident that there are sufficient assets in the company to meet all creditors liabilities, including contingent liabilities, will face serious consequences if it later transpires that creditors can’t be paid and an insolvent liquidation is required instead. If a director did not make this declaration with the reasonable belief, they may personally be subject to a fine or imprisonment or both. The declaration of solvency must therefore be taken very seriously by the directors.

• once the directors and the shareholders have all agreed and resolved that the company be wound up by a members voluntary liquidation, then a liquidator is appointed over the company;
• at that point, the company ceases to trade and the directors’ powers also cease;
• the liquidator’s role is to collect in all the assets of the company, and to pay all creditors;
• if there is a surplus, then shareholders will receive the surplus in the percentage of their shareholding.

This remedy following a shareholders dispute is only to be used when all shareholders are in agreement that the company should no longer continue to trade and that they should go their own separate ways. It is essentially an amicable divorce between shareholders who no longer want to be in business together.

At Francis Wilks & Jones, our team of voluntary liquidation experts deal with this procedure on a daily basis, and can talk you through the process in more detail. Contact us if you are interested in learning more about this process, and if it is suitable for your business. Please call any member of our team for your consultation now and we can help.