The process for putting a company into members voluntary liquidation
A members voluntary liquidation is commenced via a special resolution of the company that wishes to go into liquidation. After the special resolution to go into liquidation has been passed, the company in a general meeting will appoint one or more liquidator (who must be a licensed insolvency practitioner) in order to wind up the company.
Directors’ role in a members voluntary liquidation
Once a liquidator has been appointed by the company then all the powers of the directors cease unless either the company in a general meeting or the liquidator allows them to continue. Sometimes it might be more practical for one or more of the directors to continue to act in a limited capacity to assist the liquidator. However, if there is any disagreement amongst the directors or the shareholders, then it is probably best to leave the liquidation process solely to the liquidator.
A key role of the directors in a members voluntary liquidation is to sign a declaration of solvency. This states that the company is able to pay all debts within no more than 12 months. This formal declaration must be sworn on oath. If the directors make this declaration without holding the reasonable belief that it is true, then the penalties are harsh. They could be subject to an unlimited fine or up to 2 years imprisonment. If the company later transpires to be insolvent then the members voluntary liquidation will have failed. It may then be converted from a solvent liquidation to an insolvent liquidation.
What is the shareholders role on a members voluntary liquidation?
Unlike an insolvent liquidation, in a members voluntary liquidation the interest of creditors are not paramount and so shareholders are allowed to retain some control over the company. Shareholders can choose the liquidator, unlike other liquidation processes where the creditors choose the liquidator.
Shareholders will expect to receive at least some proportion of their shareholding back once all debts have been paid. This will of course depend on the outcome of the liquidation sales brought by the liquidator. Any surplus monies will be distributed to shareholders based on their shareholding.
If you are a director or a shareholder of a company that is either in solvent liquidation or you are considering placing the company into members voluntary liquidation, then contact our friendly team of experts today to discuss your rights and duties.