HomeFWJ TakeawayResourcesWhat happens if we discover we are insolvent while in a members voluntary liquidation?

Statutory declaration of solvency

Before the shareholders of a company can resolve to put a company into members voluntary liquidation, the directors will need to consider whether the company is able to pay all its debts within 12 months. Only if they have assessed that this is definitely the case, should they allow the company to go into members voluntary liquidation.

Directors must swear and file a notice of statutory declaration of solvency with the Registrar of Companies. This states, amongst other things, that a majority of the directors have made a full enquiry into the company’s affairs and have formed the view that the company will be able to pay its debts in full together with interest at the statutory rate within no more than 12 months. This statutory declaration is required by law.

What happens if the company is not able to pay all its debts within 12 months?

For the company:-

If this is the case, and the company is actually insolvent, then the members voluntary liquidation will be considered to have failed. At that point it will be necessary to change it from a solvent liquidation into a creditors voluntary liquidation, which is a liquidation process used by an insolvent company.

  • because liquidator will be overseeing the company in a members voluntary liquidation, including collecting in all the assets and paying the company’s debts, it will be the liquidator that will form the view that the company will not be able to pay its debts in full in accordance with the statutory declaration of solvency. If they decide that, then they will need to provide creditors with notice of this within 7 days of this realisation.
  • at that point, because this is no longer a members solvent liquidation, the liquidator would need to ask to be nominated to continue as a liquidator by the creditors, and the members voluntary liquidation would be converted into a creditors voluntary liquidation.

For the directors:-

If a company that started as a members voluntary liquidation moves into a creditors voluntary liquidation because the company wasn’t able to pay its debts as stated in the statutory declaration, then the law presumes that it was unreasonable for the declaration to have been made by the directors.

  • any director can bring evidence to show why they thought their relief was reasonable. However, if they can’t prove this then they may be subject to an unlimited fine or up to 2 years imprisonment or both for filing a false declaration of solvency.
  • it is vital that all directors are fully aware of the company’s financial position before signing the declaration of solvency to avoid the risk of personal liability and the consequences this brings.

At Francis Wilks & Jones we are frequently instructed by companies and directors and shareholders of companies wanting to put their company into members voluntary liquidation. We can go through the process with you, looking at the documentation with you to ensure that you are protected as a director as far as possible, and that the members voluntary liquidation can proceed successfully. Contact our friendly team of experts today to discuss this further.

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