Voluntary Liquidations

The use of the word voluntary is to show that the owners of company have chosen to put their company into liquidation rather than the company being forced into liquidation by an order based on a petition presented to the Court. It requires a 75% majority of voting shares to pass the appropriate resolution at a general meeting. The shareholders will also be required to vote on the appointment of a licensed insolvency practitioner as liquidator.

There are two types of voluntary liquidation.

A Members’ Voluntary Liquidation (“MVL”)

is available for solvent companies and requires the directors of the company to swear or affirm that the company is able to discharge the whole of its obligations, together with statutory interest where applicable, and the costs of the liquidation process, within a period not exceeding 12 months. It is frequently used in a demerger process or as a tax efficient method for closing businesses and returning monies to the owners on retirement. It cannot be used to deal with an insolvent company.

The directors would instruct an insolvency practice to assist in the process. A meeting of shareholders would be convened, normally on not less than 14 days’ notice, and the shareholders would be asked to pass resolutions to wind-up the company and appoint a liquidator. The liquidator would realise the assets of the company, discharge any costs of the process and the obligations of the company (including interest if applicable) and then make a capital distribution to the shareholders by reference to their shareholdings.

Upon conclusion the liquidator will issue a final report and the company will be dissolved from the register at Companies House.

A Creditors’ Voluntary Liquidation (“CVL”)

is the process used to wind-up the affairs of a company where its assets are exceeded by its obligations, or it is otherwise unable to discharge its debts. It would involve the Directors of the company instructing an insolvency practice to assist in the process. A meeting of shareholders would be convened, normally on not less than 14 days’ notice, and the shareholders would be asked to pass resolutions to wind-up the company and appoint a liquidator.

The creditors of the company also have to be notified of the process. There are two ways that this might be done. Under the “deemed consent” process creditors will be notified that the company is going into liquidation and who it is proposed will be appointed liquidator. They will be told that they need to do nothing further unless they object to the proposed liquidator being appointed or they require a physical meeting of creditors to be convened. If they wish to object they must do so in a prescribed form. Where the requisite level of objections is not received then the creditors will be deemed to have consented to the proposed liquidator’s appointment.

Under the “virtual meeting” process creditors will be sent a notice advising of the date, time and platform for a virtual meeting. A director of the company will chair the meeting and the proposed liquidator will be in attendance. Any creditor may request a link to attend and will be admitted subject to providing proof of their claim against the company. Creditors attending the meeting may be permitted to ask questions of the chairman (a director of the company) or the proposed liquidator and will be entitled to vote on the appointment of a liquidator, who may or may not be the person initially proposed by the directors of the company.

Whether “deemed consent” or “virtual meeting” the creditors will be entitled to receive a report in advance of confirmation of the liquidator’s appointment. That report will be responsibility of the directors, though prepared by the insolvency practice for the directors’ consideration, and will include:

  • Extracts from the company’s file at Companies House.
  • A brief history of the company explaining its current position.
  • Extracts from its last accounts.
  • An estimated statement of affairs (essentially a balance sheet on a break-up basis)
  • A deficiency statement (reconciling the last accounts with the statement of affairs)

Once appointed, the liquidator will realise the assets of the company and agree the claims of the creditors.

The appointed liquidator additionally has duties of investigation. These duties are twofold. Firstly he must investigate the conduct of the directors and submit a report under the Company Directors Disqualification Act 1986. Secondly he must investigate the transactions entered into by the company to determine whether there are rights of action that could give rise to potential recoveries for creditors.

On completion of his duties the liquidator will issue a final report to creditors and shareholders. Thereafter the company will be dissolved from the register maintained by Companies House.