Liquidation Advice
Voluntary liquidation
There are two kinds of voluntary liquidation:
1. Members' Voluntary Liquidation (MVL) - which means the directors have made a statutory declaration of solvency;
2. Creditors' Voluntary Liquidation (CVL) - which means that the directors have made no such declaration.
1. When can a company go into MVL?
This can take place when the directors of a company believe that the company is solvent.
2. What is in the declaration?
The statutory declaration will state that the directors have made a full inquiry into the company's affairs and that, having done so, they believe that the company will be able to pay its debts in full within 12 months from the start of the winding-up. The declaration will include a statement of the company's assets and liabilities as at the latest practicable date before making the declaration.
3. When does liquidation actually start?
The liquidation starts when the members, in general meeting, pass a resolution (usually a special resolution) to wind up the company voluntarily.
4. Must notice of voluntary liquidation be given to anyone?
Yes. Notice of the special resolution for voluntary winding-up of the company must be published in the Gazette within 14 days of the general meeting. The company must also send a copy of the declaration and the special resolution to the Registrar within 15 days of the general meeting.
5. When may a CVL be appropriate?
A company may go into CVL when it cannot pay its debts.
6. What must the company do?
The company passes an extraordinary resolution to say that it cannot continue in business because of its liabilities and that it is advisable to wind up.
The resolution must be:
- advertised in the Gazette within 14 days; and
- sent to the Registrar within 15 days.
A meeting of creditors must be held in the next 14 days after passing the resolution. Notice of the meeting must be sent to the creditors at least 7 days before the meeting. Also, the directors must prepare a statement of affairs for consideration at the meeting, and appoint one of themselves to attend and preside over the meeting.
When the liquidator is appointed, the directors must provide him or her with a statement of affairs and otherwise co-operate with the liquidator.
7. Does the company have to advertise notice of the meeting?
Yes. The meeting must be advertised in the Gazette and in two newspapers in the area where the company has its principal place of business.
8. What are the main duties of a liquidator?
The liquidator is appointed to wind up the company's affairs. The liquidator does this by calling in all the company's assets and distributing them to its creditors. If anything is left over, the liquidator distributes it among the members of the company.
9. Does a liquidator need to notify anyone of his or her appointment?
Yes. Within 14 days of being appointed, a liquidator must publish a notice of appointment in the Gazette and notify the Registrar. If the liquidation is voluntary, the liquidator must also give notice in a newspaper in the area where the company has its principal place of business.
10. What does the liquidator have to send to Companies House?
The liquidator must send a statement of affairs and Form 4.20 to the Registrar within 7 days of the creditors' meeting.
The liquidator must also send a statement of receipts and payments for the first 12 months of liquidation. After that, statements must be sent every 6 months until the winding-up is complete.
11. Can an MVL be converted into a CVL?
Yes. If the liquidator decides that the company will not be able to pay its debts in full in the period stated in the directors' statutory declaration of solvency, he or she must call a meeting of the creditors which must be held within 28 days. The liquidation becomes a CVL from the date of the meeting.
12. What are the requirements for giving notice in such a case?
The liquidator must:
- post a notice of the meeting to each creditor at least 7 days before the date of the meeting;
- advertise the date of the meeting in the Gazette and in 2 newspapers in the area where the company has its principal place of business; and
- prepare a statement of affairs for consideration at the meeting. A copy of the statement must be sent to the Registrar within 7 days of the meeting.
13. What happens when the company's affairs are fully wound up?
The liquidator presents an account to final meetings of creditors and members of the company. He or she must advertise the meetings in the Gazette at least one month before.
Within one week of the meeting having taken place, the liquidator must send the account to the Registrar and a return of the final meeting.
Unless the court makes an order deferring the dissolution of the company, it is dissolved 3 months after the return and account are registered at Companies House.
14. Which forms should be used?
The appropriate forms are:
| Form Title | Number |
|---|---|
| Notice of appointment of liquidator voluntary winding-up (members or creditors) | 600 |
| Statement of affairs in conversion from a members' voluntary to a creditors' voluntary liquidation | 4.18 & 4.20 |
| Statement of affairs in a creditors' voluntary liquidation | 4.19 & 4.20 |
| Liquidator's statement of receipts and payments | 4.68 |
| Members' voluntary winding-up declaration ofolvency embodying a statement of assets and liabilities | 4.70 |
| Return of final meeting in a members' voluntary winding-up | 4.71 |
| Return of final meeting in a creditors' voluntary winding-up | 4.72 |
Please note: With the exception of Form 600, these forms are not available from Companies House. They can be obtained from legal stationers.
Compulsory liquidation
1. What is 'compulsory liquidation'?
Compulsory liquidation of a company is when the company is ordered by a court to be wound up.
2. Which courts can order a compulsory liquidation?
The High Court, or a county court with the appropriate jurisdiction, may order the winding-up of a company. This may be, for example, on the petition of a creditor or creditors on the grounds that the company cannot pay its debts.
A company is regarded as unable to pay its debts if, for example, a creditor:
- is owed more than £750;
- presents a written demand in the prescribed form (known as a statutory demand (Form 4.1)) to the company; and
- the company fails to pay, secure or agree a settlement of the debt to the creditor's reasonable satisfaction.
There are other situations where a company is deemed unable to pay its debts. Please read the relevant legislation.
The court may also order the company to be wound up on the petition of:
- the company itself;
- the company's directors or one or more members;
- the Secretary of State for Trade and Industry;
- the Financial Services Authority (formerly the Securities and Investment Board); or the Official Receiver
In the case of a European company (SE) registered in GB, the Secretary of State may petition the Court for a winding up order on the grounds that it appears that the SE does not have both its head office and registered office in GB. For more information on SEs, please see our booklet, ‘The European Company: Societas Europaea (SE)’.
3. Must the petition be advertised?
Unless the court directs other arrangements, the petition must be advertised in The Gazette.
4. What appears on the company record held by Companies House?
If the petition is successful, the company must send the winding-up order to the Registrar straightaway and it will be placed on the company's public record.
The petition itself is not presented to the Registrar so it will not appear on the public records.
5. Who acts as the liquidator when an order is made to wind up the company?
The Official Receiver becomes liquidator on the making of a winding-up order against a company, unless the court orders otherwise.
6. What are the duties of the Official Receiver as liquidator?
The Official Receiver has a duty to investigate the company's affairs and the causes of its failure.
He also decides whether to call meetings of the creditors and contributories (that is, those people liable to contribute to the assets of the company if it is wound up) for the purpose of appointing a liquidator in his place.
If he decides not to call meetings, he must notify the creditors, contributories and the court of his decision.
On the other hand, if he decides to call meetings, a liquidator may then be appointed in place of the Official Receiver. The liquidator must notify the Registrar of his or her appointment immediately.
If the position of liquidator becomes vacant at any time, the Official Receiver becomes the liquidator for the duration of the vacancy.
7. What happens when the winding-up is complete?
When the Registrar receives notice from the liquidator of the final meeting of creditors or notice from the Official Receiver that winding-up is complete, the Registrar will register it and publish its receipt in the Gazette.
Unless the Secretary of State directs otherwise, the company will be dissolved 3 months after the notice was registered at Companies House.
If the Official Receiver, acting as liquidator, is satisfied that the company's realisable assets (that is, assets which could be sold or disposed of to raise money) will not cover the expenses of winding-up and that no further investigation of the company's affairs is necessary, he may apply to the Registrar for early dissolution of the company. The company will be dissolved 3 months after the application is registered at Companies House.
It is strongly advisable that you speak with an Insolvency Practitioner before choosing what route to go down. Insolvency Network can offer a Free Meeting with our licensed Insolvency Practitioner.
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