Voluntary liquidation occurs when shareholders vote to wind up a company. It allows all assets to be disposed of and any debts to be paid off. Remaining funds are distributed between shareholders. There are two types of voluntary liquidation, members’ and creditors’.
Where a company is insolvent, members can pass a resolution to wind it up. A liquidator is appointed to manage the sale of company assets and distribution of funds to the company’s creditors. This is referred to as a creditors’ voluntary liquidation. It usually arises when debts exceed assets or bills cannot be paid. Following liquidation the company is dissolved.
If a company is solvent, then members can agree to place it into members’ voluntary liquidation. The directors must swear a statutory declaration of solvency. A liquidator is appointed to deal with the sale of assets and payment of the company’s debts. This type of liquidation occurs when directors and members wish to wind up a solvent company.
A company can reverse a members’ voluntary liquidation within two years of being wound up. An application would need to be made to the High Court for annulment of the liquidation. There would need to be evidence of some benefit to the company of doing this, it is not sufficient for the directors to merely have a change of heart.
Where a liquidator finds a possibility of selling a business as a going concern, some trading may continue. Contracts may be finished off, and work carried out that may reduce debts. However the company must be careful not to take up further credit. This constitutes wrongful trading, as is trading where there is no hope of recovery, and is illegal.
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