There are various steps involved in a Members Voluntary Liquidation. First a Liquidator must be appointed. The Liquidator has to ensure all outstanding creditors are fully paid and any other liabilities settled. Any remaining assets can then be distributed to shareholders.
- Find out the steps needed to close a solvent company
- What does the Liquidator have to do?
- When are the company debts repaid?
- What happens to the Company Directors?
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Decision to Liquidate the Company taken
The Directors and Shareholders must first decide that they want to close their company. A Board Meeting must be held to pass a special company resolution. This formalises the process.
The directors must also make a declaration that the company is solvent. They must confirm that all creditors can be paid in full within 12 months. This will normally be achieved with cash raised from the sale of the company’s assets.
Directors appoint a Liquidator
The directors then have to appoint an Insolvency Practitioner. This person is legally qualified to Liquidate the company. Once appointed they are known as the Liquidator. They must first carry out an analysis of the business to ensure that the company is solvent.
The Liquidator must confirm that the company can repay its debts within 12 months. They will then advertise the fact that the company is to be liquidated in the London Gazette. It must also be advertised in the local newspaper where the company has its principle place of business.
If the liquidator discovers that the company cannot pay its debts within 12 months a creditors meeting must be called within 28 days. Creditors will then vote to confirm the appointment of the Liquidator. The closure process will then be changed to a Creditors Voluntary Liquidation.
Realise Company Assets and pay Creditors
The liquidator will start the process of selling the company assets immediately. These may include buildings, stock and equipment. However it could also involve the sale of and less tangible things including goodwill and the company website.
In addition to the sale of assets the Liquidator collects any debts owed to the company. They will also terminate any suppliers agreements. They may decided to keep the company operational for sufficient time to complete any work in progress.
The Liquidator will ensure that all creditors of the company are paid in full as quickly as possible. In any event this must happen within 12 months from their appointment. Only after all debts have been paid can any remaining assets be distributed to the shareholders.
Once the Liquidator is appointed the Directors give up their control of the company. As such it falls to the Liquidator to make any employees redundant. All employees must be paid their full notice period and receive redundancy payments in accordance to their terms and conditions of employment.
Report on Conduct of Directors submitted
Despite the fact that the company is solvent and able to pay its creditors in full the liquidator must still report on the conduct of the directors of the business. The report must be submitted to the insolvency Service. It is sometimes known as a D1 or D2 report in reference to the relevant form that is completed.
The report will state whether or not in the liquidator’s opinion the directors have acted properly. If so a form D2 is used to submit the report. If not a form D1 will be used. If a D1 is used the Insolvency Service will then decide whether or not to conduct a further investigation.
Where Member’s Voluntary Liquidation is used it would be unusual for the liquidator to believe that any directors had acted improperly.