Liquidation is a method using which a company is shut down by redistribution of the assets in the company. Terms like winding up as well as dissolution are also used to refer to the process of Liquidation. However, dissolution is generally the last nail in the coffin in the process of Liquidation. This article gives a step by step guide to Voluntary Liquidation.
1. Ascertain That The Company Is Suitable For Voluntary Liquidation
The first step of the process of Liquidation consists of the directors of the company deciding the agreeing upon the suitability of the company for a voluntary liquidation. To decide whether the company is suitable for liquidation, they should make sure that whether the company in question is solvent or not. In some places, for the company to be declared as solvent, the company should have the assets in place to be able to pay all their due debts within the time period of a year. If it is the case that the company cannot pay their debts within a year then the board of directors should seek help of another entity like an investment manager. They can help the company to legally become insolvent and make them eligible for voluntary liquidation.
2. Declare That The Company Is Solvent
After the first step is complete, the board of directors should hold a meeting in which they formally state and document the the fact that the company in question is indeed solvent. All the directors of the company should sign the Declaration of Solvency. This Declaration of Solvency will then be submitted to the Registrar of Companies.
3. Pass A Special Resolution
Once the second step of legally declaring submitting for solvency is complete, the company’s board of directors or preferred shareholders should pass a special resolution that states that the company is officially being winding up. This resolution will also approve the amount of fees allotted to the voluntary liquidator organisation and which organisation will act as the voluntary liquidator for the company.
Once this special resolution is passed, the company in question will be formally in the process of voluntary liquidation. If it is the case that your company has not previously issued a share that gives the shareholders voting and management rights or if these shares have been repurchased by the company at some point then the voluntary liquidator of that company will draft a special board resolution which will issue a single share that will have voting or management rights that will bring the company to a voluntary liquidation.
4. A Liquidator’s Consent Should Be Signed
The Liquidator will sign a consent form (to be filed with the Registrar of Companies) notifying the Registrar of the appointment. The Consent will be filed along with a Notice to the Registrar of the liquidation and shareholders resolution which will inform them that the company is in the process of liquidating voluntarily.
5. A Notice Should Be Sent To The Creditors Of The Company
The company under liquidation should officially issue a notice in the local gazette or any official newsletter informing about the voluntary liquidation of the company. This will inform all of the creditors of the company to inform the company of any claims that are remaining. In some cases, the company should publish notices out of their jurisdiction.
6. Notice Of The Final General Meeting Will Be Published
Once the creditors of the company have been notified about the company going under voluntary liquidation, the company should inform the creditors to submit all the pending invoices addressed to the company as well as other claims before the final general meeting of the company takes place. The final general meeting should typically take place within a month of the publication of the notice.
7. All Pending Claims Against The Company Should Be Settled
After the notice of the final general meeting is issued and the creditors send their claims and invoices, the company and in most cases the voluntary liquidating firm will take a look through the claims and see if they are valid invoices and claims or not. The reviewers will check for the authenticity of the invoices and other accounting work.
8. The Voluntary Liquidator Will Compile A Report
The voluntary liquidating firm will be compiling a report regarding the whole process of the liquidation of the company since the day the company formally declares the company is going to formally liquidate to the day the notice of the final general meeting is sent out. They will also prepare an account of all the invoices and claims of the creditors that are deemed genuine.
9. The Final General Meeting Will Take Place
Once the whole report of the liquidating process is compiled by the voluntary liquidator and the date of the Final General Meeting arrives, all the shareholders and people with preferred stock will assemble for the Final General Meeting. In this meeting, the accounts and reports compiled by the voluntary liquidating firm will be reviewed and will be approved by the shareholders. The shareholders are not required to be present in the meeting in order to vote, they can be represented by a person acting as their proxy.
10. A Final Notice of Liquidation Will Be Sent
Within a week of the final general meeting taking place, the voluntary liquidating firm should file a final notice of liquidation to the Registrar of Companies which will confirm that the final general meeting has taken place and the process of liquidating the company is finally complete.
The process of liquidating a company can take between two to three months. The process is a long one and the companies should hire a firm that can act as a voluntary liquidator for the company. They will carry out all the important steps like checking the validity of the pending invoices addressed to the company, compiling and filing necessary reports and notices and many other crucial tasks required for the liquidation of the company.