Creditor Voluntary Liquidation

Voluntary company liquidation is the process by which a company is dissolved voluntarily either by its members or creditors. In both instances, it is necessary to receive the approval of the company’s shareholders before voluntary liquidation can begin. When a solvent company- a company that has cash left over after paying all debts following liquidation- enters voluntary liquidation it is called members’ voluntary liquidation. Conversely, when the shareholders of an insolvent company decide to enter voluntary liquidation it is called creditors’ voluntary liquidation.

Members’ voluntary liquidation may proceed into creditors’ voluntary liquidation if the company is later found to be insolvent. Shareholders may also call a meeting and vote to wind up the company voluntarily due to insolvency. At this time, the directors of the insolvent company must meet with all their creditors and share with them the current state of affairs of the company and reasons for liquidation. A liquidator – who must be a professional insolvency practitioner – is then appointed by either the shareholders or creditors to wind up the company.

Creditors have the right to exercise certain authorities in creditor voluntary business liquidation. For example, when it comes time to choose a liquidator or liquidators, the choice of the creditors, if different from that of the shareholders, is upheld above that of the shareholders. Creditors must submit proof of claims. Upon, liquidation, secured creditors are paid first.

Members’ voluntary liquidation

There are several reasons a business’s shareholders may choose members’ voluntary company liquidation. Shareholders might feel the purpose of the company has been accomplished and they choose to wind up the company and retrieve their cash investments. For example, a family-owned business may be liquidated to obtain cash for retirement or reinvestment elsewhere. Or, shareholders of a company undergoing restructuring may choose to redistribute the cash assets of a subsidiary at the suggestion of the board of directors. In any case, proper legal procedures must be followed for shareholders to enter members’ voluntary liquidation.

First, to be eligible to wind up their company in this manner, members must declare that the company is solvent and that they can pay all creditors no later than one year following the start of liquidation. A liquidator is then appointed and the liquidation process initiated. Falsifying solvency is a serious crime. If at the end of 12 months, the company is found to be insolvent, shareholders may enter creditors’ voluntary company liquidation or creditors may appeal to the court and call for compulsory liquidation of the insolvent company’s assets.

Liquidator’s job in voluntary liquidation of business

The liquidator’s job is to wind up and dissolve the company’s assets. In the case of creditors’ voluntary liquidation, the insolvency practitioner must obtain all the required company records from the Directors of the insolvent company. Upon liquidation, the insolvency practitioner will then proceed to pay the secured and unsecured creditors, respectively. The insolvency practitioner is responsible for handling creditor’s claims and must keep proper records of all transactions. A final meeting held with the creditors and shareholders by the liquidator signals the end of the voluntary company liquidation process and the dissolution of the company.