A Guide to Creditors Voluntary Liquidation

The procedure

There are 3 meetings required to place a company into Creditors' Voluntary Liquidation and the directors should consult a firm of insolvency practitioners to advise and assist them through the process.

The 3 meetings are:

1 - Board meeting
2 - Members meeting
3 - Creditors meeting

Board meeting

A board meeting is held where the board of directors resolve that the company is unable to meet its liabilities as they fall due and it is advisable to wind up the company's affairs. Accordingly an Extraordinary General Meeting (EGM) must be called for the members of the company to consider the conclusions reached by the directors and agree that it is advisable to wind up the company via a creditor's voluntary liquidation. A meeting of the company's creditors is also called in order that the creditors may vote on their choice of liquidator and/or question the directors on the reasons for failure of the company.

A director will be nominated to chair the meeting of members and creditors and verify by affidavit the statement of affairs – a statement listing the assets and liabilities of the company to be drawn up to a date not more than 14 days before the members meeting.

The date for the meeting of members will be at least 16 days from the date of the board meeting as members must be given 14 days notice for an EGM where an extraordinary resolution is to be proposed in accordance with the Companies Act 1985. This time limit can be shortened with the written consent of at least 95% of shareholders.

The date for the meeting of creditors must be within 14 days of the meeting of members. It is however best practice to hold the meeting of creditors immediately after the meeting of members.

ICS will draft and provide the necessary board minutes for the meeting of the board of directors where it is resolved that meetings of the company's members and creditors should be called. ICS will also draft and prepare the required notices to members and creditors in order to convene the meetings required by Section 84 and 98 of the Insolvency Act 1986 ('IA86'). ICS shall attend the board meeting if requested to do so by the directors.

Members meeting

The members meeting will consider the conclusions reached by the directors at the board meeting and review the statement of affairs. If they then consider it appropriate, they will pass an extraordinary resolution to wind up the company. An ordinary resolution will then be passed appointing a liquidator. The liquidator will, in most circumstances, be an insolvency practitioner from the firm who were instructed to assist the directors in placing the company into voluntary liquidation. Shareholders are able to nominate a different liquidator. If this happens a simple majority vote will decide who is appointed.

ICS will advise on the appropriate venue and timing for the above meetings having regard to Rule 4.60 of the Insolvency Rules 1986 ('IR86') and Statement of Insolvency Practice 8. ICS will also advertise the meetings as required by Section 98 IA86 providing ICS have received the necessary information as shown in the attached information memorandum. ICS will also arrange for notice to be sent to all creditors of the company notified to me by the directors in accordance with Section 98 Insolvency Act 1986.

Meetings of members and creditors

The creditors' meeting is held primarily to enable creditors to select the liquidator of the company, but it also allows creditors the opportunity to question the directors about any aspect of the company and bring to the attention of the liquidator information that he may find useful in carrying out his duties. The directors present a report detailing the history of the company together with other pertinent information. The statement of affairs is also made available to creditors.

The liquidator elected by the members will preside over the formalities of the meeting because it is unlikely the chairman of the meeting will be experienced in such circumstances.

The director nominated to chair the meeting of creditors at the initial board meeting must do so under Section 99 of the Insolvency Act or the director is liable to prosecution and a fine of up to £5,000.

Preparation of documents required for the meetings of creditors.

ICS will either assist you in preparing the statement of affairs from the information provided to us or instruct a third party to prepare this on your behalf. The directors will be responsible for the contents of the statement of affairs and failure to provide ICS with the required information to allow the documents to be prepared; will result in no statement of affairs being presented. Failure to prepare the statement of affairs is an offence under Section 99 IA86 and the directors can be liable to a fine up to £5,000.

ICS will also assist in the drafting of the director's report as required by Statement of Insolvency Practice Number 8. This will need to include the trading history as this is the explanation you will provide to creditors about why the liquidation is necessary. In addition ICS will obtain certain information from the Company's statutory records or, in the absence of such, from Companies House records.

ICS will prepare the resolutions and minutes of the meeting.

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