Creditors’ Voluntary Liquidation
Where Directors of a company determine that the company is insolvent and cannot continue its operations or be rehabilitated, then they may resolve to seek a resolution of shareholders to place the company into liquidation. Circumstances where this may be desirable include:
- when the company has ceased to trade,
- where the company wishes to cease to trade for the interest of the public, or
- so that its officers do not incur penalties for breaches of the Act, such as trading whilst insolvent.
Creditors play a more active role in this liquidation process as members and directors are essentially excluded from involvement in the supervision of the winding up. In addition, the person appointed must be a registered Liquidator.
In order for a Liquidator to be appointed, a meeting of Directors must be held at which time a Summary of Affairs must be made out in the prescribed form. That Directors’ meeting must resolve to call a meeting of members to consider a resolution to appoint a Liquidator. As the resolution for winding up is a special resolution, at least 21 days notice of the meeting is required to be given.
However, this period can be shortened if 95% of the shareholders consent to short notice. Subject to obtaining this consent, the meeting of members can be held immediately following the meeting of directors, whereat members resolve to wind up the company and appoint a liquidator. The liquidator is then required to convene a meeting of creditors which must be held with 11 days after the day of the general meeting.
The main task of the Liquidator is to take possession of the company’s assets and realise them so that surplus funds can be distributed to creditors. The Liquidator may continue the business of the company to enable the beneficial disposal or winding up of that business.
In addition to the foregoing, the Liquidator may:
- take action against directors for insolvent trading,
- seek appropriate restitution for voidable transactions entered into by the company prior to the appointment of the Liquidator, and
- publicly examine any person who has been associated with the company.
The above information is by necessity, general in nature and its brevity could lead to misunderstanding. For further information, you are invited to contact O’Brien Palmer.