'I am a shareholder with 50% ownership in a limited company. I want to put the company into liquidation. Is this possible?'
What types of liquidation are available to a company?
There are 3 types of liquidation available to a company, a Members Voluntary Liquidation, a Creditors Voluntary Liquidation and a Compulsory Liquidation.
Members Voluntary Liquidation
A members voluntary liquidation is a shareholder/members’ led process that applies to a company that is solvent, but for whatever reason no longer wishes to continue its corporate life. Perhaps the directors or shareholders want to move in different directions and cash in their investment, or the company has come to the end of its natural life for any number of reasons. The key here is that a company can only use this process if it is solvent.
Creditors Voluntary Liquidation (CVL)
A creditors voluntary liquidation is a procedure by which the company or the directors of an insolvent company, which has no reasonable prospect of recovery from the financial problems it is facing, formally place the company into the liquidation process to cease trading and wind the company up and deal with its creditors according to insolvency legislation.
A compulsory liquidation is a court led process, where a winding up petition is issued against an insolvent company by a debtor, or occasionally by the company itself, and the court then provides that the company be wound up. From there, the process is very similar to compulsory voluntary liquidation.
If you would like to explore any of the options mentioned above you can arrange an initial no-obligation consultation with an insolvency solicitor.
How can a shareholder put their company into one or more of these liquidation procedures?
Members voluntary liquidation
As this is a solvent liquidation process only, the company must be able to swear a declaration that the company is able to meet all of its debts (both current and contingent) in full with interest within a period of not more than 12 months. If such a declaration is not possible, then the company should look at alternative winding up methods.
If this is possible, then the company’s members must vote on the members voluntary liquidation by passing a special resolution to place the company into members voluntary liquidation. A special resolution requires a notice period to be given of 14 days and requires agreement of not less than a 75% majority shareholding of the total voting rights of eligible members to secure the resolution.
As a result, unless a 50% shareholder can obtain support of at least 25% of the additional eligible shareholders, they would not be able to put the company into members voluntary liquidation by themselves.
Creditors voluntary liquidation
This process can only be initiated by a resolution of the company’s members. There are two types of resolution that can progress this method.
A company may enter voluntary liquidation if either it has a fixed period which has expired, or an event has occurred which its’ articles say is an event leading to liquidation. In that case, the company must also have passed an ordinary resolution to wind-up – which requires a simple majority of the members attending the meeting for it to be passed.
Alternatively, the shareholders must pass a special resolution that the company be wound-up voluntarily. As above, this requires not less than a 75% majority shareholding of the total voting rights of eligible members to secure the resolution
The company’s memorandum or articles of association will normally contain provisions regarding convening a meeting of members. The directors must call these meetings.
14 days' notice of the meeting is usually required for whatever resolution is required at the meeting, although the members can agree to a shorter notice period.
As a result, a 50% shareholder could only put the company into creditors voluntary liquidation only under option 1, i.e. if the company was only set up for a fixed period which has now expired, or there has been an occurrence which according to the company’s articles, means that the company should come to an end. Otherwise, a special resolution requiring 75% or more of shareholders to vote is necessary.
The other possible alternative for a shareholder would be if they were owed money by the company personally. In that case, they may be able to apply to the court for a winding up order against the company as any creditor would who has a debt outstanding from the company. This will only be an option if they are owed an undisputed sum of at least £750.
This would usually be proved by one of the following methods:
- If the shareholder has served a statutory demand on the company and the 21-day period has expired without payment. While a statutory demand is not a strict precursor to a petition, it is a good way of showing that a debt is owed and remains unpaid.
- If the shareholder has a judgment against the debtor which remains unsatisfied.
- If the shareholder can prove to the court that the sum is owed and the company is unable to pay its debts as and when they fall due.
- Or where the shareholder can prove to the court that the company has less assets than liabilities.
This is not an exclusively shareholder remedy though. It applies to any creditor of the company. However, it is an option for a shareholder owed money who wants their company to go into liquidation if the above are not feasible.
Generally a 50% shareholder has limited options to place a company into winding up, as this usually requires a special resolution by the members which requires a 75% majority. Although, there are options if the shareholder is owed money by the company or if the company was set up for a fixed period that has now expired.
An insolvency solicitor can help you discuss the options available to you and can help you determine the best approach. It is important to seek legal advice early, you may be tempted to deal with it yourself, but you may unwittingly say or do something that could have legal repercussions in the future if you do not follow the correct procedures.