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When you formed your company, how much thought did you give to its eventually winding up? I daresay, none.Forming a company can be a great milestone in someone’s working life. It signifies a conscious and public attempt to take a risk and make a better life for yourself and your family through dedication and ingenuity.Eventually though there may come a time when you can retire and deserve to reap the rewards for years of work or unfortunately the time may come when the company can no longer survive and its business must cease.
These may seem like two extreme cases; however, they are both best dealt with by putting the company into voluntary winding up, otherwise known as liquidation.
Where a company has a surplus of assets after paying off all its debts and the directors/shareholders wish to retire and “cash-out their chips”, a members’ voluntary liquidation allows them to appoint a liquidator who will sell off the assets, collect the debts, pay the creditors and distribute the surplus funds to the shareholders.Before the appointment, a nominee for liquidator may assist the company’s auditor or external accountant prepare a declaration of solvency. The nominee may also prepare all of the notices and minutes of the meetings that must be held to commence the members’ voluntary winding up.After the appointment of a liquidator, the directors are relieved of their powers and the liquidator takes over full responsibility for the company. The liquidator will place the necessary adverts and make the required returns while dealing with the assets and liabilities of the company.In most members’ voluntary liquidations, a significant portion of the surplus cash funds in the company can be paid out to the shareholders early in the liquidation with the balance of cash being paid out as the liquidation is finalised.
Once the affairs of the company have been wound up, the final meetings will be advertised and held, returns will be submitted to the Companies Registration Office and the company will be dissolved.
However, in just over 50% of voluntary liquidations, companies can no longer pay their debts as they fall due and the directors have no option but to recommend that the company be wound up. A creditors’ voluntary winding up will follow whereby the directors will nominate a liquidator. Once either the company’s nominee or the creditors’ alternative nominee is appointed, the liquidator will, as in a members’ liquidation, sell off the assets, collect the debts, and pay whatever monies are remaining after costs to the creditors in the order specified by law.
The liquidator will also invite creditors to establish a committee of inspection that will have an input into the conduct of the liquidation.A significant aspect of the creditors’ liquidation is the investigation into the affairs of the company by the liquidator and the preparation and submission of a report by the liquidator to the Office of the Director of Corporate Enforcement. This report is designed to enable the Director of Corporate Enforcement make a decision as to whether or not the directors of the company acted honestly and responsibly in the conduct of the company’s affairs. The report may lead to the directors being brought before the High Court with a view to restricting them from involvement in other companies for a period of time.
There may also be a situation where you receive a notice that one of your customers is going into liquidation. You have a limited time to evaluate your position and examine all of the options open to you, including the possibility of nominating a liquidator in opposition to the customer’s nominee and of taking a seat on the committee of inspection.
Here at W. O. McGrory & Company, the majority of our partners are experienced liquidators. Whether it’s a members’ or creditors’ liquidation or if you’re attending a liquidation meeting of a customer, we can meet with you and discuss the options open to you. This commentary is a brief outline of the law and practice applicable to winding ups. Following a detailed discussion with you, we can give you an indication of the costs and the timescale involved in your particular circumstances.