In a voluntary liquidation, a business’s affairs and operations are wound up, its assets are sold and distributed, and the company is eventually deregistered.
Whenever a business ceases to exist or is being wound up, either by agreement between stakeholders, by loss, or because of bankruptcy, it may either be sold, wound up by a court-ordered process, or closed.
- To wind up a company means to end it.
- If a company is able to pay its debts, it may be voluntarily wound up by its members.
- If a company is unable to pay its debts, it is considered insolvent, and its creditors can wind it up.
When can a company be wound up?
Normally, a company can be wound up in the event that it is sold, ceases trading, or is restructured.
In the event of the company’s closure, its articles of incorporation can suggest that it be dissolved after an expiration date or at the occurrence of a specific event.
Who and what are involved in this process?
To wind up a company, the key steps involved include:
- Paying off any outstanding debts
- Selling any assets
- Ending the existence of the company by deregistering
- Resolving any outstanding company matters
A liquidator can be appointed when a company is being wound up in order to oversee the process.
In cases where a company is solvent (able to pay off its debts), the members or shareholders can choose to wind the company up voluntarily, which is a preferable option, since it could allow members a chance to receive their investment back. If a company becomes insolvent then debts to creditors must be cleared first.
Likewise, a members’ voluntary wind up is less complicated than a creditors’ involuntary wind up.
When a business is not functioning properly, it is best to shut it down. In order to wind up a company, creditors are paid, assets are distributed to members, and the company is finally dissolved.
To wind up a company the following must take place:
- Members should have a board meeting and a statutory declaration should be made declaring that the company is either solvent or insolvent
- A notice of a general meeting with stakeholders to discuss the resolution should be made
- The resolution must be passed by a majority at the emergency general meeting for the voluntary winding up and appointment of a liquidator
- If the liquidator forms the opinion that the company is unable to pay its debts then a meeting with be called with creditors
- Within 14 days of this the directors should publish a notice to the effect that the company is being voluntarily wound up
- A statement of accounts may be required to show all assets and liabilities of the company
- All necessary documents should be sent to the companies registrar
The advantages of winding up a company voluntarily are that there are limits to the directors liability, and it is a private process with minimal interference from government. It typically takes one year for a company to be voluntarily wound up.