Voluntary liquidation of creditors | What is it and how does it apply to me?

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There are different ways to dissolve or liquidate a limited liability company. Each method will essentially realize the assets of the company and distribute the proceeds to creditors or shareholders of the company, but they are individually unique in terms of the processes to be followed.

One of these methods is the voluntary liquidation of creditors.

What is a voluntary liquidation of creditors?

In a voluntary creditor liquidation, the shareholders of a company themselves decide to liquidate the company, and then an insolvency practitioner will be appointed liquidator.

This liquidator will then realize and distribute the assets of the company to its creditors or shareholders before deleting the company from the register.

What is the process to follow?

If a company is insolvent, shareholders can decide to place the company in voluntary liquidation from creditors and offer an insolvency practitioner to act as liquidator.

Notice of this proposed liquidator must be provided to the creditors of the company by the directors.

The creditors may subsequently decide to appoint a different liquidator from that proposed by the shareholders. This is especially important because creditors have the right to receive regular updates from the liquidator and can even form a committee to help the liquidator realize the assets of the company.

What does this mean for me as a director?

There are a number of obligations for administrators in connection with creditors’ voluntary liquidations:

  1. Directors must send notice to creditors of the shareholders’ resolution to enter into creditors’ voluntary liquidation (as noted above).
  2. Directors must send a statement of affairs to the company’s creditors.

Once the company enters creditors’ voluntary liquidation, the powers of the administrators will automatically cease (unless the creditors indicate otherwise), with the liquidator becoming responsible for the day-to-day running of the business. In terms of liability, the liquidator will send a report to the Secretary of State indicating whether a disqualification order should be made against the directors in relation to the insolvency of the company.

What does this mean for me as a shareholder?

Other than resolving to place the company in creditors’ voluntary liquidation, there is not much a shareholder can do once the liquidator is appointed, as the process is mostly handled by the creditors themselves.

The above provides only a brief generic overview of creditors’ voluntary liquidations, and professional advice should be sought (including from lawyers, accountants and insolvency practitioners) before any action is taken to liquidate a business.

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