A company can only be put into voluntary liquidation by its shareholders. The liquidator appointed must be an authorised insolvency practitioner. The liquidation begins from the time the resolution to wind-up is passed.
There are two types of voluntary liquidation:
- members' voluntary liquidation
- creditors' voluntary liquidation
Members' voluntary liquidation
A members' voluntary liquidation can only take place if the company is solvent. The directors must make a formal declaration of solvency, which must:
- be made by the majority of directors on a date no more than five weeks before the passing of the resolution for voluntary winding up
- be filed at Companies Registry
- state that the directors have made a full inquiry into the company's affairs and are of the opinion that the company can pay its debts and interest within a maximum of 12 months
- include an up-to-date statement of the company's assets and liabilities
It is a criminal offence to make a declaration of solvency without reasonable grounds.
The shareholders must hold a general meeting of the company that passes a resolution:
- for voluntary winding up
- appointing one or more liquidators of the company
The shareholders must pass a special resolution for winding up, unless:
- the company resolves that it cannot continue its business because of its liabilities, when an extraordinary resolution is required
- the articles of association of the company provide for it to be dissolved at a certain time, or following a certain event, when an ordinary resolution is required
If it later turns out that the company is not solvent, the liquidator will call a meeting of creditors and the liquidation becomes a creditors' voluntary liquidation.
Creditors' voluntary liquidation
If the majority of directors do not make a declaration of solvency, or the company is insolvent, the shareholders can still vote for a voluntary liquidation. This type of liquidation is called a creditors' voluntary liquidation. To vote for a voluntary liquidation, the shareholders must:
- hold a general meeting of the company
- pass a resolution for voluntary winding up (as for members' voluntary liquidation)
The company can nominate an authorised insolvency practitioner as liquidator. It must also call a meeting of creditors (usually on the same day as the shareholders' meeting) at which they receive details of its financial affairs. The creditors can nominate a liquidator and their nomination will usually override that of the shareholders, if different.
The High Court can make a winding-up order on the application of a relevant person. The application is known as the "winding-up petition".
Who can put a company in compulsory liquidation?
A petition for the winding up of a company is usually presented to the High Court by a creditor.
Less frequently, the company itself, its directors or a shareholder may petition, as (in some circumstances) may an administrative receiver, an administrator, a supervisor of a voluntary arrangement, the Department, the Financial Services Authority, the chief clerk (Crown Court), a clerk of petty sessions, or the Official Receiver. A winding-up petition can still be presented even if a company is already in administrative receivership or voluntary liquidation.
In what circumstances can a winding-up order be made?
A winding-up order can be made if the company:
- has decided that it should be wound up by the High Court
- registered as a public limited company more than a year previously but has not yet been issued with a trading certificate
- is an 'old' public company
- has not begun trading within a year of its incorporation or has suspended its trading for a whole year
- has less than two shareholders, unless it is a private company limited by shares or guarantee
- cannot pay its debts
- should be wound up because the Court forms the opinion that this would be just and equitable
In which Court should a winding-up petition be presented?
The winding-up petition should be presented in the:Northern Ireland High Court
Royal Courts of Justice
The telephone number is 028 9023 5111 and you should ask to be put through to the Bankruptcy and Chancery Office.
What is the procedure for presenting a winding-up petition?
To ensure that all legal requirements are met, it is usual to instruct a solicitor to deal with issuing a winding-up petition.
To present a winding-up petition you cannot just complete the petition and present it to the High Court. If there are legal proceedings, this can result in costs being awarded against either party. For example, costs could be awarded against a person presenting a winding-up petition if the Court believes that the winding-up procedure has been used in inappropriate circumstances where the debt is clearly defended.
Insolvency law requires that before the Court can hear the petition, affidavits must be lodged at Court verifying the winding-up petition. The petition must usually be served on the company at its registered office. An affidavit of service of the petition must be filed at Court and the petition must be advertised in the Belfast Gazette at least seven days after the petition is served on the company and at least seven days before the hearing. Further statements of truth may be required if, for example, you wish to withdraw the petition.
Here is more detail on the procedure:
- you must pay a deposit to the Department for the Economy
- you must complete a winding-up petition (Form 4.02) along with an affidavit (Form 4.03), verifying the matters giving rise to the petition
- the petition is filed at Court, along with sufficient copies to be served on the company and any other parties involved, and the relevant court fee and deposit - the Court then fixes the place and date when the petition will be heard
- a copy of the petition (sealed by the Court) must be served on the company at its registered office, or if this is not possible, at the company's last main place of business, or on a company director or company secretary - a copy must be sent to any voluntary liquidator, administrative receiver, administrator or supervisor of a voluntary arrangement appointed to the company - immediately after service of the petition, the petitioner must file a affidavit at Court, verifying the service of the petition (Form 4.04/4.05)
- no earlier than seven working days after the petition is served on the company, but at least seven working days before the hearing, the petitioner must advertise notice of the petition (Form 4.06) in the Belfast Gazette - this enables other interested parties to inform the petitioner that they wish to attend the hearing, and whether they wish to support or oppose the petition
- at least five days before the hearing, the petitioner must file at Court a certificate of compliance with the rules relating to service and advertisement (Form 4.07), along with a copy of the advertisement in the Gazette
- If the company wishes to oppose the petition, it must file its affidavit in opposition at least seven days before the hearing
- on the day of the hearing, the petitioner must prepare a list, for the Court, of the people appearing at the hearing (Form 4.10)
At the hearing, the petitioner, creditors, the company and its shareholders all have the right to be heard, and the Court may also choose to hear anyone with an interest in the company's property. The Court can then either:
- dismiss the petition
- adjourn the hearing
- make a winding-up order
- make an interim order
- make any other order it thinks fit
All the forms are in the Insolvency Rules (Northern Ireland) 1991 and you may also be able to get them from legal stationers - see Yellow Pages.
Costs of putting the company into compulsory liquidation
The fees you will have to pay are:
- petition deposit of £1,165 towards the costs of administration of the liquidation
- a court fee of £177
- the costs involved in advertising the petition in the Belfast Gazette, using a process server for the service of a statutory demand and the petition, and so on
- any costs for instructing a solicitor
Appealing against or stopping a winding-up order
There are three ways that winding-up proceedings can be stopped:
- the Court can rescind (that is, cancel) a winding-up order - the company (or anyone else) can apply for it to be rescinded if the Court did not have all the relevant facts when making the winding-up order - application should be made within seven days of the order being made
- the company can appeal against a winding-up order - as a result of an appeal, the Court can rescind the winding-up order or otherwise vary its decision - an appeal should be made within four weeks of the order being made
- liquidation proceedings can be 'stayed' (that is, stopped), permanently or temporarily, on the application of the liquidator, the Official Receiver, a creditor or a shareholder - if liquidation proceedings are stayed permanently, the directors usually regain control of the company - an application to stay the liquidation proceedings can be made at any time after a winding-up order has been made
After a company goes into compulsory liquidation
Usually, the Official Receiver (who is both a civil servant in The Insolvency Service and an officer of the High Court) will be appointed liquidator of the company on the making of a winding-up order.
The Official Receiver has a duty to:
- ensure that notice of the winding-up order is advertised in the Belfast Gazette and in a local newspaper
- investigate the affairs of the company and to establish the cause of its failure (by obtaining information from the directors of the company and from third parties, such as the company's bankers, accountants and solicitors)
- as liquidator - to collect and realise all assets and pay all creditors
The Official Receiver may call a meeting of creditors to appoint an insolvency practitioner as liquidator in his place, but if this happens he still has a duty to investigate the company's affairs.
So, two people may be involved in the liquidation:
- the liquidator, who is responsible for collecting and realising the assets and paying the creditors
- the Official Receiver, who investigates the company's affairs
The Official Receiver also has a duty to make a report to the Department, under the Company Directors Disqualification (Northern Ireland) Order 2002, regarding the conduct of the company's directors.
Duties of a company director in compulsory liquidation proceedings
In compulsory liquidation proceedings, the company's directors must:
- provide information about the company's affairs to the Official Receiver, probably initially over the telephone, but later at a formal interview at the Official Receiver's office
- provide information about the company's affairs to any insolvency practitioner who is appointed liquidator of the company, and attend for interview when reasonably required
- look after and hand over the company's assets to the liquidator or Official Receiver, together with all its books, records, bank statements, insurance policies and other papers relating to its assets and debts
When will compulsory liquidation end?
How long liquidation takes depends on the circumstances of the individual case (for example, the nature of the assets involved and the complexity of the liquidation), but once the process has been completed the company will be dissolved and cease to exist.