- September 20, 2019 at 3:56 am
I have a question about creditor’s voluntary liquidation- who instigate it?
BPP says ‘the member always commence a voluntary liquidation’ but in another question of BPP the answer is “the directors- a voluntary liquidation is instigated by a company resolution that states that the company cannot continue to trade”
Thank you in advance.September 20, 2019 at 6:37 am
It’s correct that a members’ resolution needs to be passed / approved to commence any voluntary liquidation
But ask yourself this! How do the members know when and where to attend a meeting for the purposes of passing the resolution?
The directors convene that meeting and it’s the directors that decide to propose the resolution at the meeting
So can you see? It’s the directors that start the process whereby a company enters into a creditors’ voluntary liquidation
However! (And now it gets silly!). The company could not enter a creditors’ voluntary liquidation if the company doesn’t exist so could you argue that it’s the promotors who created the company that started this ball rolling!
I agree that it’s a tricky question (forget that bit about promotors!) but it must surely be the directors that start the process
OK?September 20, 2019 at 3:30 pm
Is it correct to say that:
Directors will instigate a voluntary liquidation because they are in the best place to know the financial position, but in order to do so they need approval (resolutions) from the members. That’s why members are the ones that commence it?September 20, 2019 at 4:16 pm
No – I don’t believe that that’s accurate
Directors (you are correct) are in the best position to determine whether or not a company is viable
They can take the steps necessary to convene a meeting of the members (without first getting members’ approval) and, at that meeting, the board will tell the members that the company is in deep financial trouble and the directors propose a resolution for the members’ approval that the company, by reason of its debts, can no longer continue as a viable entity and that the company should seek a voluntary winding up
However, because it’s unlikely that the creditors will be paid in full within 12 months of the passing of that resolution, the winding-up must be a creditors’ winding up and not a members’ winding up
Is that better?September 20, 2019 at 4:45 pm
Yes that’s much better.
Thank you very much for your explanations, Mike 🙂September 20, 2019 at 9:56 pm
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