When a company decides to liquidate voluntarily it first needs to pass a resolution for winding up to begin the process.
The same process is relevant for both voluntary insolvent (CVL) and voluntary solvent (MVL) procedures.
This article will explain what that is and how to pass one.
What Does a Special Resolution to Wind up Mean?
In company law, a special resolution needs a majority of at least 75 per cent. At a meeting, that means 75 per cent of the votes cast. As a written resolution of a private company, members holding at least 75 per cent of the total voting rights of all eligible members must agree, so members who do not reply count against it. By contrast an ordinary resolution needs a simple majority. The older term ‘extraordinary resolution’ was abolished by the Companies Act 2006 from 1 October 2007 and survives only in articles written before then.
Special resolutions are designed to protect minority shareholders from missing out on important decisions.
This type of resolution is only used in particular circumstances, for example when a company decides to voluntarily liquidate.
This may be either due to insolvency, or because the company is being closed via a members voluntary liquidation procedure.
What is the Procedure for Voluntary Winding up?
The process of passing a special resolution to wind up is fairly simple.
- If a company feels it is insolvent (or wishes to pursue a solvent liquidation aka MVL), it is usually a director who makes contact with an insolvency practitioner such as ourselves to discuss the situation.
- If the conclusion is that liquidation represents the best way forward, the shareholders pass the resolution, either at a general meeting or, for a private company, as a written resolution. If a lender holds a qualifying floating charge, the company must first give it written notice and wait five business days, unless the lender consents in writing sooner.
- Resolutions are generally passed by a show of hands or by a written resolution.
- Following the resolution the liquidator will assume control of the company and commence the process of dealing with creditors and realising assets. Directors’ powers cease at this point. In a members’ voluntary liquidation they continue only so far as the liquidator or the company in general meeting sanctions (section 91 of the Insolvency Act 1986). In a creditors’ voluntary liquidation they continue only so far as the liquidation committee or, if there is none, the creditors sanction (section 103).
What Legislation Covers the Special Resolution for Voluntary Winding Up
The key legislation can be seen here in Section 84 1 (b) of the Insolvency Act
Part of this stipulates that all resolutions to wind up be advertised in the Gazette, the Official Journal of Public Record.
Resolutions to Wind up Can be seen via Notice 2441 on the Gazette website.