Creditor’s Voluntary Winding Up
A Voluntary Winding Up in which a Declaration of Solvency has not been made is to be considered as an Insolvency Proceeding and is referred to as a Creditors’ Voluntary Winding Up (Art 268 (5) of the Companies Act). One should clarify that although it is referred to as a ‘Creditors’ Voluntary Winding Up’, it is not the Creditors who initiate the Winding Up process. A Creditors’ Voluntary Winding Up may be initiated by the shareholders through a resolution of the Company (Art 278 of the Companies Act), or by the liquidator in a Members’ Voluntary Winding Up if it turns out during the course of the liquidation that the company will not be able to pay its debts within the period stated in the Declaration of Solvency (Art 272 (1) of the Companies Act).
In a Creditors’ Voluntary Winding up, it is the Creditors who nominate and appoint the liquidator. However, in those cases where the creditors fail to nominate a liquidator during the meeting of creditors called for such a purpose, the person nominated by the Company would become liquidator (Art 279 (1) of the Companies Act). If a liquidator is not nominated by either the Creditors or the company, an application for the appointment of a liquidator shall be filed in Court by any Director of the company within 14 days, and the appointment will be made by the Court (Art 279 (2) of the Companies Act).
With the exception of the appointment of Liquidator, the procedure in a Creditors’ Voluntary Winding Up is the same as that of a Members’ Voluntary Winding Up. In the case of a Creditors’ Voluntary Winding Up the company would however be insolvent, and therefore there will not be enough assets to satisfy all the debts. This brings about another difference, that is the ranking of creditors. The main purpose of the liquidation process, irrelevant of the type of Winding Up procedure, is to settle the debts of the company. If there are insufficient assets to settle all the debts, as is the case with insolvent liquidation, then the debts are settled in accordance with the ranking in terms of any preference granted at law.
As soon as the affairs of the company are wound up, the liquidator will render an account of the Winding Up process and draw up a Scheme of Distribution. These accounts must be audited, and all documents will be laid before the General Meeting of the company and a meeting of the Creditors (Art 274 of the Companies Act). These documents are then sent to the Registrar of Companies and there will be a 3-month period within which Creditors may bring an action before the Civil Court (Commercial Section) to defer the striking off of the company (Art 275 (1) of the Companies Act). If no such action is brought, then the company will be struck off.
This document does not purport to give legal, financial or any other advice. Please be directed to seek appropriate advice from warranted professionals. Do not hesitate to contact the Office of the Official Receiver for further information if necessary or for any clarification.