Companies are wound up for many reasons. Some are detailed below. By far the most common ground is insolvency, which usually follows a statutory demand.
Winding up is usually by a Court order, but they can be voluntary in which case the Court and associated legal costs can be avoided. In either case a specialist Liquidator is appointed to take over the assets, selling them and then properly accounting to creditors and shareholders for the proceeds.
Voluntary winding up
When members of a solvent company no longer wish to retain the company structure they may pass a resolution to wind up the company. A liquidator is appointed to realise any remaining assets, pay creditors, distribute funds to members and hold a final meeting of members. The company will be automatically deregistered three months after the final meeting is held.
A winding up initiated as a members’ voluntary winding up may convert to a creditors’ voluntary winding up by the convening of a meeting of creditors by the liquidator where they have formed the opinion that the company is insolvent.
Winding up by the court
A company may be wound up by the court if it is insolvent. The most common ground upon which an application is made is the failure of a company to comply with a statutory demand for payment of a debt. A creditor doesn’t have to rely on a statutory demand and may prove actual insolvency.
Other grounds on which the company may be wound up include:
- The company has by special resolution resolved that it be wound up by the court.
- There is deadlock between the directors/principal shareholders.
- Directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members.
- The affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or class of members or in a manner that is contrary to the interests of the members as a whole.
- An act, omission, or proposal by or on behalf of the company, or a class of members of the company, would be oppressive or unfairly prejudicial to a member or members or was or would be contrary to the interests of the members as a whole.
- The court is of opinion that it is just and equitable that the company be wound up.
An application to the court to wind up the company will usually involve a court hearing in about 21 days. This means the company’s assets remain under the control of the company and its directors until that time. If there is an unacceptable risk to those assets you can apply to the court for the appointment of a provisional liquidator.
The court may appoint a provisional liquidator to exercise interim control over the assets of the company in the period between the filing of the winding up application and the making of a winding up order. Situations which justify such an appointment include ones where assets are at risk of being dissipated or otherwise lost, or there is a dispute between directors and shareholders preventing decisions being made.
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