The option of voluntary winding up a company is afforded pursuant to Article 203 of the Companies Law, Cap 113 as amended from time to time (the "Law"). The other options are to wind up a company by the Court or subject to the supervision of the Court.
Regarding the voluntary winding up of a company, pursuant to Article 261(1) of the Law it is provided that: –
"261 (1) A company may be wound up voluntarily-
(a) when the period, if any, fixed for the duration of the company by the articles expires, or the event, if any, occurs, on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution requiring the company to be wound up voluntarily;
(b) if the company resolves by special resolution that the company be wound up voluntarily;
(c) if the company resolves by extraordinary resolution to the effect that it cannot by reason of its liabilities continue its business, and that it is advisable to wind up."
The commencement of the winding up in a voluntary winding invariably dates from the passing of the resolution for voluntary winding up. The consequences of voluntary winding up on the business of the company, is that the company shall, from the commencement of the winding up, cease to carry on its business, except so far as may be required for the beneficial winding up thereof. As concerns, however, the corporate state and corporate powers of the company, these shall continue until the company is dissolved.
It should be noted that after the commencement of a voluntary winding up, any transfer of shares, not being a transfer made to or with the sanction of the liquidator, and any alteration in the status of the members of the company, shall be void, thus attention should be drawn so that no such actions should be attempted upon commencement of a voluntary winding up.
In case of a solvent company, according to section 266(1) of the Law, when there is a proposal to wind up voluntarily (among others situations), the directors of the company or in case of a company having more than two directors, the majority of the directors, may, at a meeting of the directors, make a statutory declaration to the effect that they have made a full inquiry into the affairs of the company, and that, having so done, they have formed the opinion that the company will be able to pay its debts in full within such period not exceeding twelve months from the commencement of the winding up as may be specified in the declaration" (the "Declaration of Solvency").
The essence of such Declaration of Solvency is paramount for a members' voluntary winding up to commence, while in case where such Declaration of Solvency is not made and delivered as prescribed in the Law, then a creditors' voluntary winding up shall be followed. To this end, the Law specifically provides when and how such a Declaration of Solvency should be made in order to have effect.
In a members' voluntary winding up, the company, in a general meeting, appoints one or more liquidators for the purpose of winding up the affairs and distributing the assets of the company and fixes his/their remuneration. On the appointment of a liquidator all the powers of the directors cease, except so far as the company in a general meeting or the liquidator sanction their continuance.
The order of distribution of the assets of the company is specifically provided within the Law. To such order, priority is given to the secured creditors who had a fixed charge properly registered. If there is surplus from the sale of such secured asset subject to the charge, the surplus becomes part of the general pool of assets to be distributed following the order prescribed by the Law, however, in case where the proceeds of the sale of the asset are not sufficient to cover the secured amount, then the secured creditor concerned will be deemed to be an unsecured creditor only with respect to such shortage and will thus rank after the costs of the winding up, preferential debts and any floating charge holders and thus will rank at least pari passu with all the other unsecured creditors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
