If a company has no real chance of paying its debts and voluntary administration or a scheme of arrangement are not a viable option, then it is likely to be wound up in insolvency. Creditors or the court can wind up an insolvent company involuntarily. Members can also choose to wind up a company voluntarily under the scrutiny of creditors (also known as a creditors’ voluntary winding up).
Restrictions on a Creditors’ Voluntary Winding Up
A company that has an application filed against it in court for winding up on the basis that it is insolvent cannot then subsequently resolve to wind up the company through a creditors’ voluntary winding up. This prevents a company from hampering the actions of creditors. If the court has already ordered a winding up or if the company has an administrator appointed to it, a company cannot choose to voluntarily wind up.
Who Can Initiate a Creditors’ Voluntary Winding Up?
The members of a company can resolve by special resolution to wind up the company and initiate this process when the directors determine the company is insolvent. If directors of a company cannot provide a declaration of solvency when considering a members’ voluntary winding up, the company must proceed with a creditors’ winding up.
If during a members’ voluntary winding up a liquidator forms the view that the company will not be able to pay its debts within a declaration of solvency period (12 months), the liquidator must take certain steps, including the option of calling a meeting of creditors. Following such an action, the members’ voluntary liquidation becomes a creditors’ voluntary liquidation.
What is the Process for a Creditors’ Voluntary Winding Up?
Once a liquidator is appointed, the directors of the company must provide them with a summary statement about the company’s business, property, affairs and financial circumstances. The liquidator must convene a meeting of the company’s creditors within 11 days after the member’s meeting.
At the creditors’ meeting, the creditors may decide to appoint a committee of inspection. The creditors may also choose to remove the liquidator and appoint another liquidator.
To vote at a creditors’ meeting, a creditor must lodge particulars of their debt or claim owed by the company. The chair at the creditors’ meeting must prepare and sign minutes of the meeting. The liquidator must then proceed with winding up the company.
If you require advice in respect of a creditors’ voluntary winding up, get in touch with our insolvency lawyers on 1300 544 755.