Liquidation of Charity Ltd. by Guarantee

Where your charity has insufficient assets to enable its creditors to be paid in full and the charity is set up as a company limited by guarantee then it is possible to voluntarily place the company into Creditors’ Voluntary Liquidation. This process will sometimes be referred to as a CVL, voluntary winding up or simply voluntary liquidation. It’s title makes no difference to the proceedings being taken.

There are 3 stages to the process:

  1. Board meeting
  2. General meeting of the members
  3. Meeting of creditors

The actions outlined below are performed by Lucas Ross after we are instructed, so you do not need to worry about dealing with them yourself.

Board meeting

The process is commenced by the board of directors/trustees agreeing to seek the voluntary liquidation of the company.

The meeting will be called and held in accordance with the articles of association.

At this meeting a date for the meetings of members and creditors is set.

General meeting of the members

Once the date for the meetings is set above, the members of the company are informed that a general meeting will be held. This meeting is to provide them with the opportunity to vote on the resolution to place the charity into liquidation and choose the person to be Liquidator.

Once this meeting takes place the charity is in liquidation. It is only the members who have the power to decide whether the charity should go into voluntary liquidation, not (as most people believe) the creditors.

Meeting of Creditors

Within 14 days of the general meeting a meeting of the creditors of the company must then be held. Creditors are notified about the meeting at the same time as the members or shortly thereafter. In addition to notifying the creditors an advert must be placed in the London Gazette.

The purpose of the meeting is to allow creditors to attend and question the directors/trustees present about the reasons behind the company liquidation; ratify the appointment of the person chosen by the members to be Liquidator; agree the Liquidator’s remuneration; and agree anything else necessary or appropriate under the Insolvency Act.

It is uncommon for creditors to attend these meetings, most that choose to exercise their right to vote do so by appointing the chairman of the meeting as proxy holder. The chairman of the meeting will be a director of the charity.

The members and creditors meetings are held on the same day, one after the other. Because at least one director must be present at both meetings it is far more convenient for the chosen director(s) to only attend once. Which director(s) is(are) present is entirely down to the decision of the board. We would suggest it is not a director with minimal or only recent involvement in the charity as they may be unable to adequately answer any questions posed.

The director chosen to act as chairman should not be worried about these meetings because we will conduct and control these meetings on their behalf. The meetings are conducted in a professional manner. One fear directors often have is in relation to physical or verbal intimidation from creditors. Please be assured such conduct is not tolerated.

Once in Liquidation, the Liquidator will collect in and/or sell the assets of the company whilst carrying out his legal duties of investigation and reporting on the directors’ conduct. The Liquidator will also ask the members for their contribution towards the costs and debts of the charity as outlined in the articles of association. This contribution is commonly £1 or £5 per member, but please refer to your articles to confirm the exact amount.

Once the liquidation is concluded the Liquidator will seek to distribute any available funds to creditors before seeking to formally end the liquidation by holding a final meeting.

Once the final meeting is held the company will be dissolved and removed from the register of companies (it will cease to exist) 3 months later.