Solvent Liquidation

Where an organisation has reached the end of its useful life but is able to pay its debts off in full, whilst returning a surplus to members or similar organisation, it is possible to place the organisation into liquidation and appoint a Liquidator to conduct an orderly wind down of its affairs.

You may wonder why the trustees/directors/committee members do not carry this out themselves? The reasons can be varied but are often because:

  • There are no funds to continue to insure an asset (e.g. a property)
  • Funds are tied up in illiquid assets (e.g. a property) and creditors are threatening action
  • There is a concern or inability to ensure that all liabilities are discovered, quantified and paid
  • Trustees/directors/committee members feel the task is too great or will take too long

A solvent or members’ voluntary liquidation is very similar at the start to an insolvent liquidation except there is no creditors meeting. In broad summary the process can be split into 2 stages:

  1. Board meeting
  2. General meeting of the members

Board meeting

The process is commenced by the board of directors/trustees/committee holding a meeting and agreeing to seek the voluntary liquidation of the organisation. At this meeting a date for the general meeting of members will be set. Little will happen between this meeting and the general meeting of members, other than the majority of trustees/directors/committee members (or all where there are 2 or less) will need to make a declaration of solvency.

The declaration of solvency is a document that says that the debts, plus interest and costs of the liquidation can be paid off in full within a period of 12 months.

General meeting of the members

The purpose of the meeting is to provide members with the opportunity to vote on the resolution to place the organisation into liquidation and choose the person to be Liquidator. Members may well attend and seek explanations for the course of action being recommended. This is not unusual and nothing to be concerned about. Your chosen Insolvency Practitioner should be present to help you deal with these queries.

Once the members pass the resolution the organisation will be 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.

Once the company is 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 trustees’/directors’/committee members’ conduct.

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.

More detailed information on the solvent liquidation process can be obtained by contacting Kevin Lucas of Lucas Ross on 0330 128 9489.