Issued but unpaid (K2,000,000) A2
2. Voluntary Winding-up
Voluntary winding-up is provided for in Division 13.3, sections 304 to 360 of the Companies Act. Voluntary winding-up is the most common type of winding-up. It is said to be voluntary because the company itself initiates the procedure, even though the company may also call for a compulsory winding-up.
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As stated earlier, there are two types of voluntary winding-up, i.e. members’ voluntary winding-up, and creditors’ voluntary winding-up.
(i) Circumstances in which a company may be wound-up voluntarily (section 305)
a) A company may be wound-up voluntarily if it passes a special resolution or an extraordinary resolution that it be voluntarily wound-up.
b) Where the period, which had been fixed by the articles of the company as to the duration of the company, has expired or the event, if any, has occurred, a company may pass an ordinary resolution that the company be voluntarily wound-up.
c) Upon the occurrence of the event upon which the dissolution of the company could have been predicated for the company to cease in the articles in question.
Once a resolution for voluntary winding-up of the company has been passed, a copy of the same must be lodged with the Registrar within 7 days. The Registrar must in turn within 7 days after the lodgment cause the notice thereof to be published in the Gazette.
(ii) Commencement of a Voluntary Winding-up
A voluntary winding-up whether by members or by creditors will be deemed to commence when the resolution is passed.
(iii) Consequences of passing a winding-up resolution (section 307).
Once a company has passed a winding-up resolution, it must cease carrying on business except so far as may be deemed necessary for the beneficial winding-up thereof. If for example, you are appointed liquidator of a company dealing in perishable goods such as Chibuku beer, and at the time of passage of the winding-up resolution there is brew waiting to be delivered, you could carry out business by selling such brew and receive payment. This will be notwithstanding that the company has ceased to carry on business.
The corporate state of the company as well as its corporate powers continues until the company is actually dissolved. Once a liquidator is appointed, the corporate power of the company will be supplanted, as the company will no longer be able to exercise those powers as the liquidator assumes them. After a resolution for winding-up has been passed, you cannot transfer or deal with the assets of the company, as those acts will be void.
(a) Members’ Voluntary Winding-up
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A members’ voluntary winding-up only takes place when the company is solvent. The liquidation is entirely managed by the members who also appoint a liquidator. There will be no committee of inspection as the members will themselves be in charge. In order for the company to benefit from this form of voluntary winding-up, the company is required to file a declaration of solvency.
(i) Declaration of Solvency (section 308)
The key feature of a members’ voluntary winding-up is that during the 5 weeks immediately preceding the passing of the resolution to wind-up the company, the directors must hold a board meeting at which the directors or the majority of them must declare or make a declaration to the effect that they have made a full inquiry into the affairs of the company and that they have formed the view that the company will be able to settle all its debts and liabilities in full within the period that they will state in the declaration (which period must not exceed 12 months).
To this statutory declaration must be attached a statement of the company’s affairs which will show:
a) The assets of the company and the realizable values from the assets;
b) The liabilities of the company; and c) An estimate of the cost of winding-up.
Note that the declaration of solvency will be of no effect unless it is made at the meeting of the directors. The declaration of solvency must then be filed with the Registrar of Companies before or on the date which notices for the shareholders’ meeting are sent out.
(ii) Appointment of a Liquidator
The members will also pass an ordinary resolution appointing a liquidator as they pass a special resolution to wind-up the company. The members can also fix the remuneration of the liquidator. Once a liquidator has been appointed, all the powers of the directors will cease except so far as the liquidator, or the company by ordinary resolution with the consent of the liquidator, approves the continuance thereof (section 310(2)).
(iii) Staying of Members’ Voluntary Winding-up
At any time during the course of a voluntary winding-up prior to the dissolution of the company, the company may, by special resolution, resolve that the winding-up proceedings be stayed (section 312(1)). After the passing of the special resolution, an application may be made to the Court by the liquidator or any member or the company and the Court may, in its discretion and subject to such terms and conditions as it thinks fit, order that the winding-up be stayed, that
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the liquidator be discharged, and that the directors resume the management of the company (section 312(2)).
(b) Creditors’ Voluntary Winding-up
We have seen that for members to commence voluntary winding-up, the company must be solvent. In a creditors’ voluntary winding-up however, the company is unwilling or unable to make a declaration of solvency. The creditors will therefore, drive the process in order to secure the debts that they are owed by the company.
Although it is a creditors’ voluntary winding-up, it will be the members that will initiate it. In fact, section 314(1) of the Act provides that, “where a resolution for the voluntary winding-up of a company has been proposed, and no declaration of solvency made, the company shall cause a meeting of the creditors of the company to be convened for the day, or the day after the day, on which the meeting is to be held at which the resolution for voluntary winding-up is to be put, or on which the resolution is expected to be passed under section 157.”
At the meeting that the members will have passed the resolution for voluntary winding-up, they may appoint a provisional liquidator. There shall be a committee of inspection for the winding-up of a company if the creditors, at the meeting convened under section 311 or 314 or at any subsequent meeting, so decide by ordinary resolution and appoint not more than five persons, whether creditors or not, to be members of the committee (section 315(1)). This committee may decide either to maintain the provisional liquidator or appoint a different one.
The liquidator might change the registered office of the company, terminate the employment of workers and employ casuals instead. This would be aimed at ensuring that the assets and properties of the company are safeguarded.