What is a company voluntary arrangement?

Thursday, 10 March 2011 10:56

A company voluntary arrangement is one of the options available to businesses that are struggling to maintain normal operations – but what exactly is it?

With a company voluntary arrangement, the firm's shareholders make a decision to go into liquidation and wind up the organisation. This usually only happens when all other possibilities for continuing business – such as putting the company up for sale – have been exhausted.

There are two types of company voluntary arrangements: members' voluntary liquidation and creditors' voluntary liquidation.

The former process occurs when the firm is solvent enough for its assets to be liquidated in order to pay off its debts, while the latter takes place when there are not enough assets for debt repayments.

Shareholders must follow a number of rules when beginning either voluntary liquidation procedure.

With members' voluntary liquidation, the majority of the company's directors are required to formally declare its solvency no more than five weeks before a resolution is passed to voluntarily wind up the business.

This declaration needs to be filed at Companies Registry, include a statement of assets and liabilities and say that the firm's directors have looked into its finances and believe all debts plus interest can be repaid within a year.

A general meeting should be held, at which a resolution is declared to voluntarily wind up the business and one or more liquidators are appointed.

Creditors' voluntary liquidation occurs when the firm is insolvent or when the majority of company directors do not make a solvency declaration.

The business is normally required to call a creditors' meeting on the same day as the shareholders' meeting, at which creditors are able to nominate a liquidator.

It is the liquidator who is responsible for using the firm's assets to pay any costs associated with the liquidation, plus any debts owed to creditors.

As the expenses associated with voluntary liquidation can be high, shareholders may want to think carefully about their decision – and perhaps consult a professional for advice – before deciding to proceed.

It is possible for a members' voluntary liquidation process to turn into creditors' voluntary liquidation if it is later found that the firm's assets are not valuable enough to meet all of its debts.



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