"Winding up" is an often used term used to describe the procedure of concluding the life of a company under which the assets are realised and distributed, or transferred, usually to the member(s) of the company, after any debts and liabilities have been settled. Where a company is solvent there are two methods of "winding up" available to it: (i) the administrative dissolution procedure, either under section 273A of the Isle of Man Companies Act 1931 (CA 1931) or under section 190 of the Isle of Man Companies Act 2006 (CA 2006) (Administrative Dissolution) or (ii) the liquidation of a company by way of members' voluntary winding up under section 214 et seq of the CA 1931, which also applies to companies incorporated under the CA 2006 by virtue of the provisions of section 182 of the CA 2006 (Members' Voluntary Liquidation).
This note sets out a brief comparison between Administrative Dissolution and Members Voluntary Liquidation. Appropriate legal and tax advice should be sought prior to the commencement of either procedure. There is no one size fits all approach and which procedure is the most appropriate will depend on a multitude of factors. Some points worthy of consideration are identified below.
1. DO BOTH PROCEDURES APPLY TO ANY COMPANY?
No. A company must be solvent, that is, it has discharged all its debts and liabilities, before it may make an application for Administrative Dissolution. Further, it must have ceased to operate.
A public company incorporated under the CA 1931 is prohibited from being wound up by way of Administrative Dissolution.
In order to proceed as a Members' Voluntary Liquidation, the company must be solvent. If a company is not solvent it may still be liquidated voluntarily, but this is done by way of creditors' voluntary winding up which is a different process to a Members' Voluntary Liquidation and is outside the scope of this note.
2. IS ONE OPTION QUICKER?
Generally speaking dissolving a company by way of Administrative Dissolution is usually quicker than a Members' Voluntary Liquidation. However it is important to note that there are no hard and fast rules and timescales can and do vary considerably depending, inter alia, on the affairs and activities of the company and its assets and liabilities, including, the size, type and situs.
Regardless of the procedure chosen, it is prudent to ensure that a company's affairs are up to date before instigating the winding up of a company. These may include: filings at the Isle of Man Companies Registry (Registry), the Income Tax Division and the Customs & Excise Division (as applicable).
Administrative Dissolution is often cheaper than a Members' Voluntary Liquidation but it is the officer(s) or member(s) of a company who undertake the Administrative Dissolution. Whereas, in a Members' Voluntary Liquidation, the steps are undertaken by the liquidator and the onus of responsibility for the orderly and correct winding up of the company rests with the liquidator.
The costs of a Members' Voluntary Liquidation will depend on the status of the company, whether there are any liabilities and, often, the size and situs of its assets. It is also usual practice for a liquidator to require the shareholder or beneficial owner of the company to provide him with an indemnity in advance of agreeing to be appointed.
4. DIRECTOR AND MEMBER INVOLVEMENT
Either an officer or member of a company may instigate and carry out an Administrative Dissolution.
In a Members' Voluntary Liquidation, the directors resolve to make a declaration of solvency and either (i) convene and chair an extraordinary general meeting or (ii) ensure the written resolution is sent to the member(s). The member(s) resolve to liquidate the company by way of members' voluntary winding up. Once the liquidator has been appointed, all the powers of the directors cease (except so far as the company in a general meeting or the liquidator sanction the continuance of the directors powers). The member(s) approve the account of the liquidation tabled at the final meeting of the company so would either attend this meeting directly (or through an authorised representative) or appoint a proxy to act on their behalf.
Debts and liabilities must be satisfied before an application for Administrative Dissolution is made. The applicant (an officer or member of the company) makes a statutory declaration to the effect that to the best of their knowledge and belief and having made full enquiry into the affairs of the company, the company has satisfied all its debts and obligations (save for any owed to the member(s) in respect of their shares).
In a Members' Voluntary Liquidation, the directors make a declaration of solvency declaring that they have made a full enquiry into the affairs of the company, and that, having done so, have formed the opinion that the company will be able to pay its debts in full within a period, not exceeding twelve months, from the commencement of the winding up. The existence of any creditors would not prohibit a company using the Members' Voluntary Liquidation procedure but the directors must be satisfied that those debts can be settled in full.
In order to make the declaration of solvency, the directors should know if there are creditors of the company. However a liquidator will usually consider it prudent to advertise for any creditors of the company to come forward by a certain date, hence flushing out any unknown or overlooked creditors of the company.
6. FILINGS AND DISBURSEMENTS
In an Administrative Dissolution, the application (with statutory declaration annexed) is filed at the Registry. There is a filing fee which is currently £95.
In a Members' Voluntary Liquidation which completes in less than 1 year, the declaration of solvency, copies of the resolutions, the prescribed form giving notice of the appointment of the liquidator and the liquidator's account with corresponding prescribed form must be filed at the Registry. There are no filing fees but they must be filed in accordance with any statutory filing deadlines.
Local newspaper notices need to be placed when a company is in Members' Voluntary Liquidation. These include notice of the passing of the resolution for voluntary winding up, potentially advertising for any creditors to come forward and notice of the final meeting. Such notices are charged per character by the newspaper.
The Registry will write to the company during the Administrative Dissolution to inform it when it may distribute its surplus assets. The company must write to the Registry to confirm (i) it has done so or (ii) having carried out an inquiry it is unable to do so for reasons shown. In practice, most if not all assets would likely to have been distributed prior to the commencement of the Administrative Dissolution.
In a Members' Voluntary Liquidation, the liquidator will distribute the surplus assets of the company in accordance with the law, the memorandum and articles of association of the company and, if applicable, in line with any direction he receives from the member(s) of the company.
8. RESTORATION PERIOD
When a company has been wound up and dissolved using the Administrative Dissolution procedure, the restoration period is 12 years.
When a company has been wound up by way of Members Voluntary Liquidation and dissolved, there is a two year window within which an interested person may make an application to court for an order declaring the dissolution to have been void.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.