If you are considering placing a company into liquidation, there are a number of key legal steps that must be followed to ensure that the process is compliant. One of the earliest of these steps in both solvent and insolvent liquidations involves passing a Special Resolution. This legal requirement authorises that the company can move forward with the liquidation and therefore understanding what a Special Resolution is and what can happen afterwards is key to navigating your next steps.
What Is A Special Resolution?
A Special Resolution is a formal decision made by company shareholders that requires at least 75% of the votes cast (by value of voting shares held by those entitled to vote) to pass. To reflect the seriousness of this type of decision, the threshold is much higher than an Ordinary Resolution, which requires only a simple majority to pass.
Special Resolutions are used widely in a range of company decision-making. However, in the context of company liquidation, they are used specifically for shareholders to give formal approval to wind up the company voluntarily.
When Is A Special Resolution Passed?
A Special Resolution plays a critical role at the start of the liquidation process. However, the exact timing of when this type of decision is made will depend on the type of voluntary liquidation used, either Creditors Voluntary Liquidation (CVL) or Members Voluntary Liquidation (MVL).
MVL
An MVL is the type of voluntary liquidation used by solvent companies, for example, when directors wish to retire and extract their profits in a tax-efficient manner. Because the company is solvent and can pay all its debts in full, directors must first make a Declaration of Solvency to confirm this. It is only once this has been sworn that the shareholders will then pass a Special Resolution to formally place the company into liquidation.
CVL
A Special Resolution must also be passed during the CVL process, albeit in different circumstances. The CVL process applies when a company is insolvent and therefore cannot pay its debts when due. This means that directors must first call a board meeting to acknowledge the financial position and determine that liquidation is a suitable next step. A shareholders’ meeting then follows in which a Special Resolution is passed to wind up the company.
What Happens After A Special Resolution Is Passed?
Once a Special Resolution has been passed, the liquidation process can formally begin. A licensed insolvency practitioner will need to be appointed to take control of the company’s affairs, with their duties again varying depending on whether the company is solvent or insolvent.
In an MVL, this means the insolvency practitioner will oversee the realisation of company assets and distribute surplus funds to shareholders in a tax-efficient manner. In a CVL, however, the insolvency practitioner will focus on ensuring that creditors are paid as far as possible and that the best outcome is achieved before formally winding up the company. Despite the different circumstances, both of these processes are activated by the formal trigger of the Special Resolution.
Get Liquidation Advice
Given the complexity of liquidation and the legal responsibilities involved, seeking the right advice is crucial. At Ballard Business Recovery, our licensed insolvency practitioners can help you to understand the implications of entering into the liquidation process and support you through the relevant stages of either a CVL or MVL. For honest and clear advice, please get in touch with us today.
