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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3695
Experience:  Solicitors 2 years plus PQE
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Limited Company Liquidation process Should both shareholders

Customer Question

Limited Company Liquidation process
Should both shareholders to agree to undergo a liquidation of the solvent company or it can be started by one shareholder only
Submitted: 3 years ago.
Category: Law
Expert:  Alex J. replied 3 years ago.
Hi,
Thank you for your question and welcome.
My name is ***** ***** I will assist you.
The only way to put a company into Members Voluntary Liquidation is with a Special Resolution. Therefore one of the shareholders would have to hold at least 75% of the voting shares in order to do it by themselves. This also assumes there is no shareholders agreement or provision in the articles that states that any such provision must be unanimous. See S.84 of the Insolvency Act 1986 and S.283 of the Companies Act 2006.
Furthermore a Members Voluntary Liquidation requires that the directors give statutory declaration that the company is solvent.
Can I be of any further assistance?
Kind regards
AJ
Customer: replied 3 years ago.

Alex, Hi,

I am a bit confused as my question was assigned to the Barrister Jo C.

Could you clarify why the Expert has been changed?

Thank you

Expert:  Alex J. replied 3 years ago.
Hi,
Thank you.
I am company law and insolvency solicitor.
I am happy to carry on assisting you - otherwise I will have to see if Jo C. is available.
Normally if the expert is not available the question is opened up to other experts on the site.
I look forward to hearing from you.
Kind regards
AJ
Customer: replied 3 years ago.

OK Alex,

As the share split is 50/50 and there is no Special Resolution in place does it mean that for the Limited Company with assets of over £25,000 (some in cash and some in Director Loan) the Company Struck Off by Company House is an option as company became dormant and did not submit any returns for some time? Is it a Director's responsibility to return a Director's loan back to Company's Bank Account

Expert:  Alex J. replied 3 years ago.
Hello,
Thank you.
Why has the company been struck off? Did one of the directors or shareholders serve a dissolution notice?
Does it have any creditors?
The debt owed by the director is a chose in action, and the right to that chose in action belongs to the company. For some one to then pursue the director for the debt of a company that has been struck off - the company would first have to be restored to the register of companies. Basically if the company has been struck off and is solvent - there is really no one to obligate the director to repay that money. If the company is insolvent, that is a different story.
If the company was dissolved what should have been done is that the assets of the company should have been distributed "in specie" (effectively a solvent distribution of the company assets to the shareholders that is not a dividend) - the company could then have been dissolved by a dissolution notice DS01.
If the company has been dissolved or struck off while owning assets, these assets will go to the Treasury Solicitor and be held until they are claimed by the rightful benefices (normally the shareholders).
I look forward to hearing from you.
Kind regards
AJ
Customer: replied 3 years ago.

Alex, Thanks,

Company has no debt and has no outside creditors. Shareholders - ex wife and husband. During divorce wife unilaterally withdrawn money from the company joint account into her own (also a company account to which husband has no access) and decided not to distribute any assets. Court ordered her to pay 50 percent of the assets (Director Loan plus cash) and she finally made a payment. Court's decision was made purely based on overall distribution of the company assets (Director Loan plus cash in bank which is in line with the Heads of Agreement signed between shareholders in the process of the financial resolution). However, she is now appealing to court's decision saying that if it was a Liquidation process she would have get more money distributed to her as she believes that Director Loan (she accountable for) would have seen as a joint responsibility of both shareholders and from her point of view Liquidator would have dealt with the Loan on paper (basically split the responsibility for it 50/50 between shareholders regardless who is accountable for it) and any cash would have split 50/50 as well. Basically Director is saying there should have been a Liquidation process in place result of which should have been 75 per cent of the company assets to her and 25 to other shareholder (as the value of Director Loan is about the same value of the cash in bank, i.e. 50 percent Director Loan and 50 percent cash).

Expert:  Alex J. replied 3 years ago.
Hi
Thank you.
Is she appealing an order made in a family court?
Has she actually made the payment?
I have to go offline I may not respond now until the morning - so I would be grateful if you could provide me with this additional information and I will respond asap.
Kind regards
AJ
Customer: replied 3 years ago.

Alex,

Yes, it is appeal to decision made by a family court as part of divorce process.

Yes, she made a payment, so I have got my 50 percent share and everything is fine from this point of view.

But she is trying to overturn it and made a statement in Appeal court during directions hearing that from her point it should have been a voluntary liquidation process and as a result of liquidation process she would have get more money as she is saying that part of Director's Loan is husband's responcibility even though there is no evidence that the husband (who is a second share holder) took that loan and on contrary in the company accounts for the previous years which were signed by both parties (Director (her) and Secretary (Husband) it is her name against a Director Loan.

For Liquidation itself there were no Special Resolution Meeting in place (even though a potential liquidator tried to arrange one on her behalf) as neither of shareholders attended it and accordingly nothing was signed; and also form my point of view the Director did not fulfil its responsibilities, i.e. Financial Accounts for that Year were compiled a half a year later than it set by the procedure due to the fact that a director was not able to provide necessary accounting information on her side and even when they were compiled by the company's accountant Director did not sign those financial accounts. However, the company tax was payed on the basis of those accounts.

To me the Director not only withheld some accounting information, did not sign accounts and did not distribute any money between shareholders but now also is trying to direct the Court in wrong direction saying that the liquidation was a way forward and she would have get bigger slice of assets as a result of Liquidation of the company. All this regardless of the actual facts and her short comings in regard to fulfilling director's duties (provision of information to accountant for compilation of the accounts, signing accounts, distribution of the assets).

Expert:  Alex J. replied 3 years ago.
Hi,
Thank you.
That which is ordered in a financial settlement in a family court will take precedent over any potential company proceedings.
If she wants to liquidate the company now, she would actually have to restore it first and that is not going to happen. In all likelihood the family court will just order a payment to be made from husband to wife if the appeal is successful.
For her position to actually be correct, this assumes that the company would have had assets if she had repaid the money. My point is, if she had repaid the loan - would the company have had cash in the bank equal to the loan?
Kind regards
AJ
Customer: replied 3 years ago.

Alex,

Thank you, ***** ***** repaid the loan the money in the bank account would have roughly double. But my question really is if the liquidation process would have agreed by both parties how the loan is usually distributed by the liquidator. I would think that the loan is not to be just written-of on a 50/50 basis (even though this type of scenario is also possible) but distributed between to shareholders depending on who taken that loan, how it was formalised and how it was used/spent, - is not it? Or I am mistaken. Again, even though the company loan (in this case it is a Director's Loan) can be dealt by the Liquidator on paper the actual distribution of the overall assets of the company (where the director loan is also an asset) shall depend on several factors I believe.

Could you please clarify? Thanks

Expert:  Alex J. replied 3 years ago.
Hi,
Thank you.
Even if they are the same person, your capacity as a shareholder and director is completely separate. Therefore a liquidator would have done as follows 1) Recovered the debt from the director 2) repaid any creditors (if any) 3) If there were any funds left over returned them to the shareholders in the proportions that the shareholder own shares.
The difference is here the company was not liquidator - its assets were distributed in accordance with a financial order.
I look forward to hearing from you.
Kind regards
AJ
Customer: replied 3 years ago.

Alex,

Thank you, ***** ***** last thing I would like to clarify.

In your previous answer you said the following:

"That which is ordered in a financial settlement in a family court will take precedent over any potential company proceedings."

This your statement what it is based on? Why the family court should take precedent?

Thank you

Regards,

Andrei

Expert:  Alex J. replied 3 years ago.
Hi,
Thank you.
This is because ultimately the company is beneficially owned by the married coupled. It is an asset of the marriage, and if it does not have any creditors, then an order to deal with this asset in accordance with the divorce proceedings will have to be followed (obviously subject to any appeals).
Kind regards
AJ
Alex J. and other Law Specialists are ready to help you
Customer: replied 3 years ago.

Alex,

Thank you very much for your help,

Regards,

Andrei

Expert:  Alex J. replied 3 years ago.
No problem.
I wish you the best of luck.
Any feedback is gratefully received.
Kind regards
AJ