INTRODUCTION
We ought to ask ourselves what is voluntary winding up of a company? A voluntary winding up is a self-imposed dissolution of a company that has been approved by its shareholders and such decision will happen once a company’s leadership decides that the company has no reason to continue operating. Since members create a company voluntarily, it can also be voluntarily ended. It’s not ordered by a court hence not compulsory.
Reasons for voluntary winding up.
1.Unfeasible operations or poor operating conditions
This may sometimes be the option for companies with unfeasible operations and poor operating conditions an example is if a high cost oil producer foresees a period of low oil costs for the future. They may voluntary decide to liquidate even if they are not technically bankrupt yet.
2. Special purposes
This is may happen if the company is only in existence for a special purpose over a limited amount of time. The companies may be voluntary liquidate if they are no longer needed. The period fixed by the articles of association has expired.
3. Departure of a company founder.
A voluntary winding up may occur if a key member of an organization leaves the company and this will happen only if the shareholders decide not to continue with the company’s operation. Key issue to note in this point is that a company is a separate legal entity hence this will only happen when the shareholder’s hold special resolution to decide to wind up the company.
4.When the company decides to wind up
This happens if the company decides in a general meeting has passed an ordinary resolution to wind up the company and if the company for whatever reason has passed a special resolution to wind up voluntarily without the interference of the court.
Winding up of companies in Kenya has been established by two legislative acts that is The Insolvency Act 2015 and the Companies Act 2015. We are going the process of both acts in this discussion.
Types of voluntary winding up
(a). Members’ voluntary winding up.
(b). Creditors’ voluntary winding up.
Members’ voluntary winding up
In a voluntary winding up of a company, if a declaration of its solvency is made this pursuant to Section 398 of the Insolvency Act 2015, it’s a member’s voluntary winding up. The declaration shall be made by the majority of directors at a meeting of the board that they have made a fill inquiry into the affairs of the company and that having done so, they are of the opinion that one, the company has no debts and two that it will be able to pat debts in full within 12 months from the date of commencement of the winding up. The members here appoint a liquidator.
Declaration of solvency, should be done before the general meeting passing the resolution from winding up and not after the general meeting. It is a solemn declaration of solvency made by a director that the company is solvent and is able to pay all its debts in full within a period of 12 months. The steps followed here are as follows;
Resolution is made to wind up the company. This is done by a majority member and as such, a company is required within 14 days to give notice of the resolution by advertisement in the gazette, failure to which the company and its officers are liable to a fine.
Resolution is filed with the registrar of companies. This serves to notify the registrar of the plans to dissolve the company as agreed by a majority member.
Declaration of solvency is filed. This ascertains that the company will be able to pay its debts within 12 months after the commencement of the winding up.
Liquidator is appointed. The members of the company to be wound up are the ones who appoint the liquidator. The liquidator here is not an officer of the court but agent of the company.
Liquidation takes place.
Liquidator calls a general meeting to give a report.
Liquidator sends a copy of the accounts, together with a return of the holding of the meeting to the registrar.
Registrar registers the accounts and returns.
At the end of 3 months from the date of the registration, the company is automatically dissolved.
Creditors voluntary winding up
This is where the declaration of solvency is not made. It is presumed that the company is insolvent. In such a case a company must call a meeting of creditors on the same day or the following day after the meeting, at which resolution for winding up is to be made or proposed. The directors must lay before the creditors the position of the company. The steps followed here are as above;
Resolution is made to wind up the company.
Resolution is filed with the registrar of companies.
Declaration of solvency fails to be filed.
First meeting of the creditors and contributories is held.
Appointment of liquidator.
Appointment of committee of inspection.
Private examination.
Public examination.
Payment of final debts and dividends by the liquidator.
Application by the liquidator to be discharged by the courts.
Supply of a copy of the order to the registrar of companies.
The company is dissolved.
VOLUNTARY WINDING UP UNDER THE INSOLVENCY ACT 2015.
For the purposes of this discussion it is important to note that under the insolvency act winding up is referred to as liquidation under the act. Liquidation can be voluntary or initiated by the court.
Circumstances where voluntary winding up occurs is when the period (if any) fixed from the duration of the company by its articles expires, or the event (if any) occurs, on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution providing for its voluntary liquidation or if the company resolves by special resolution that it be liquated voluntarily.
The procedure of voluntary winding up includes:
Step 1: Notice.
Section 393(2) goes on to add that before passing a resolution for voluntary liquidation, the company shall give notice of the resolution to the holder of any qualifying floating charge in respect of the company’s property
Step 2: Passing the resolution.
Voluntary liquidation of a company is deemed to have begun when the resolution is passed, such a resolution can only be passed upon meeting the following conditions:
a. After the expiry of seven days from and including the date on which the notice was given or
b. If the person to whom the notice was given has consented in writing to the passing of the resolution.
Step 3: Publication of notice to liquidate.
Within 14 days after a company has passed a resolution for voluntary liquidation, it shall publish a notice to that effect once in the gazette and once in at least two newspapers circulating in that area in which the company has its principal place of business in Kenya and on the company’s website (if there is one). Fines are imposed with this section.
The Companies Act states that the registrar may not strike the name of a company off the register under this section until after three months from the date of the publication by the registrar in the gazette of a notice stating the registrar may exercise the power under this section in relation to the company and inviting any person to show cause why the name of the company should not be struck off. It is important to note that such an application is made in form CR 18.
Step 4: Director’s statutory declaration.
If it is proposed to liquidate a company voluntarily, the directors may make a statutory declaration as fore- mentioned above. The declaration has to be mad within 5 weeks before date of passing the resolution or in the date of the resolution but before the passing of the resolution and it must include a latest statement of the company’s assets and liabilities.
The declaration is to be lodged with the company’s registry within 14 days after the date of the resolution.
Step 5: Appointment of liquidator.
In members’ voluntary liquidation, the company in a general meeting shall appoint one or more liquidators for the purpose of liquidating the company’s affairs and distributing assets. Upon appointment all the powers of the directors cease, except in so far as the company in general meeting or the liquidator sanctions their continuance.
The act further provides that where the office of the liquidator becomes vacant by virtue of death, resignation or otherwise, the company may appoint another qualified insolvency practitioner at a general meeting. It has to be noted that only an authorized insolvency practitioner is eligible for appointment. He/she has to lay out before the meeting an account of the liquidators acts and dealings and of the conduct of the liquidation, during the preceding year. A liquidator who fails to comply with the requirement commits an offence and on conviction is liable to a fine not exceeding five hundred thousand shillings.
Step 6: Final meeting prior to dissolution in a members’ voluntary liquidation.
As soon as the liquidation of the company affairs is complete, the liquidator shall prepare an account of the liquidation showing how it has been conducted and how the company’s property has been disposed of and shall then convene a general meeting of the company for the purpose of laying before it the account and giving an explanation of it.
The liquidator is to convene the meeting by publishing an advertisement at least 30 days before the meeting, in at least two newspapers circulating and on the company’s website (if any). The advert is to specify the time, date, place and purpose of the meeting.
Step 7: Notice to the registrar of the final meeting.
The liquidator is enjoined to lodge with the registrar a copy of the account, a return giving details of the holding of the meeting within 7 days of the final meeting. Failure to lodge these documents is an offence and on conviction, the liquidator is liable to a fine not exceeding ksh. 500,000.
Step 8: Dissolution of the company.
Section 897(4) of the Companies Act states that as soon as striking the name of the company off the register is done, the registrar shall publish in the gazette a notice that the company’s name has been struck off the register and the date of the sticking off.
Subsection 5 of the said section above thereof goes on to add that on publication of the notice, the company is dissolved. Despite this subsection, the liability (if any) of each director, managing officer and member of the company continues and may be enforced as if the company had not been dissolved. Nothing in the said subsection affects the power of the court to liquidate a company the name of which has been struck of the register.
VOLUNTARY WINDING UP UNDER THE COMPANIES ACT 2015.
Voluntary winding up of a company of the process of winding up a company without involving the courts. The application can be made by the director or directors if they are more than two. In a case where there are many directors, the company can use the application of the majority directors. The directors of the company can make application to the registrar to strike off the name of the company under the following circumstances provided for under section 897 of the Companies Act 2015: -
a. If the application has been made on behalf of the company by its directors or by a majority of them or
b. Contains such information as is prescribed by the regulation.
The company can also make an application to be struck off from the register if the company is dormant or no longer trading and has no assets or liabilities or if the shareholder decide that they no longer wish to continue with the company and would like it struck off the register. The registrar may not strike off the companies name from the register until three months from the date of the publication by the registrar in the Gazette Notice stating that the registrar may excise the power in relation to the company and an invitation to the public to show cause why the name of the company should not be struck off. An application of the striking off of a company may not be made if at any time during the preceding three months the company has
a. Changed its name.
b. Carried on business.
c. Made a disposal for the value of the property that immediately before ceasing to carry on the business, it held for the purpose of disposal for gain in the normal course of carrying on business. An example is a company that sells fruits cannot sell fruits for the preceding three months but can sell the shop where it operated the business.
d. Engage in any other activities except one which is necessary or expedient for the purpose of:
e. Making an application for strike off or deciding whether to do so.
f. Concluding the affairs of the company.
g. Complying with any statutory requirement or an order published in the Kenya gazette by the cabinet secretary.
A company shall not be regarded as having carried on business only because it made a payment in respect of the liability incurred in the course of carrying on business. A person who makes an application in contravention of subsection (1) commits an offence and after conviction is liable to a fine not exceeding fifty thousand shillings.
A person who makes the application to the registrar on behalf of the company shall ensure that, within seven days after the day on which the application is made, a copy of the application is given to every person who at any time on that day is: -
a. A member of the company
b. An employee of the company
c. A creditor of a company
d. A director of the company
e. A manager or trustee of any pension fund established for the benefit of employees of the company.
In conclusion the register must examine the application if it meets the requirements, the registrar shall cause the publication in the Kenya gazette an intention to strike off the company to allow interested parties the opportunity to object. A copy of this notice will be placed on the company’s public record. Any interested party can object.
CONSEQUENCES OF VOLUNTARY WINDING UP.
Company ceases to carry on with its businesses except to the extent that will be beneficial to the winding up process.
Corporate powers of the company continue until a time the company is dissolved.
Shares may still be transferred by the members if sanctioned by the liquidator.
Any alteration in the status of the members made after the commencement of voluntary winding up is void.
Powers of the directors ceases on appointment of the liquidator unless their continuance has been sanctioned by liquidator or creditors.
Voluntary winding up does not equal discharge of the company’s employees, unless it takes place when the company is insolvent; this was the holding in Fowler vs commercial timber co. ltd Voluntary winding up does not necessarily operate as a discharge of the company’s employees, but if it takes place because the company is insolvent, it will operate as a discharge. In Fowler v. Commercial Timber Co. Ltd [1930] 2 K.B. 1, by a written agreement, F was appointed managing director of a company for five years certain. Before the expiration of the five years the company passed a resolution for voluntary winding up as it could not by reason of its liabilities continue its business. F voted for resolution. It was held that the voluntary winding up operated as a wrongful dismissal of F and a term could not be implied that if the company went into voluntary liquidation with the assent of F he should lose his right to damages. Per Greer L.J. “An order for the compulsory winding up of a company puts an end to the employment of the managing director and in my judgment the same result must necessarily follow where there is a resolution for the voluntary winding up of the company which depends upon the company being unable to meet its obligations. “The advantage of voluntary winding up is that there are fewer formalities to be complied with.
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