Distinguish members voluntary winding up and creditors voluntary winding up

Winding up is a process that entails selling all the assets or business entity, paying off creditors, and distribution of any surplus of assets to members, and then dissolving the business.

Two forms of voluntary winding up:

Members voluntary winding up

1. Initiated by members by passing a special resolution.

2. Company must be solvent.

3. Directors must make declaration of solvency that company is able to pay off debts within 12 months- section 257(1)

4. Members must appoint liquidator and fix his remunerations at the meeting. section 258

5. Directors must make declaration on reasonable ground, if not directors will be liable. section 257(4)

6. Declaration attached together with statement of affairs of the company

7. Lodge the documents to CCM before the meeting.

Creditors voluntary winding up

1. Not initiated by creditors.

2. Company is insolvent

3. Automatically convert from members voluntary winding up to creditors voluntary winding up if:

a) No declaration of solvency by directors

b) Liquidator is of opinion that the company will not be able to pay off all debts within 12 months.

4. Company must convene two meetings- creditors' meeting and members' meeting. section 260(1)

5) Members can nominate a liquidator but creditor's nomination prevails, if any. section 261(1) and 259(2)

6) Fix liquidators' remuneration at the meeting- section 261(3).

7) Creditors may appoint a committee to supervise the conduct of winding up process.