When a Community Interest Company (CIC) faces a situation where it lacks sufficient assets to pay its creditors in full, the option of voluntarily placing the CIC into Creditors’ Voluntary Liquidation (CVL) may be considered. This process, also known as voluntary winding up or voluntary liquidation, consists of three key stages: (1) a board meeting, (2) a general meeting of the members, and (3) a meeting of creditors.
The process begins with the board of directors agreeing to pursue the voluntary liquidation of the CIC. The meeting is conducted in accordance with the CIC’s articles of association, and during this gathering, a date is set for the subsequent meetings of the members and creditors.
General Meeting of the Members:
After determining the date for the meetings, the members of the CIC are informed about the upcoming general meeting. This meeting provides members with the opportunity to vote on the resolution to place the charity into liquidation and select the Liquidator. Once this meeting takes place and the members approve the resolution, the CIC enters the liquidation process. It is worth noting that the decision to go into voluntary liquidation rests solely with the members, contrary to popular belief that it lies in the hands of the creditors.
Meeting of Creditors:
Within 14 days of the general meeting, a meeting of the CIC’s creditors must be held. Creditors are notified of the meeting simultaneously with or shortly after the members. Additionally, an advertisement must be placed in the London Gazette to inform the creditors. The purpose of this meeting is to allow creditors to attend and address any queries they may have regarding the reasons behind the CIC’s liquidation. The meeting also involves ratifying the appointment of the chosen Liquidator, agreeing on the Liquidator’s remuneration, and addressing any other matters required or deemed appropriate under the Insolvency Act.
In most cases, creditors choose to exercise their voting rights by appointing the chairman of the meeting as a proxy holder. The chairman, who is typically a director of the charity, represents the interests of the absent creditors. Both the members’ and creditors’ meetings are held on the same day, one after the other. To ensure convenience, the board decides which director(s) will attend both meetings. It is advisable to select directors with sufficient knowledge and involvement in the CIC to effectively respond to any inquiries.
Once the CIC enters liquidation, the Liquidator takes charge of collecting and/or selling the company’s assets while fulfilling legal obligations related to investigating and reporting on the conduct of the directors. Once the liquidation process concludes, the Liquidator endeavors to distribute any available funds to the creditors before seeking to formally end the liquidation through a final meeting.
Following the final meeting, the CIC will be dissolved and removed from the register of companies, ceasing to exist approximately three months later.
In conclusion, the voluntary liquidation of a Community Interest Company requires careful adherence to the defined stages and legal processes. Seeking professional assistance from experienced experts in the field can provide valuable guidance throughout the liquidation journey.