Several factors account for a company’s decision to wind-up, liquidate or dissolve its existence. Some business owners or even people in general are of the view that, to wind-up or dissolve a company is a simple task, some believe winding up is when a company stops its business operations or stops using the company or its documents in conducting businesses. Some other people are also of the view that, winding up is when a company closes it physical place of business. None of these are considered to be a business winding up until the appropriate and legal procedures are taken by informing the registrar of companies about the decision to wind up, and finally striking off the name of the company from the list of registered companies.
Before we proceed to look at the processes involved in winding up, liquidating or dissolving a company in Ghana, let us first consider some definitions of the above terms as they are mostly used interchangeably, even though they are completely different procedures. Winding Up, Liquidation and Dissolution are all processes involved in closing a company, however each follows a different set of steps.
We will also look at what will compel a company to wind up, liquidate or dissolve.
Winding up a company is a process of bringing all the affairs of a company to an end. This process includes liquidation and dissolution. During the process, the company ceases to transact its usual business with the intent of disposing or selling off all the assets of the company to offset the debts of the company (pay its creditors). After the disposal of assets, any surplus or remaining assets thereof, shall be shared among the members in the proportion of the shares held by them.
This process of selling off the assets of a company to settle its debts (during the period of winding up) is called liquidation. Liquidation becomes necessary in the winding up process where there are assets and the company has liabilities/creditors to offset as at the time. Thus, when we say a company is insolvent, it implies it cannot pay its obligation when due.
Winding up is a legal process which is regulated by the Companies Act, as well as the registered Regulations of the company.
Types of Winding up
The winding up process can be voluntary or official. Voluntary Winding Up is a process initiated by the directors of the company when they realize and decide on the need to close down the company, whereas Official Winding up is where the company has been compelled by a Court to close down based on complaints by its creditors or Registrar of Companies.
In a voluntary winding up, if the company is deemed not to have any liabilities to its creditors, the owners may decide to either sell the assets and distributes the monies to themselves or share the assets in the proportion of shares they own in the company. But where the company decides to wind up and its creditor(s) do not receive any payments for their debts owed to them, and makes a complaint through the Court for settlement, the Court will order for an official liquidation.
Process for a voluntary winding up of a company
- A special resolutions passed by the shareholders and board of directors.
- Renewing your company registration up to date (file Annual returns and Audited Accounts to date).
- Writing a notice/letter to the Registrar of Companies (explain the reason for your decision).
- Attach original copies of all the registration documents (depending on the type of business registered).
- The Registrar will review the documents before any further action is taken.
Types of liquidation
Just like winding up process, liquidation can be voluntary or official.
Voluntary liquidation, also known as Private Liquidation, is designed to allow an insolvent company to close its operations voluntarily. A resolution needs to be passed for all shareholders and board of directors to agree or at least 75% to agree before the process can commence. This is done through a petition to the Registrar of Companies.
Steps involved in a voluntary liquidation of a company
- Have a valid affidavit of insolvency by the directors of the company
- Members to pass a special resolution for the winding up and to include appointment of a liquidator.
- The company to file annual returns and audited accounts up to date.
- File or submit 1,2 and 3 above to the Registrar of Companies
- The Registrar of Companies may issue section 248 attached to the special resolution filed to be gazetted in the bulletin.
- After the gazette of the special resolution in the bulletin, the Registrar of Companies will issue section 260 (1) of the Companies Act to strike the name of the company from the company register.
- The Registrar will proceed to cancel the company’s name from the companies register after the 260(1) has been gazette and a copy has been sent to the Registrar of companies.
- Publication of first creditors meeting
- There shall be a publication of second creditors meeting
- Finally, the assets of the company shall be sold to pay off its creditors.
Official liquidation, also known as Compulsory Liquidation, is where a company is compelled by a court order to close its business. This is done by a petition through the court and normally by a company’s creditor who the company might have failed to settle the debts they owe over a longer period. If the petition is granted, the court will order for the company to be investigated before enforcing an official liquidation.
Steps involved in an official liquidation of a Company
- Appointment of an official liquidator
- The official liquidator requires the statement of affairs from all the directors and owners of the company.
- The liquidation order is published in the gazette.
- Publication of a notice in a national daily newspaper calling on all the creditors to file their proof of debt, and calling on all debtors to pay up or make arrangement before a fixed date to their debt.
- Publication of first creditors meeting by the official liquidator to bring the creditors the state of liquidation.
- Gathering of the veto of the company by the official liquidator.
- There shall be a publication of second creditors meeting.
- Finally, the assets of the company shall be sold to pay off its creditors.
This is the final stage of the winding up process. At this stage, the Registrar is satisfied with all proceedings on the winding up and strikes out the company’s name from the register of companies. The Registrar then publishes the strike off in the Gazette, the company is deemed to have been dissolved from the date.
However, when an information is supplied to the Registrar by a creditor or a member or an officer of the company or by the Registrar’s own know, that a company has not been carrying on business or is still in operation, the Registrar may send a notice to inquire if the company is carrying on business or not. If no response is received after 2 months and a second notice is sent but still no feedback is received after 2 months of sending the second notice, the Registrar will publish a notice in the Gazette with the view of striking off the name of the company from the register. Where no feedback is received to that effect, the Registrar dissolves the company by striking off its name from the register of companies.
Even though the term winding up, liquidation and dissolution is used interchangeably, they do not have the same meaning. The winding up process involves liquidation along the way, and with dissolution being the final stage of the whole process. Companies who intend to wind up voluntarily must do so by following the appropriate procedures as discussed and ensuring the finally stage is reached and concluded by the Registrar General.