Guernsey Company Law Series: Solvent Winding Up

• Two common ways to dissolve a solvent Guernsey company are the voluntary striking-off procedure, and the voluntary winding up procedure

• Each has different requirements, and are only available in certain circumstances

• This guide sets out the requirements and effect of each procedure

A Guernsey company may be dissolved either by way of a "voluntary striking off" or a "voluntary winding up". In this guide, we will focus on the flexible and user-friendly regime for voluntary winding up of a solvent Guernsey company.

For more information on voluntary striking off, we refer you to our client memorandum entitled Striking Off and Winding Up Guernsey Companies.

Voluntary winding up

Procedure

Voluntary winding up of a solvent Guernsey company is a useful tool where the purpose for which the Guernsey company was created has been served and the company is no longer needed. If this route is proposed, the board of directors must make a declaration of solvency, signed by a director, stating that in the opinion of the board, the company passes the solvency test, being that:

• the company is able to pay its debts as they become due;

• the value of the company's assets is greater than the value of its liabilities; and

• in the case of a supervised company, the company satisfies any regulatory capital requirement.

The declaration must be delivered to the Registrar within a period of 30 days after the day it is made.

Within a period of five weeks of the declaration being passed, the process for the voluntary winding up of a Guernsey company is commenced by the passing of a special resolution of the members (requiring 75% approval). However, the Companies Law also allows a company to be wound-up by an ordinary resolution of members (requiring simple majority approval) where:

• the memorandum or articles of the company specify that the company is to be wound up at the expiry of a time period, and such time period has expired; or

• the memorandum or articles of the company specify that the company is to be wound up upon the occurrence of an event, and such event has occurred.

The special or ordinary resolution (the "Resolution") must approve:

• the winding up of the company;

• the appointment of a liquidator to wind up the company; and

• fix the liquidator's remuneration.

Importantly, there are no specific requirements in respect of the qualifications or the location of the liquidator.

The Resolution must be lodged with the Registrar within 30 days of being passed and the Registrar must give notice of the Resolution. Failure to deliver the Resolution to the Registrar within the 30 day time period does not render the resolution void, however, this does constitute an offence under the Companies Law. In the case of a supervised company, a copy of the Resolution must also be delivered to the Guernsey Financial Services Commission with 30 days of the same being passed.

A voluntary winding up commences upon the passing of the Resolution.

Once appointed, the liquidator is empowered to carry out the liquidation of the company by realising the company's assets and discharging the company's liabilities. Having done so, the liquidator must distribute any surplus amongst the members according to their respective entitlements.

In the case that the voluntary liquidation of a company takes over a year, the appointed liquidator will be required to summon a general meeting of the company and give an account of the liquidator's acts and dealings and of the conduct of the winding up during the preceding year. This requirement continues for each successive year that the voluntary liquidation continues.

As soon as the affairs of the company are wound up, the liquidator shall prepare an account of the winding up, giving details of the conduct of the liquidation and the disposal of the company's property. The liquidator shall then convene a general meeting of members, at which meeting the liquidator presents and provides an explanation of the account (the "Final Meeting").

After the Final Meeting, the liquidator must give notice to the Registrar of the holding of the Final Meeting and its date.

The Registrar is required to publish notice of the fact of the Final Meeting and that the company will be dissolved, which usually appears on the Registry's website.

On the expiration of three months beginning on the date of delivery of the notice of the Final Meeting by the liquidator, the company is dissolved.

Consequences of commencement of winding up

The Companies Law provides that from the commencement of the winding up:

• the company shall cease to carry on business except in so far as may be expedient for the beneficial winding up of the company;

• subject to the above, the company's corporate state and powers (notwithstanding anything to the contrary in its memorandum or articles) continue until dissolution;

• all powers of the directors cease (except to the extent that the company by ordinary resolution or the liquidator sanctions their continuance); and

• any transfer of the company's shares, other than a transfer made to or with the sanction of the liquidator, is void.

In addition, immediately upon the dissolution of the company, it is prohibited from undertaking business or contracting to incur any debts or obligations.

The information contained in this guide is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter.