Often times a person may set up a company for the sole purpose of trading their goods and services, and in the moment when you are establishing your company you will feel a great sense of success. But there are times when things do not go quite as planned and certain steps need to be taken in the business. One of those steps might be the decision to wind up your company by you or by a court order. This article will provide you with brief explanations of some of the questions that you might ask in this process. Two additional articles will follow over the next two weekends setting out how you may engage or become engaged in this process.

What is meant by winding-up a company?

Winding-up is simply the process by which an end is put to your business. This will include selling all assets, paying off debts and distributing the remaining assets to shareholders.

What happens when you wind-up a company?

When a winding-up of your company begins this will start the process of changing the company’s assets, such as land, vehicles, etc. into money to pay the company debts including wages of employees.

Is there a difference between the liquidation of a company and the winding-up of a company?

Not really. The words ‘winding-up’ and ‘liquidation’ are often used to mean the same thing. It is usually expressed as “the company is winding up and the assets are being liquidated.” This simply means that the company is ending its business affairs and all its other responsibilities before the process of liquidation starts to sell off the company’s assets.  


What are the different types of winding-up?

The most common types of winding-up are; (1) involuntary winding-up and (2) voluntary winding-up.Involuntary winding-upusually means that the company cannot pay its debts or the value of the company’s assets is less than the debts owed. Voluntary winding-up is where the shareholders decide to wind-up the company themselves. This decision can be taken for a number of different reasons, such as, insufficient money to pay debts so the company is  liquidated to pay the debts, shareholders wishing to simply sell the assets and distribute the money and move on to something else.  

What happens to shareholders when a company is liquidated?

When a company goes into liquidation the shareholders (those who own a share of the company) are paid the value of their shares once all debts are paid, providing there is money left over to pay them.

Who is responsible if a company is wound-up?

Because a company is a legal person in its own right the company alone is responsible for the repayment of its debts and other responsibilities.




Can a director be held responsible for a company debt?

A Director cannot be held responsible for the debts of a company. The directors are separate from the company and therefore only the assets of the company will be at risk of being sold and not the personal assets of the director. There are some circumstances where a director could be held responsible, e.g. if there is found to have been some fraud.  


When a company is liquidated who gets paid first?

When a company goes into liquidation creditors (those persons or company’s owed money) get paid first and in a particular order. Secured creditors like Banks get paid first and unsecured creditors like another company you may have purchased goods from on credit for which you provided no collateral. Employees would also be unsecured creditors. Once creditors are paid, if there is any money left over then shareholders are paid.


Can a company in liquidation continue to trade?

If a company is solvent, that is, has money to pay all its debts at the time it goes into liquidation it may still be able to trade until the process of winding-up is complete. On the other hand, if the company is insolvent, that is, cannot pay its debts and continues to trade thus increasing the debt ceiling of the company the directors may be responsible in part for repayment of debts as the decision to continue to trade could be seen as making the position of the company worse.


Can I get my money back if a company goes into liquidation?

If the company is solvent and winding-up then you will most likely have no problem getting your money back. But if the company is insolvent meaning it may not have enough money to repay all its debts then you may be at risk of not being repaid, especially if you are an unsecured creditor. One way of trying to get your money back is by applying to the court to bankrupt the company. This can be a troublesome process based on some archaic or old law in Vanuatu, so unless you are talking about a substantial amount of money owed it may not be worth pursuing bankruptcy in court as the legal fees alone may be more than the amount you are asking to be returned. For bankruptcy advice your best option is to consult a reputable lawyer going forward. Choose a lawyer who has some knowledge and experience in the field of bankruptcy. A lawyer who is not sure of the process may only delay the matter further and place your money at even greater risk of being lost.


For more detailed advice please contact a lawyer.

DISCLAIMER – This is a legal column to provide basic information on the law and court procedure. It is not to be used as a substitute for legal advice but to be used only as a starting point in understanding what you might need and what you might need to do.     

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