The shareholders of a company need to resolve to enter the company into a Creditors’ Voluntary Liquidation (CVL) in order for the liquidation to commence.
The shareholders are required to pass a special resolution at a general meeting of the shareholders.
We talk through the differences between an ordinary resolution and a special resolution and how this applies as part of the CVL process.
What is an Ordinary Resolution?
An ordinary resolution is a resolution made by the company’s shareholders that is passed by a simple majority. When voting at a general meeting, votes can be decided in three ways.
The first is on a simple show of hands. The second using a poll (where shareholders will hold votes in proportion to the number of shares they hold). The third is by using a written resolution (where shareholders will submit their votes in writing, either at or prior to the meeting).
Whichever way the voting is carried out, an ordinary resolution requires the votes of the simple majority – so over 50% of the members present (on a show of hands) or over 50% of the votes available (on a poll or using a written resolution). If an ordinary resolution receives the votes of the simple majority, it will be passed.
What is a Special Resolution?
A special resolution is a resolution made by the company’s shareholders that is passed by at least 75%. As with an ordinary resolution, special resolutions can be decided on a show of hands, a poll or using a written resolution.
Where the special resolution is voted on a show of hands, it will be passed if more than 75% of the members vote in favour of the resolution. If the vote is by poll or written resolution, it will be passed if more than 75% of the total voting rights are voted in favour of the resolution.
Important decisions relating to the company normally have to be voted using a special resolution.
The decision to enter the company into a Creditors’ Voluntary Liquidation that’s made at the shareholders’ meeting must be a special resolution in order for it to be valid. If the resolution does not receive the votes of more than 75% the company will not enter into a Creditors’ Voluntary Liquidation.