Liquidation Of A Community Interest Company

Liquidation of a Community Interest Company (“CIC”) is done through either voluntary strike off or liquidation. Voluntary strike off can be used if the company is solvent to dissolve a CIC. Liquidation, such as creditors voluntary liquidation, works well as a means of winding up a CIC if it is insolvent.

What Is A Community Interest Company?

A CIC is a type of limited company formed for the benefit of the community or a section of the community. The benefit of the CIC is not, therefore, for its members or shareholders.

As a result, there needs to be a Community Interest Statement in the formation documents, which sets out a declaration of the activities to benefit the community and how it is proposed that those acts will be of benefit.

What Happens To The Assets On CIC Winding Up?

Winding Up a CIC is not quite the same as an ordinary limited company because its Constitution may be different. In particular, when solvent, there has to be a provision for an Asset-Lock Body. 

The Asset Lock Body involves provision in the Articles for the remaining assets to be transferred with regulatory agreement on winding up, so the ‘community’ can continue to benefit from the assets.

CICs also have a dividend cap by virtue of Regulation 22 of The Community Interest Company Regulations 2005, which caps the dividend at 35% of the company’s distributable profits. A liquidator undertaking investigations may, in the event of an unlawful dividend, have to consider clawing the same back from shareholders as part of the winding up process. This may constitute part of the CIC’s property to be recovered.

When Should A CIC Be Liquidated?

A CIC should be liquidated if it is insolvent and in circumstances where creditors are likely to object to the strike off procedure being used first.

How To Liquidate A Community Interest Company (“CIC”)

To start the winding up of a CIC, the Articles of Association need to be checked for the process of passing a Board Resolution to authorise the winding up procedure and a Members Resolution if it is going into voluntary liquidation.

An insolvent CIC with debts it cannot pay will typically need to go into creditors voluntary liquidation to be closed down.

Once the CIC has passed the Board Resolution then to enable it to go into liquidation, the members will need to pass a Special Resolution under Section 283 of the Companies Act 2006. This means that 75% of the members attending and voting at a meeting of the company must vote in favour of the resolution or if it is passed by way of a written resolution, then 75% of the members must vote in favour of the resolution. 

Documents For CIC Decision Procedure To Wind It Up

The next stage is to prepare the Statement of Affairs and the SIP 6 Report For Creditors for it to be presented to creditors in advance of a Decision Procedure to appoint the Liquidator who will act instead of the directors, realise the asset and distribute any surplus to creditors after the costs of liquidation have been accounted for.

Once the CIC liquidation is complete, it will be dissolved.

It is also possible for a CIC to go into compulsory liquidation if a creditor, for example, wants to wind it up via the Courts.

How To Strike Off A CIC At Companies House

Although possible to use the voluntary strike off procedure to wind up a CIC when insolvent, it is generally more suitable to go into creditors voluntary liquidation (“CVL”). When solvent, however, it will generally be more cost effective to use the strike off procedure than a members voluntary liquidation, which is similar to a CVL but does not have the extra procedures that are needed to consult and protect creditors.

Upon applying for voluntary strike off a key requirement is to give notice when using the DS01 form to strike off a company.  A copy of it must be given to every Shareholder, Director, Employee, Creditor, Potential creditor of the company, such as anyone who has threatened or started legal proceedings and Pension manager or trustee.

There are various restrictions that apply to the use of the voluntary strike off procedure:

• The company must not have traded or sold assets in the last 3 months
• Not changed its name in the last 3 months.
• Not threatened with liquidation.
• Not entered into formal agreements with creditors, such as a company voluntary arrangement.

For more information on how to dissolve a community interest company see our guide on the same

Want To Close Down And Liquidate A CIC?