Private liquidation, also referred to as members’ voluntary liquidation, is the process by which a company’s members choose to bring the company’s life to an end without any compulsory intervention by the Registrar of Companies or the courts. Under Ghana’s Companies Act, 2019 (Act 992), this option is strictly reserved for solvent companies, meaning entities that are able to pay their debts as they fall due.
The law treats private liquidation as a responsible exit mechanism for companies that have completed their purpose or no longer wish to continue operations. This article outlines the key procedural steps involved in private liquidation and examines the legal consequences that flow from the commencement of the process.
The Affidavit of Solvency
The starting point of private liquidation is the Affidavit of Solvency. Before the members can resolve to wind up the company, the directors, or a majority of them, must swear an affidavit declaring that the company will be able to pay its debts in full within twelve months of the commencement of liquidation.
This affidavit must be registered with the Registrar of Companies within five weeks preceding the passing of the special resolution for liquidation. It is not a mere formality. Directors are required to conduct a careful review of the company’s assets, liabilities, and overall financial position before making the declaration. A director who makes a declaration without reasonable grounds commits an offence under Act 992.
The purpose of the Affidavit of Solvency is clear. It acts as a safeguard to ensure that only financially sound companies are permitted to exit the market through voluntary liquidation, rather than using the process to escape insolvency obligations.
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The Special Resolution
Once the Affidavit of Solvency has been properly declared and registered, the members may proceed to pass a special resolution to place the company into private liquidation. This resolution must be passed within five weeks of the affidavit.
At the meeting where the resolution is passed, the members must also appoint a liquidator. The proposed liquidator must have given prior written consent to act. Within fourteen days of passing the resolution, a copy must be filed with the Registrar of Companies for publication in the Companies Bulletin.
From the moment the resolution takes effect, the company must cease carrying on its ordinary business. It may only continue activities that are necessary for the winding up of its affairs. In addition, all invoices, orders, and business correspondence must clearly state that the company is in private liquidation, ensuring transparency to creditors and third parties.
The Winding-Up Process
The responsibility for winding up the company rests with the liquidator. This phase generally involves four core tasks.
First, the liquidator gathers and realises the company’s assets. This includes taking an inventory of all property, collecting debts owed to the company, and, where necessary, selling assets to raise funds for the payment of liabilities.
Second, the liquidator settles the company’s debts and liabilities. This covers existing obligations as well as contingent and future liabilities, including potential claims and damages.
Third, after all liabilities have been discharged, any remaining assets are distributed. In companies limited by shares, the surplus is distributed among shareholders in accordance with their shareholdings. In the case of companies limited by guarantee, any remaining assets are transferred to another company with similar objects, in line with the company’s constitution.
Finally, the liquidator prepares detailed liquidation accounts. These accounts must be presented to the members at a general meeting, providing a clear record of how the liquidation was conducted.
Dissolution of the Company
Dissolution marks the formal end of the company’s existence. Once the Registrar of Companies is satisfied that the winding-up process has been properly completed, the company’s name is struck off the register. From that point, the company ceases to exist as a legal entity.
Legal Consequences of Private Liquidation
The commencement of private liquidation carries significant legal consequences.
The company must stop carrying on business, except as required for winding up, although it continues to exist as a separate legal person until dissolution. Its financial year is deemed to end on the day immediately preceding the passing of the special resolution, triggering obligations relating to final accounts and financial statements.
Directors are required to submit the company’s financial statements and accounts to the liquidator, members, and debenture holders within three months of the commencement of liquidation. More importantly, the powers of the directors cease once liquidation begins. Control of the company shifts entirely to the liquidator, and directors may only act with the approval of the liquidator or the members in general meeting, except where action is necessary to meet financial reporting requirements.
Private liquidation under the Companies Act, 2019 provides a clear and structured pathway for solvent companies that wish to voluntarily bring their operations to an end. The process balances flexibility for members with safeguards designed to protect creditors and the public interest.
