Dissolution and winding up

Procedures for winding up a club

If a club is to be wound up, the officers and committee may face criticism and, in some circumstances, potential legal action and financial loss. It is therefore essential that the correct procedures are followed and that professional advice is obtained at an early stage.

1. The first point of reference is the club’s rulebook, which should set out the procedure for winding up the club. The authority to close the club and cease trading will usually rest with the members at a duly convened General Meeting. Accordingly, the first formal step is normally to call a General Meeting of the members.
2. It is generally far easier to wind up a solvent club than an insolvent one. It is also easier to wind up a club registered under the Co-operative and Community Benefit Societies Act 2014 (a Registered Society) than an unincorporated club or a club registered as a Friendly Society. Registered Societies are bodies corporate and do not operate through trustees holding assets on behalf of members.
3. Once the decision to wind up has been made, the club’s affairs must be brought to a formal conclusion. Where the club is solvent, a Registered Society may be wound up by the members without appointing a liquidator, by following the instrument of dissolution procedure prescribed by the Financial Conduct Authority (FCA). Where insolvency arises, or where funds are insufficient, the club may be wound up by a liquidator or by the Official Receiver, usually following action by a bank, brewery or other creditor. Where a liquidator’s fees must be met from club funds, the process can be costly.
4. It is almost inevitable that winding up the club’s affairs will take longer than originally anticipated, and officers and members should plan accordingly.
5. Creditors must be treated fairly and consistently. Where a club is solvent and is being wound up informally, care should be taken not to favour one unsecured creditor over another. Where insolvency is likely, officers and committee members must avoid giving preference to particular creditors, as this may expose them to personal risk.
   Employee wages, holiday pay and redundancy entitlements are subject to statutory protection, but the precise treatment will depend on the club’s legal status and whether a formal insolvency process applies. Professional advice should be taken before making payments to creditors where funds are limited.
6. Where the club owns its premises freehold, there may be a surplus following the sale of the property. Any surplus must be distributed in accordance with the club’s rules. These usually require the surplus to be distributed either to the sponsoring body or equally among members. Where the rules are silent, the legislation generally requires the surplus to be distributed equally to all members, regardless of length of membership.
7. Members should be aware that any expectation of a significant payout is often unrealistic. Once debts have been settled and professional fees, tax liabilities and selling costs have been paid, there is frequently little or no surplus remaining. This has been a common outcome for clubs, particularly where demand for licensed premises is limited.
8. Where there is a deficit, liability depends on the legal status of the club.
   • For a Registered Society, liability will normally end with the society itself, and officers, members and employees will not usually be required to meet any shortfall from personal funds, provided no personal guarantees have been given.
   • For Friendly Societies and unincorporated clubs, the position is more complex. Liability may fall on officers, trustees or members depending on the circumstances, including who authorised or entered into contracts and whether obligations were ratified. In some cases, members may face unlimited personal liability.
9. To avoid personal responsibility for the club’s debts, committee members and officers should not give personal guarantees to lenders, brewers or other suppliers.
10. The membership register should be checked and kept fully up to date. In the event of a surplus or deficit on winding up, the register becomes an important record and should be retained securely by the Secretary.
11. Where club assets are to be disposed of, members should be given the opportunity to purchase items at fair market value, for example furniture or equipment. Records should be kept to demonstrate that market value has been paid. Cellar stock should, where possible, be run down prior to closure.
12. Where a club is a Registered Society and has insufficient funds to meet statutory redundancy payments, employees may, in certain circumstances, be able to claim from the National Insurance Fund. Eligibility depends on the employment status of the individuals concerned and whether a formal insolvency process applies. The liquidator or Official Receiver, where appointed, will be able to advise on the availability of such claims.
13. The location of the title deeds for the club’s premises should be confirmed. Where property is held in the names of trustees, they must be available to execute documents as required. While original deeds may not be essential where title is registered with the Land Registry, solicitors may still request them to confirm matters such as boundaries or restrictive covenants.
14. The club’s premises should be secured and maintained throughout the winding-up period. Insurance cover for the building, fittings and third-party liability should be maintained. The position should be discussed with secured creditors such as the brewery or bank.
15. Proper books and records should continue to be maintained. All income and payments should be recorded to demonstrate that the winding-up process has been conducted properly. Key documents, including insurance policies, should be retained securely.
16. All outstanding VAT returns must be completed and submitted. HM Revenue & Customs should be notified that the club has ceased trading and that VAT deregistration is required.
17. HM Revenue & Customs must also be notified that the club has ceased trading for corporation tax purposes. A final corporation tax return may be required for the final accounting period up to closure.
18. Members should be kept informed throughout the process. A further General or Special Meeting should normally be held within two to three months of closure, for example at another local club. Members should be notified through appropriate means, including local press where relevant. Key parties such as the brewery, suppliers, professional advisers and other interested parties should also be kept informed.