Qualifying applicants under the UK Financial Conduct Authority's Senior Managers Regime must complete a lengthy form and, in certain circumstances, provide full explanatory information. A candidate must give full answers to all the questions and in such a way that the result is not "materially false, misleading or deceptive". Otherwise the candidate is committing a criminal offence.

Question 5.02.12 asks: "Has any company, partnership or unincorporated association of which the candidate is or has been a controller, director, senior manager, partner or company secretary, in the United Kingdom or elsewhere, at any time during their involvement, or within one year of such an involvement, been put into liquidation, wound up, ceased trading, had a receiver or administrator appointed or entered into any voluntary arrangement with its creditors?"

If the answer to that is "Yes", then the candidate must supply full information.

It is a very fine point - and possibly one that will soon be tested - whether it is adequate that a candidate can state simply that a company, in which they held a qualifying position, went into Voluntary Liquidation, or whether the omission of the word "Members" or "Creditors" before "Voluntary Liquidation" constitutes a failure to provide a full answer and is thus "materially false, misleading or deceptive".

The point is that there are two types of Voluntary Liquidation, and the outcome for creditors can be very different. The liquidation case in the headlines last week was Carrillion, but this was an enforced liquidation, not a voluntary one.

We are talking here about the distinctions between a Members Voluntary Liquidation and a Creditors Voluntary Liquidation. In both cases it is the directors who call in a practitioner to wind the company up, but that is where the similarities end.

A Members Voluntary Liquidation usually occurs when the directors (who then more often than not are also the shareholders) think the business has run its course, or they want personally to move on. The principle is that the company is solvent, and the process will frequently only be started after the directors themselves have converted such assets as there are to cash.

The approach is therefore an alternative - and a fallback - to the directors selling the company as a going concern, the route they would choose if the company had tangible or intangible assets that a future owner could monetise. Indeed the Entrepreneurs' Relief from full Capital Gans Tax for UK-domiciled shareholders makes a sale far more favourable than a liquidation, so the directors (acting in the shareholders' best interests which may also be their own best interests) would fall back on a Members Voluntary Liquidation if an exit via sale was not viable.

The start-point for the liquidation is that assets have been converted to cash, and the liabilities need to be discharged and statutory provisions adhered to. The company does not go into administration, so there is no need to appoint an administrator, and in fact there may well be no need to appoint a liquidation practitioner if the case is straightforward: there is certainly no need to appoint an insolvency practitioner because the business is solvent. An accountant can draw up the final accounts, VAT return, Corporation Tax return and filings for Companies House, and make sure all third-party claims are satisfied before the residual, net worth figure is distributed to the shareholders.

No third-party is damaged or suffers a financial loss in such a case.

A Creditors Voluntary Liquidation is very different. The state of affairs is that the directors realise that the company either cannot meet its debts as they fall due, or has negative Shareholders Funds, or both. This can be after a grey period where it could be argued that the company was already unable to meet its debts, or already had negative Shareholders Funds, and was only continuing to trade because of forebearance by creditors and/or the optimistic accounting valuations assigned by the directors to the assets of the company.

The company normally goes into administration first, even if it is for a short period. An insolvency practitioner is appointed as the administrator, tries to get a handle on the asset values (in the accounts and in reality) and the cashflow of the business, and comes to a recommendation. This recommendation is made in the interests of the creditors, to make sure they get the maximum number of "pence in the pound" on their claims.

The administrator recommends between liquidation or continuing to trade in administration, based on which will deliver the largest amount for the creditors. The recommendation is put to a meeting of the creditors - not of the shareholders or of the directors. If the recommendation is for liquidation and the creditors accept it by a given majority, the administrator files forms with Companies House that a Creditors Voluntary Liquidation has been agreed and that they have been appointed as the liquidator.

The message given to the creditors in the meeting, to get their "voluntary" agreement, might well be of the type "Do you want to get 10% of something or 100% of nothing?", and be accompanied by a financial report on the state of affairs of the company that shows a very poor picture, and that differs substantially from the most recent Report & Accounts filed by the company. When one says "recent", they will frequently be over a year old. The old adage is frequently borne out that bad numbers take longer to add up than good ones.

So in fact there is not very much that is "voluntary" about a Creditors Voluntary Liquidation.

The creditors get badly damaged and suffer substantial financial loss.

It follows that it is of key importance for any Senior Manager under the FCA regime who is required to answer question 5.02.12 that they not just state "voluntary liquidation" but what type, and give full details.

In the case of a Creditors Voluntary Liquidation they should give a list of who were left as the losers and how much they each lost.

Otherwise we risk having Senior Managers in the finance business whose track record bears similarities to that of a prospective parliamentary candidate who has recently had to stand aside in a constituency in Hertfordshire, on the grounds that her companies were dissolved with unpaid debts to suppliers, staff and the public exchequer.

That would never do in the banking business, would it?