What is the first step in commencing a liquidation?

The correct answer is holding a special resolution to liquidate. This step is fundamental in the liquidation process as it signifies the formal decision by the company’s shareholders to dissolve the company. A special resolution typically requires at least a 75% majority vote from the shareholders, reflecting their agreement that the company cannot continue its operations and should be liquidated.

The importance of this step lies in its legal significance; the resolution serves as the necessary authorization to move forward with the liquidation process and initiate the appointment of a liquidator. Without this resolution, any subsequent actions aimed at liquidating the company would lack the required legal backing.

Subsequent steps, such as appointing a liquidator and notifying creditors, cannot proceed until this critical step is completed, as the liquidator's role stems directly from the authority granted by the resolution. This foundational action establishes the framework within which all other related processes will unfold, ensuring that the liquidation is conducted in accordance with the law and respects the rights of stakeholders involved.