When embarking down the path to liquidating your business, the need for a swift resolution is undeniable. This complex operation might prompt serious questions, such as, how long does it take to liquidate a limited company, and what can you expect throughout the intricate process? Consider this blog your guide to not just a speedy process, but an effective and well-executed one.
The process of liquidating a business can feel like a maze of complex decisions, shorter and shorter deadlines, and opportunities to both begin anew and trip over your own mistakes. Let’s work together to unravel the mysteries of company liquidation and ensure that every step is a leap towards safety and a new chapter.
What Does Company Liquidation Mean?
What does company liquidation mean? Liquidation is the process of closing a business by liquidating its assets. This is done to raise the funds in order to repay creditors/shareholders owed money. Liquidation will typically require all staff being made redundant and the business, to all intents and purposes, ceasing to exist.
Liquidation generally takes place when your business is facing serious cash flow issues on a regular basis, leading to creditors threatening legal action. However, there are two generally accepted types of liquidation, compulsory and voluntary.
- Compulsory Liquidation: Carried out at the behest of the company’s creditors when attempts to regain owed money have failed.
- Voluntary Liquidation: Initiated voluntarily by the business’ directors — either because they can no longer satisfy their debts, or because they intend to cease trading.
Selecting the right method of liquidation for you will depend almost entirely on the solvency of your company. Once you have decided that the complete closure of your company is the best option, you should immediately contact a licensed insolvency practitioner.
Licensed insolvency practitioners (also known as liquidators) are vital to ensure that the process is done properly and without mistakes. A liquidator, once appointed, will immediately look to gain a thorough understanding of your specific circumstances and needs, and recommend an ideal course of action in order for you to best take going forwards.
How Long Does it Take For a Company to Liquidate?
How long does it take to liquidate a limited company? The liquidation process will generally take between three months and a year. However, this can vary greatly — meaning the answer to this question will largely depend on outside factors, including the reason for the liquidation, the quality of the liquidator, and most prominently, the method used to liquidate.
If the company is insolvent, the number of creditors that are owed money will also be an important factor in determining how long it takes to liquidate. Dealing with multiple creditors will be significantly more time-consuming than if there were only one or two.
As mentioned above, the length of time for a company to liquidate will be most affected by the method used, for example:
Compulsory Liquidation
A compulsory liquidation will begin when a company is issued a Winding Up Petition (WUP) by its creditors. While the process of sending the WUP to the business and the appointment of the Official Receiver can be quite fast, the entire time scale can be much longer than if the firm was closed down voluntarily.
Once this method is pursued, all directors and shareholders will lose all of their power within the business, including when choosing which licensed insolvency practitioner to work with.
In most cases of compulsory liquidation, the time between the initial threat of closure and the completion of court proceedings is around three months. However, this is only the length of time it takes to approve the closure of the business.
Once everything has been approved, the remainder of the process can take anywhere from three months to two years to complete. This time variation will depend on factors such as the appointment of a liquidator, the sale of company assets, agreeing with creditors’ claims and settling them, etc.
Voluntary Liquidation
There are two primary methods in which a business can be liquidated voluntarily — a Creditors Voluntary Liquidation (CVL) or a Members Voluntary Liquidation (MVL).
A CVL is carried out when the business has debts that it cannot satisfy and there is no clear, viable method of continuing to trade. Alternatively, an MVL will take place in circumstances where the director retires or no longer wishes to carry on with the business.
Creditors’ Voluntary Liquidation
When it comes to Creditors’ Voluntary Liquidations, the process of placing the company into a CVL can take as little as 14 days. However, completing the liquidation is a process that will often take between 6-24 months depending on the size of the firm and its individual circumstances.
The process of a CVL can be broken down into several stages:
- Meeting with the insolvency practitioner
- The liquidator records the assets, reviews creditors’ claims, and deals with the company’s staff
- The liquidator then conducts an investigation into the company’s affairs
- Once the final meeting has taken place, the liquidator will submit the required paperwork to Companies House. The firm will be officially classed as liquidated three months after the paperwork has been sent.
Members’ Voluntary Liquidation
In a scenario where all company liabilities have been settled before the official appointment of an insolvency practitioner, and all required information is on-hand and provided, the process of distributing company assets could be a matter of weeks. However, estimating the time for total closure and dissolution is more difficult and dependent on your firm’s situation.
The MVL process begins when the company directors send a statutory declaration of solvency to the Registrar of Companies. This document states that the business has undertaken an investigation of its finances and is confident in its ability to repay all existing and contingent debts (plus interest) within the coming 12 months.
Within five weeks of issuing the declaration of solvency, directors must pass a resolution to officially begin the liquidation process. Once this has been completed, an advert must be placed in the Gazette noting a creditors meeting that will be taking place in the next 7-14 days.
Usually, the company’s shareholders will receive around 75% of the liquidated funds within about three months of entering into the MVL process. The remaining balance is typically released after a further two months, once HMRC has cleared the case. The exact time it takes for the proceeds of the liquidation to be released also depends on the speed with which the bank sends funds over to the liquidator.
The end of the MVL procedure is formalised by the holding of the final meeting with the liquidator. The liquidator will then send the minutes of the meeting over to the London Gazette, after which the company will be struck off the Register once three months have passed.
What Is The Best Method For Quick Liquidation?
The two most common options if you’re looking for a quick liquidation are Creditors Voluntary Liquidation (CVL) and Members Voluntary Liquidation (MVL) as both could, if everything is in place correctly and the financial climate of the company is relatively simple, be completed within only a matter of weeks instead of months.
When it comes to a speedy resolution, both CVLs and MVLs have their own considerations and things to remember:
- Creditors’ Voluntary Liquidation: A CVL is often considered a relatively quick liquidation method compared to others. However, the overall process can still take upwards of six months if the business is large or has complex affairs that need resolving prior to liquidation.
- Members’ Voluntary Liquidation: MVLs can be much quicker if certain circumstances are met. If all necessary information is readily available, the distribution of assets could take a matter of weeks. However, the process could still prove lengthy when taking into account statutory waiting periods.
It’s important to note that rushing the process in pursuit of a quick liquidation could have serious legal and financial implications. We always recommend seeking professional advice from a licensed insolvency practitioner if looking to close your business — particularly if you have concerns you need to liquidate quickly.
What Happens After Liquidation?
What happens after liquidation can depend on the situation. Generally, once assets have been realised, the liquidator will distribute the proceeds to creditors. This will be done by order of priority, with secured creditors receiving what’s owed first, then unsecured creditors, and shareholders if there are enough funds remaining.
Once this is complete and the company has been closed, the liquidator will generally conduct an investigation into the company and its directors. This investigation will centre around the conduct of the business and its directors during and prior to liquidation. If there are no concerns regarding any party’s actions, then no penalty will be attached. However, if the investigation arouses any suspicion, you can expect the process to take a significant amount of time.
Once the investigation has been completed, the firm’s liquidator will send a final report to all creditors detailing the process.
After your business has closed down, life after liquidation will largely depend on the outcome of the investigation. If you are cleared of wrongful doing and have not been disqualified from acting as a director, you are free to open another business should you wish.
If you are planning on going down this route, it’s recommended that you consult with an insolvency practitioner first — especially if you wish to remain in the same industry or use the same name as before. There are many complex rules regarding these ‘phoenix companies’, so it is vital that you ensure that you remain covered and protected against any eventuality.
Do You Need Liquidation Advice? We Can Help.
If you are looking to liquidate your company, it is important to work with a firm you know you can trust. Our dedicated team of expert advisors have decades of experience in helping firms from all areas of industry and all shapes and sizes to close down their business in the most efficient way possible.
At Inquesta, we understand that no two companies are ever the same, which is why we always aim to conduct a thorough investigation into your circumstances to ensure that we can gain a clear understanding of your business from top-to-bottom. This allows us to ensure that we obtain the best possible resolution for you.
For more information about how Inquesta can help with liquidating your limited company, contact our team today or request a free, no-obligation consultation.