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Company liquidation involves the closure of a limited company and the selling of all its assets, in most cases to cover unpaid debts to creditors. If there are no outstanding obligations, the money will be paid to shareholders and directors.
The company liquidation process can sometimes be quite stressful for directors, especially if the business is struggling with its finances. Thankfully, by appointing the right licensed insolvency practitioner, much of the worry can be alleviated.
What is Liquidation of a Company?
Company liquidation is the process of closing down a limited company with the help of an appointed Insolvency Administrator, also known as a Liquidator. Your staff could be made redundant and the company will no longer exist as a legal entity. You will also lose access to your business bank account.
Depending on the solvency of your business, there are several ways in which your business can be liquidated. Once you have decided that closing your company is the only option, you should contact a licensed insolvency practitioner who will gain a thorough understanding of your circumstances and recommend the best course of action for you to take.
What Types of Company Liquidation Are There?
When it comes to the liquidation of a business, there are multiple options you can take. Generally, there are three common methods:
- Compulsory Liquidation
- Members Voluntary Liquidation
- Creditors Voluntary Liquidation
The variation of company liquidation you ultimately decide on (or is decided for you) will depend on your situation, your business and your preference.
Further information on the three core company liquidation methods is as follows:
As the name suggests, this course of action is forced upon the company’s directors by their creditors. If they are not paid what they are owed, creditors can petition the Courts for a business to be liquidated because they believe it is incapable of meeting its obligations.
More often than not, HMRC will be the main creditor due to unpaid taxes such as Corporation Tax, VAT, Pay As You Earn (PAYE) or National Insurance Contributions (NIC). Trade creditors, such as suppliers, will also be able to take action if they believe they are unlikely to be paid what they are owed.
The compulsory liquidation begins when your creditors apply for a Winding Up Petition, which is basically a request to the Crown to shut down your business. If this happens, it is essential that you act quickly as time is running out to save your company. Should there be no response to the Winding Up Petition within seven days of it being issued, your company will then be sent a Winding Up Order to force you to close.
Your first port of call on receipt of a Winding Up Petition should be to consult with a licensed insolvency practitioner, such as Inquesta. They will talk you through all of the options available to you and recommend what they believe is the best course of action for you to take.
Members’ Voluntary Liquidation (MVL)
A MVL can be requested if your company is still solvent but you still wish to close it down. It is extremely popular with business owners as it is the most tax-efficient way to stop trading.
There is no Court agreement in this procedure, so it can just be carried out with the help of a specialist insolvency practitioner. The process is especially useful if your business has a complex operational structure or a wide range of assets, since it is designed to help you keep as much of your money as possible.
Creditors’ Voluntary Liquidation (CVL)
If your business has reached the point that it is no longer considered solvent, you can initiate the process of closing down your business by using a Creditors Voluntary Liquidation. Once you have realised that your company is insolvent, it is imperative that you do not take on any more lines of credit or make preferential payments to certain entities you owe money to.
Should you do either of these, your liquidator could view this as worsening the position of your other creditors. You will also need to cease trading immediately and speak to a licensed insolvency practitioner to guide you through the process.
Since many small companies do not keep an accurate record of their cash flow, they may not actually realise that they have actually gone insolvent. It is therefore a good idea to speak to a specialist insolvency company who can carry out a thorough assessment of your financial situation to determine your liquidity status.
Trading while insolvent means you run the risk of having a claim brought against you for wrongful trading. If it is successful, you could be held personally liable for your company’s debts – so it is essential that you find out where you stand as soon as possible.
How to Liquidate a Company
The exact steps of the company liquidation process depend largely on the method you use to close your business and whether you were forced into it by your creditors or decided to do it voluntarily. If you shut down your enterprise under your own volition, a more orderly dissolution can take place. This method enables you to have more involvement in the sale of your assets. In contrast, a court-ordered or involuntary liquidation is taken completely out of your hands.
Whichever method is chosen, there are a number of steps that need to be carried out by the licensed insolvency practitioner in collaboration with the company director. These include:
- Appoint a licensed insolvency practitioner
- Compile a list of all your creditors
- Identify and appraise all of your assets ready for liquidation
- Cease any present and future contracts and settle up with your employees
- Ensure that any creditors are paid in order of priority
- Factor in all the costs relating to the company liquidation process, such as payments to liquidators and administrators
- Distribute remaining money between shareholders
Once these procedures have been completed, the company will be dissolved and struck off with Companies House.
What Does a Liquidator Do?
An appointed licensed insolvency practitioner has a number of duties they must carry out during the company liquidation process. They must act as an impartial third party that oversees the procedure from start to finish.
The role of a licensed insolvency practitioner includes, but is not limited to:
- Creating a Statement of Affairs document to be issued to creditors
- Distributing the proceeds of selling your assets and any surplus cash to the relevant parties
- Determining any outstanding claims against your company and ensuring they are satisfied in order of priority
What Happens After the Liquidation of a Company?
Upon official liquidation, your business will no longer exist on Companies House and will cease to be a legal entity. Assuming the insolvency practitioner has no concerns over your actions as a director prior to insolvency, there will be no penalties attached, nor will you be held personally liable for company debts — provided nothing has been secured with a personal guarantee.
With your company now liquidated, you would be able to open up another business, provided you have not been disqualified from becoming a director again. If you are planning to do this, it is a good idea to consult with your insolvency practitioner beforehand — especially if you are wanting to remain in the same industry or use a similar name.
There are many complex rules surrounding so-called “phoenix companies’, so it is essential that you obtain expert advice to ensure you are covered.
How Long Can a Company Stay in Liquidation?
Generally, there is no official legal time limit on a company staying in liquidation. From start to finish, the liquidation process can last anything from a few months to multiple years, depending on the specifics of the business and the type of liquidation. Technically, your business can remain in liquidation as long as it needs to.
The variation of liquidation timeframes can vary hugely. For example, if more than 90% of all company shareholders agree, liquidation can take place on short notice within seven days, the minimum statutory notice for creditors. However, generally, the bigger the liquidation and the more assets and capital the business has, the longer the process will take.
Do I have to Pay to Liquidate my Company?
Because liquidating your company is a formal process, using the services of a licensed insolvency practitioner does incur additional costs. More often than not, however, these professional fees will be taken care of via the sale of your company’s assets. If the business had no assets, you may have to cover the fees using your personal finances.
How Inquesta can Help with Company Liquidation
If you have concerns about the liquidity of your business, or wish to begin the company liquidation process, you can rely on Inquesta to help. Our expert team of advisors will conduct a thorough investigation into your finances to determine liquidity and will provide essential support throughout the liquidation procedure.
We understand that no two companies are the same, which is why we will take the time to get to know your business so we can recommend the best course of action for you. We only work in your best interests, so you can be totally confident in the service we provide.
For more information about how Inquesta can help you, book a free consultation or contact our team today.