inquesta-corporate-recovery-and-insolvency

LIQUIDATION

Whatever your circumstances, our team of specialists can make the liquidation process as hassle-free as possible.

Book a Consultation
Contact Us

What is the Liquidation of a Company?

The liquidation of a company commonly occurs when it does not have enough funds to satisfy its obligations and cannot be rescued. The process places the firm in the hands of a liquidator, whose role it is to facilitate an orderly closure and ensure that as much money is raised as possible to pay off creditors and shareholders.

It is also possible to liquidate a company that is financially stable. This option is usually chosen if the business owners wish to retire, or the firm is no longer required. This voluntary procedure, known as a Members Voluntary Liquidation (MVL), is often extremely tax-efficient and ensures shareholders and company directors receive as much money back from the enterprise as possible.

There are two main types of company liquidation, voluntary and compulsory. As the name suggests, a voluntary liquidation occurs when a firm’s shareholders and creditors (where necessary) agree that closing down the business is the best course of action. This can either be if the company is solvent enough to satisfy its debts (as explained above), or is struggling financially. A compulsory liquidation, meanwhile, occurs when a firm’s creditors apply to have it shut down via a winding up order.

Whatever the circumstances, a liquidator will be appointed (either by the directors themselves or the courts) to oversee the entire process. They will primarily have a duty to the courts to ensure that everything is above board and the directors did not do anything untoward to affect the financial state of the firm. In the case of a MVL, they will also work with their clients to ensure the business is closed in the most tax-efficient way possible.

If your company is struggling financially, or you wish to close your business for another reason entirely, it is important to seek specialist assistance as soon as possible. This is especially true for insolvent businesses, as waiting for your creditors to take action against you will mean you lose control of the liquidation process and makes everything much more complicated.

The Company Liquidation Process

The precise steps of the company liquidation process will vary depending on the circumstances of your business. Despite this, there are a few points that remain the same. These include:

  • Appoint a liquidator
  • Create a list of your company’s creditors
  • Identify and appraise your firm’s assets
  • Terminate all contracts (both present and future)
  • Settle everything with your employees
  • Pay creditors in order of priority
  • Settle liquidator and administrator fees
  • Ensure remaining funds are distributed amongst shareholders

The liquidator will take care of the majority of these tasks on your behalf. Once everything has been completed, your business will be struck off with Companies House.

Functions of a Liquidator of a Company

Ultimately, the main purpose of the liquidator of a company is to ensure that as much money is raised from the firm’s assets as possible. These funds will then be used to satisfy debts, pay for the liquidation itself, and be distributed to shareholders. A liquidator will also investigate the actions of the company’s directors.

There are a number of ways in which a liquidator will raise funds from the business. The first method is by appraising any assets the company may have and selling them at full market value. Potential assets include stock, property, plant and machinery, fixtures, and fittings.

A liquidator will also contact all debtors of their client (people who owe the business money) and try to collect payment. In addition, they will investigate any antecedent transactions the company has made, and look for potential signs of irregularity.

Download our FREE Guide to Liquidation

We appreciate that while a company moratorium will provide vital breathing room in which you can restructure your business and regain some financial stability, it’s essential that you’re prepared for any and all potential outcomes. If your situation cannot be recovered during a period under moratorium, company closure and liquidation may be the next step.

To help you navigate this complex process, we’ve created a comprehensive ‘Guide to Liquidation’. This FREE download details everything you need to know. Even if your current focus is on business recovery via an insolvency moratorium, it’s important that you have a solid understanding of liquidation should your restructuring efforts not come to fruition.

Download our FREE Liquidation Guide today and ensure you’re ready to act, no matter where your financial journey might lead.

Download Now
guide-to-liquidation

The Methods of Limited Company Liquidation

There are three main methods of limited company liquidation — Creditors Voluntary Liquidation, Members Voluntary Liquidation, and Compulsory Liquidation. The first two are carried out according to the wishes of the firm’s directors and shareholders, while the latter is applied for by the company’s creditors. They all involve the closure of a business and the distribution of its assets.

As you would expect, a voluntary liquidation is often much more straightforward than a compulsory one. This is because the firm’s directors will still retain a lot of control (for example over which liquidator to appoint), whereas a compulsory liquidation will be taken out of their hands completely. Here are the three types of limited company liquidation in more detail:

Creditors Voluntary Liquidation (CVL)

A Creditors Voluntary Liquidation is often the last throw of the dice for a company that is struggling to satisfy its obligations and cannot be rescued. The process is triggered by a series of meetings between the firm, its creditors, and its shareholders. A liquidator will also be formally appointed to oversee the entire procedure.

The first step of a creditors voluntary liquidation is to speak with a licensed insolvency practitioner, who will conduct a review of the company. With this complete, a directors’ meeting is held, which is necessary to call two further meetings — one for the members (shareholders) and another for the creditors. In the members’ meeting, it is necessary for a majority of all shareholders to agree to the firm’s liquidation. If this does not happen, the liquidation cannot take place. Once this has been approved, the company can meet with its creditors, who will have the opportunity to ask any questions if they have concerns about the running of the business. It is here that a liquidator is appointed.

With the liquidator in place, the firm’s assets will be assessed and liquidated, with the proceeds being distributed to creditors and shareholders (where possible), and used to cover the costs associated with the liquidation process. There is a hierarchy of creditors that must be adhered to, meaning it is possible that shareholders will end up losing out on their investment.

If you believe that your company is insolvent, you must contact a licensed insolvency practitioner as soon as possible so they can conduct a review. Trading while insolvent is an extremely serious offence, so it is essential to ensure that everything is above board.

Compulsory Liquidation

The process of compulsory liquidation is triggered by a firm’s creditors if they already have a winding up petition in place. They can apply to the courts to have this escalated to a winding up order which, if granted, places the debtor’s company into liquidation. This often occurs when creditors lose all hope of getting their money back.

Once a company is placed in compulsory liquidation, the Official Receiver will conduct a thorough investigation into the firm’s affairs and the dealings of its directors. This is different from a CVL, where it is up to the licensed insolvency practitioner to carry out the investigation.

Should the creditors wish, an independent liquidator can also be appointed. This can be with a view to conduct their own fact-finding investigation alongside that of the Official Receiver, or to deal with any remaining assets the liquidated company may have.

Members Voluntary Liquidation (MVL)

A Members Voluntary Liquidation takes place when a solvent company decides to cease trading. Its assets will be liquidated to pay off any creditors (if applicable) and distribute funds to shareholders. Given that proceeds of a MVL are subject to Capital Gains Tax rather than Income Tax, it is often the most tax-efficient way to close down a firm.

For a MVL to take place, a company’s directors must first of all swear a declaration of solvency. Getting this wrong can have serious consequences, so it is always a good idea to speak with a licensed insolvency practitioner from the outset, as they will be able to assess the finances of a business and determine whether it is solvent or not. Much like a CVL, a members’ meeting must be called to obtain the approval of a majority of the company’s shareholders. If this is not achieved, a liquidation cannot take place.

Should it transpire that a firm was not solvent when a MVL was initiated, the process will then become a CVL and reported to the Director of Public Prosecutions. This could result in criminal proceedings being issued against the directors.

A MVL can also be utilised if only part of the company is to be sold, and the remaining part will be retained. This is because it is an extremely tax-efficient method of splitting the business into two separate entities.

How Inquesta can Help with the Liquidation and Winding Up of a Company

As a licensed insolvency practitioner, industry-recognised liquidator, and specialist forensic accountant, Inquesta is able to provide a holistic service that is difficult to match. We have amassed decades of experience with helping business owners from a wide range of sectors liquidate their company in the most hassle-free way possible.

From the outset, we place the best interests of our clients at the forefront of everything we do. Our process starts with an initial consultation, where we will perform a quick analysis of your circumstances and discuss your options, plus how we can help. We can also perform a full review of your firm’s solvency, and will take care of the entire liquidation process on your behalf.

Our expertise in forensic accounting also enables us to carry out an in-depth review of a company’s actions and transactions on behalf of shareholders or creditors. Whatever you require, we are perfectly placed to help.

When it comes to something as serious as liquidation, it is essential to leave nothing to chance. You need to work with Inquesta.

Get In Touch

Our Specialist Team

As specialist liquidators and licensed insolvency practitioners, Inquesta’s expert team are perfectly placed to assist — no matter your circumstances.

steven-wiseglass-inquesta-black-and-white

Steven Wiseglass

Director of Insolvency

A co-founder of Inquesta, Steven is a licensed Insolvency Practitioner with over a decade of experience in the field. He is a member of the Insolvency Practitioners Association, Association of Business Recovery Professionals (R3), and his insolvency licence is issued by the Insolvency Practitioners Association. In addition, he sits on the R3 committee of the North West Regional Committee.

Steven specialises in advising directors of small to medium-sized businesses, and has a wealth of expertise in providing the most appropriate advice whatever the firm’s circumstances may be. He has also been instrumental in helping company directors save their business and rebuild them into successful enterprises.

Contact
LinkedIn

FAQs

The preferred method of liquidating your company if you have no funds to pay creditors is via a Creditors Voluntary Liquidation. This is because it not only gives you a small element of control with regards to the process, but also demonstrates that you are placing the needs of your creditors at the forefront of your consciousness.

While waiting for a creditor to force your hand by issuing a winding up order is another option, this would not necessarily be a good idea as it means you instantly lose all control of the situation. Your actions as a director will also come under intense scrutiny. Contact us today and we will discuss your options and individual circumstances.

There is no set time period for the company liquidation process to complete. This is because the time frame involved depends entirely on your individual circumstances and the liquidation method you chose. That being said, it often takes between six to 24 months to completely close down a business.

This is why it is essential that you seek specialist assistance as soon as possible, as it is unwise to let the situation go on for too long. If you are wanting to opt for a MVL, swift action is also required if you want to gain access to your company’s assets in a relatively quick period of time.

Liquidation is often the last throw of the dice when a director has no other option to save their company. It is also the most effective way of closing a business if you no longer have need for it, or wish to retire. If you find yourself in either of these circumstances, liquidation may be the best option.

For companies that are in financial distress, it is important that you take action as soon as you realise you are unable to satisfy your debts. Letting the problem continue will only make it worse, and could end up in you losing control completely if your creditors apply for a winding up order. You should also have a clear understanding of your solvency and cease trading the moment you find out that your company is insolvent. If you are unsure of your solvency, it is essential to seek specialist assistance at your earliest opportunity.

The business will close down and all of its assets are liquidated at full market value and the proceeds distributed to creditors in order of priority. Anything left over is given to shareholders. The status of the firm will be changed to ‘liquidation’ with Companies House, although the name will still be live until the company is fully dissolved.

The exact process of liquidation will depend on the individual circumstances of your business and which option you choose. Contact us today for more information.

Once appointed, a liquidator will deal with all the existing and future contracts your firm may have, and work to bring them to a conclusion or disclaim them completely if it is not possible to reach an amicable solution with the other party involved.

A liquidator will also keep their client, shareholders, and all other interested parties fully informed of progress until the process has been successfully completed.

Initiating the liquidation process transfers control of a firm to the liquidator and absolves the directors of their duties. All employed staff will also be dismissed. It is then the liquidator’s job to liquidate the company’s assets and obtain the best possible price for them. The proceeds of this will be distributed to creditors and then shareholders wherever possible.

All assets will be assessed and liquidated at full market value, with the aim of obtaining as much money as possible. The funds raised are then issued to creditors in order of priority until there is nothing left, meaning unsecured creditors are often unlikely to be satisfied. The same is true for shareholders who will stand to lose their investment.

The proceeds raised from a company liquidated are distributed in order of priority. The order of which is as follows:

  • Costs and expenses relating to the fixed charge
  • Fixed Charge creditors
  • Costs and expenses of the liquidation process (including remunerating the liquidator)
  • Preferential creditors
  • Floating charge creditors and Prescribed Part
  • Unsecured creditors
  • Shareholders

Also in Company Insolvency & Recovery

Administration

Business Recovery

Company Voluntary Arrangement

Receivership

Solvent Winding Up

Statutory Demand

Winding Up Petition

Bounce Back Loans

Court Bailiff Action

Latest Articles