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.