How to liquidate a company
You might want to liquidate your company for a variety of reasons—whether it is because you are facing financial issues or simply unsure about the future. It might even be that you’re considering a change in career and simply want to close your business. If you’re exploring the idea of liquidating your company, it’s essential that seek the advice of liquidation specialists on how to liquidate a company.
There are several options available to a business when considering the liquidation of its assets. As such, it’s important for you to be familiar with what each option entails before deciding which one is best suited for your situation. We’ve outlined these options below.
For more information or advice about this process, our experts at Liquidation.co.uk can help. Whatever stage you’re at, we recognise that this can be an incredibly challenging time. That’s why we go above and beyond to provide you with essential support every step of the way.
Are there different types of liquidation?
In short, yes, there are three main types of liquidation:
- Members’ voluntary liquidation (MVL)
- Creditors’ voluntary liquidation (CVL)
- Compulsory liquidation
Members’ voluntary liquidation (MVL)
This is a voluntary liquidation, decided by a company’s directors and shareholders when the business is still solvent – or in other words, is still in a financial position to be able to pay its debts. This usually happens if the company’s owners are looking at retiring or moving careers.
This is the simplest and generally the most time-effective liquidation process of all three, as it doesn’t involve the courts and generally involves the company’s directors and shareholders coming to an agreement before the business is sold off and liquidated.
If this situation sounds familiar, then here are the basic steps that could be taken to enter members’ voluntary liquidation:
- The company’s directors make the decision to voluntary liquidate the business
- A professional insolvency practitioner is hired to oversee the process
- ‘A Declaration of Solvency’ is sent to Companies House, and a winder-up resolution (the terms of the liquidation) is agreed upon by the directors
- The liquidation is made public knowledge and must now be formally advertised in The Gazette
- Once the business has been wound up, it will cease to exist and take off the Companies House register
Creditors’ voluntary liquidation
When a company is insolvent (unable to pay its debts), and its directors realise this, they may decide to enter liquidation. This is called creditors’ voluntary liquidation.
Once this decision has been made, the directors must employ a professional insolvency practitioner, who will take responsibility for selling the company’s assets (to pay creditors as much of their outstanding debt as possible) before ensuring the company is wound down in accordance with the Insolvency Act 1986.
After all of the company’s assets have been sold, the company will cease to exist and will therefore be taken off the Companies House register.
It’s worth noting that contrary to popular belief, liquidation doesn’t always have to mean ending your business completely. If you choose to go down the CVL route, then you could continue your business, but as a new company. This process is called ‘Start Afresh Liquidation’ and involves your company closing, and then starting as a new company but without the debt.
Unlike the other two forms of liquidation, ‘compulsory liquidation’ happens when creditors want to liquidate a company against the will of its directors.
This might happen when a creditor has not received the money they are owed by the company. This type of liquidation will involve the creditor asking the court to issue a winding-up petition in hope of pressuring the company to make payment. If the company still doesn’t pay its debts, a winding-up order is issued by the courts, and the directors will therefore lose control of the company.
At this point, a professional insolvency practitioner is hired to wind up the company and sell off its assets, to pay off its debts. The company will then be liquidated and taken off the Companies House register.
Is your company facing insolvency? Do you need to talk to a liquidation expert?
If you feel your company is facing insolvency then we would advise you getting in touch with a liquidation expert. At Liquidation.co.uk we provide you with the essential advice you need, so that you can confidently decide if liquidation is the right choice for you. Get in touch.
How do I know if my business is insolvent?
To determine if your business is insolvent – as a limited company, sole trader or partnership – you need to look at your cash-flow and your balance sheet.
Does your cash-flow show that you have enough to pay every debt on time and in full in the foreseeable future? If not, this is a sign of insolvency.
Does your balance sheet show that your assets outweigh your liabilities? If not, this is another sign that you’re in an insolvent position.
As an individual, if you are unable to pay your bills, rent, credit cards or any other personal debt, this is a sign that you are insolvent.
What is the bankruptcy process?
Bankruptcy is a process you can choose to enter, or it can be forced upon you by one or more of your creditors. To begin bankruptcy proceedings, a petition for a Bankruptcy Order is presented to the court. A date will then be set for a further hearing where the debtor will be placed into bankruptcy and an official receiver (a Government insolvency-trained official) assigned to proceed with the bankruptcy.
How can I avoid insolvency vs bankruptcy?
The best way to avoid insolvency is to create a sound plan for your business or personal finances. Whether you’re a business, individual, sole trader or partnership, a cash-flow forecast will help you to stay on top of your outgoings and incoming funds so that you don’t get caught by surprise. We can help you make any adjustments needed to keep a positive balance.
Using a Debt Relief Order or IVA will help you avoid bankruptcy. We’ve outlined these in the ‘Difference between insolvency and bankruptcy’ article above.
What is an Administration?
During a Company Administration your business finances are put on hold to give you time to create a plan to get your business out of debt. A licensed insolvency practitioner will help you arrange better repayment terms for your debts and potentially sell off the unprofitable parts of your business. Another benefit is that it prevents your creditors from chasing you and from forcing a compulsory liquidation by filing a winding-up petition against your company.
What is a Liquidation?
In the case of an insolvent business, a liquidation closes your business and sells its assets to pay your creditors. The most common form of Liquidation in the UK is Creditors’ Voluntary Liquidation (CVL). In some cases, we can use a CVL to liquidate the unprofitable parts of your business and give you the chance to start afresh, without the debt. We call this a Start Afresh Liquidation.
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