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Insolvent liquidation

Answers to all the questions you have around general liquidation, insolvent liquidation and solvent liquidation, as well as handy downloadable guides designed to give you peace of mind.

Knowledge centre | Insolvent Liquidation FAQs

Frequently asked questions

What is Creditors’ Voluntary Liquidation (CVL)?

When a company director or shareholder needs to close down a limited company that has become insolvent, a Creditors’ Voluntary Liquidation or CVL is the most common process to follow. The CVL will ensure the company meets all legal requirements to close. The first step is to hold a meeting of the company directors to agree that the company is insolvent and that a Creditors’ Voluntary Liquidation is the best way forward. Learn more about the process on our insolvent liquidation page

What is No Asset liquidation?

If your company has ceased to trade and has no assets you may think that you can either just leave it or strike it off at Companies House for a low fee. However with these options there is the possibility of a creditor chasing you for their owed monies. If you want to close your company but there are no assets remaining, then a No Asset Liquidation would be a cheap and efficient process for you. Liquidation.co.uk offers a No Asset Liquidation package that gives you all the support of a liquidation process but without the large fee. This package includes:

  • Free telephone advice
  • Fixed fee quote
  • Preparation of all statutory paperwork
  • Case Manager assigned to you for the duration of the process
  • All meeting held at the most convenient satellite office to you
To learn more about our No Asset Liquidation service, contact us .

What is Start Afresh liquidation?

This is a Creditors’ Voluntary Liquidation (CVL) but used specifically to allow a business to continue in a new company. The company closes but the business restarts. This allows the directors to pick the good bits out of a company and carry on without the burden of debt.

What is a compulsory liquidation?

The compulsory liquidation of a company is generally a last resort as it needs to go through the courts, which can be a lengthy process. It is usually initiated by creditors who want to get their money back. The most common reason for a compulsory liquidation is that the company is insolvent and unable to pay creditors. These are usually the ones to file for the liquidation. They need to do this by filing a ‘winding up’ petition in court. A court hearing is held where a judge will decide whether the liquidation can go ahead. If you have objections to the ‘winding up’, you can present your case here. An official receiver is appointed by the court. You and your creditors can appoint your own licensed insolvency practitioner – it’s not unusual for several to be involved in complex cases. The liquidator then collects the company assets and distribute these to creditors. The liquidator’s fees are also paid out of the sale of assets. Any assets left over can be given to those who are entitled, including shareholders. When the company has been through liquidation, it ceases to trade and is removed from the register at Companies House. If you’re being threatened with compulsory liquidation and need advice, contact us for free.

What is insolvent liquidation?

Your business is insolvent when it can’t pay its debts in the short or long term. If bills are being left unpaid and you don’t have enough assets on your balance sheet to cover them, it’s an indication that your business is in difficulty. Of course, for some businesses, financial problems are part and parcel of operating. There are times when the cash flow is there and occasions when there is less liquidity. Insolvency occurs when you are no longer able to meet your obligations and have no prospect of doing so in the future. If you believe there could be a serious financial issue on the horizon, contact us to discuss the best way forward for your business.

How do I know if my business is insolvent?

There are two insolvency tests that can be applied to assess a company’s financial viability.

1. The cash-flow test

Carry out an in-depth audit of your cash flow. Simply put, this involves listing out the different types of income that your business has and listing out the expenses. For help creating your cash-flow forecast, download our guide.
If you don’t have enough cash to pay staff, suppliers, HMRC, creditors, etc. on time and in full in the long-term then your business is insolvent. You can be fined or prosecuted if you continue to operate knowing you are insolvent.
For free advice on your situation, contact us

2. The balance-sheet test

The balance-sheet test weighs your assets against your liabilities. Calculate all your assets (stock, premises, equipment, monies owed, cash in the bank) against your liabilities (debts to suppliers, your bank or other creditors).
It’s important that you don’t underestimate or overestimate your assets and liabilities. You need a true picture of your company’s position to decide on the best course of action.
Appointing an licensed insolvency practitioner might be a good idea at this stage, so they can help you decide on the best solution. If you’re ready to start this process, contact us .

What are the benefits of insolvent liquidation?

Becoming insolvent is a nightmare scenario for most business owners and directors but there are certain insolvency benefits. Unless you’ve made a personal guarantee as a director of the company, all the liability lies in the business and not with the individuals who run it. That means, once assets have been sold off, any outstanding debt is likely to be written off. This is one reason why businesses opt to form a limited company, so that all risks are taken on by the organisation rather than individuals. Any outstanding legal action, for instance from businesses that are trying to get money from you, is halted. Contracts, such as leases and hire agreements, are also terminated once a company goes into liquidation, which means no more money is paid unless the affected company makes a claim alongside other creditors. When it comes to your employees, they will also be in a better situation because they will be able to claim outstanding wages or redundancy through the liquidation. contact us to see if liquidation is the best way forward for your business.

What’s the insolvent liquidation process in the UK?

Step 1: Getting shareholders’ approval. Call a meeting, inviting all shareholders to attend. At least 75% of shareholders (by value of the shares held) must agree to the liquidation, or ‘winding up’. If this happens then a ‘winding up resolution’ is officially approved.
Step 2: The winding up resolution. This must be sent to Companies House within 15 days of it being passed. Your firm will be removed from the Companies House register and will cease to exist.
Step 3: A notice of the liquidation sent to The Gazette. Established in 1665, this is the official public record containing, among other things, details of businesses going through the insolvency process.
Your liquidator – who must be a licensed insolvency practitioner Who can act as a liquidator – takes control of the company throughout this process, disposing of its assets in order to settle its liabilities. contact us to see if liquidation is the best way forward for your business.

How to ‘wind up’ a company that owes you money?

If you’ve attempted to negotiate payment of a debt and failed then you may have to consider a ‘winding up’ petition. The most important thing is to establish that the debt is due. This is important as the presentation of a petition at court could be rejected if the debt is not proven to be due. In many cases this requires presenting a County Court Judgement (CCJ) and then a Statutory Demand, neither of which have led to the debt being settled. To present a petition in court would usually require the services of a solicitor.

What happens to employees when a company goes into liquidation?

One huge advantage of working in the UK is the Government’s Redundancy Payments Service. The Redundancy Payment Service can make payments to employees of insolvent companies who have not been paid because of the insolvency. Possible claims include:

  • Wages
  • Holiday pay
  • Pay to replace the warning period of redundancy (also known as notice pay)
  • Redundancy (requires two years employment for that employee)
Calculating payments due can be complicated and is specific to an individual’s circumstances. To discuss your situation, please contact us

How to claim redundancy if a company is insolvent?

Claims for redundancy can be made by the Redundancy Payments Service if any employer is insolvent and doesn’t pay what’s due. A formal insolvency process is usually needed, such as Creditors’ Voluntary Liquidation (CVL) Calculating payments due can be complicated and is specific to an individual’s circumstances. To discuss your situation, please contact us

What is a phoenix company?

A phoenix company is the name given to a company that ‘rises from the ashes’ of another, with the same assets and same directors as the old company. The process of ‘phoenixing’ is governed by strict rules that relate to the naming of your new company and the appointment of its directors. Breaking these rules means you risk serious legal consequences. The involvement of a reputable, licensed insolvency practitioner is necessary to avoid complications.

Can HMRC chase a dissolved company?

In a word: yes. This is why you need to be very careful how you close a company. If you do not go through liquidation but apply to be ‘struck off’ instead and the company has outstanding debt to HMRC, then HMRC can put it back on the register and ask the court to place the company into compulsory liquidation.

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