What You Need To Know - Company Liquidation

Is a liquidation the right solution?

Get in touch to find out or browse the questions below to discover more about company liquidation.

  • Liquidating a company is a method used to close a UK Limited Company
  • Simply put the assets of a company are turned to cash and paid first to those owed money and then to the company owners
  • If there is not enough cash left to pay all those owed money then the company is insolvent
  • If everyone owed money can be paid and then money paid to the owners, then the company is solvent
  • Starting the process of liquidating will, importantly, prevent a company from continuing to trade
  • Liquidating a company is also referred to as winding up a company
  • Only an authorised person can act as a company liquidator

Insider Tips:

It is possible, with the professional advice, that the business within a company, could be transferred out to a different company. A different company would not have the debts of the original company. This could allow a business that has debts to flourish without the debts.

Money owed by a limited company will not automatically be owed personally by the company directors or shareholders of that company.

  • If the business that operates within a company is no longer able to continue, either at all or within that particular company
  • The business has been sold to another company
  • The directors and shareholders of a business are retiring
  • A contractor that operated within a company is taking a full time job
  • The business has experienced difficulties that have led to it being unable to pay those it owes money to

Insider Tips:

Winding up is not always the only option for a UK limited company closure. We’d be keen to understand a company’s position to lay out the options for its position.

A Solvent Company

For a Solvent company (can pay its debts and has cash or assets remaining)

  • Tax is often a big factor in when it is time to liquidate
    • Which tax year does a personal capital gain fall into?
    • Is a budget review due that may affect tax rules for the future?
    • What other personal capital gains fall within the relevant tax year?
    • Is there a time restriction on the application of Entrepreneurs’ Relief (a personal tax relief)?
  • Are you starting a new full-time role and won’t need your company?
  • Has your business just been sold?
  • Are you considering retiring from your business?

An Insolvent Company

For an Insolvent company (can’t pay its debts and owes more than it owes)

  • A winding up petition is being threatened or has been presented against the company
  • The outcome of a court case is expected to go against a company and it can’t pay the likely award
  • The business of the company is no longer viable
  • A company will not be able to pay the wages for its staff
  • A landlord is threatening re-possession of the company’s premises
  • Enforcement action is being taken by those owed money by the company
  • A business has had to cease suddenly due to unforeseen circumstances

Insider Tips:

The above are some example. Every situation is different. We will need to understand those factors to be best able to help you.

Liquidating a company is split into two categories:

Insider Tips:

When winding up an insolvent business the liquidator must make a report to the Government Insolvency Service on the conduct of the company directors.

  • You may have noted the “Voluntary” word used in the Methods of Liquidating section above
  • Voluntary means that the company directors and shareholders start the process at a time to suit them
  • A Licensed Insolvency Practitioner is required to act as a voluntary liquidator of a company
  • A Compulsory Winding Up is started through the courts usually through enforcement action for unpaid debts

Insider Tips:

An insolvent compulsory route is the one that HMRC will follow to pursue unpaid taxes from the company.  HMRC will issue a threat of company winding up and will then issue a winding up petition through the courts. This proceeds to a court hearing to put the company into compulsory winding up.

For a Solvent Company

For a Solvent company (can pay its debts and has cash or assets remaining)

  • Planning ahead will be rewarded when winding up a company with assets
    • The date of appointment of a liquidator will create a new accounting period for a company
    • This may be different to your company’s usual accounting period
    • Company accounts will need preparing up to the day before the appointment of a liquidator
    • This will often rely on your accountant’s or bookkeeper’s availability
  • HMRC will add interest on to any money to be paid to them which is paid after the appointment date
  • Planning ahead will, where possible, make sure the accounts are ready for the appointment date
  • With shareholder approval the meeting to liquidate your company can be on “no” notice
  • We can prepare the necessary papers to liquidate your company in a short period of time
  • You can read about the Members’ Voluntary Liquidation process here

For an Insolvent Company

For an Insolvent company (can’t pay its debts and owes more than it owns)

  • Speed can be very important for a company under financial pressure
  • A lot of very important steps are taken before a liquidator is formally appointed to your company
  • The Nominated Liquidator making contact with those owed money by your company at the earliest stage is crucial
    • Early contact will lift pressure off the company directors
    • Explaining the process to those owed money will help them to understand what will happen
    • Discussion with employees of the company will help them to understand any claims that they have
  • Protecting any assets of the company will lead to a better return to those owed money
  • By the time the company is formally liquidated all those owed money will have contacted
  • You can read about the Creditors’ Voluntary Liquidation process here

Insider Tips:

The use of electronic signing of documents and virtual meetings (online/telephone) allow us to minimise time and expense of all of the form parts of the process of winding up.

You’ll be glad to hear that our team of 20 are able to deliver the speed that you may need.

  • Only Licensed Insolvency Practitioners can be appointed as voluntary company liquidators
  • A Compulsory Winding Up will appoint the Official Receiver as Company Liquidator; though it’s possible that an Insolvency Practitioner may be appointed as the Compulsory Liquidator at a later point or under the court’s instruction

Insider Tips:

Though the role of a liquidator is restricted to those who are qualified and licensed, this restriction does not apply to those giving advice about insolvency, liquidating and rescue. Naturally, we would recommend taking advice from someone that will act as the liquidator of your company and is therefore licensed and will deliver the process as discussed with you.

  • A company will usually pay to liquidate itself from its assets (cash, money owed to it, physical assets etc.)
  • If a company does not have assets to use, then typically company directors and shareholders pay to liquidate the company
  • If a company is forced into liquidating through the courts (compulsory) then a deposit and costs must be paid to the court
  • Liquidating an insolvent or solvent company with Liquidation.co.uk will start from £3,000
  • We are happy to consider payment terms for liquidation costs wherever possible
  • Click to learn more; Company Liquidation Costs

Insider Tips:

Look out for unlicensed advisors who will add their costs on to the fees of any liquidator and push the overall cost upwards.

We wouldn’t want to mislead you with eye-catching prices that turn out to be eye-watering bills. We’d rather be upfront about costs; in fact, you’ll be pleased with our prices. In many cases, we can work on a fixed fee basis.

We will quote you on your actual situation and will be glad to offer you a price, that you can take or leave as you wish.

  • A compulsory liquidation will usually be started by winding-up petition being sent to court
  • A winding-up petition is sent to court to ask the court to wind-up a company and place it into liquidation
  • The petition will need to be presented along with evidence that a company has not paid money that it is due to pay, and that this is because it is not able to pay – also known as proving insolvency
  • A request to wind-up cannot be sent if the company cannot be shown to be insolvent
  • After the court receives a winding up petition then a date will be set to consider the request for the company to be wound-up – this is known as the hearing date
  • If a company can’t pay what it owes, then compulsory and voluntary liquidation are both choices
  • As a company must be insolvent to enter compulsory liquidation, a compulsory liquidation is not a way of liquidating a solvent company
  • If a company is solvent, then a voluntary liquidation is the correct process

Insider Tips:

A voluntary liquidation does not involve the courts or the government Insolvency Service.

  • If a company is threatened by compulsory liquidation (through the court is the only way to force compulsory liquidation) then fast action is essential
  • A company will need to have received a copy of a winding-up petition before it can be forced to be wound-up through the courts
  • The winding-up petition document will have a date on it of when the court will consider whether a company should be placed into liquidation – known as the hearing date
  • It is possible to ask the court to give more time to allow a company to try to reach agreement with the person that is trying to force liquidation on a company – this is known as adjourning the hearing or an adjournment
  • The next stage of the compulsory liquidation process is likely to be the advertising of the process in the London Gazette – a government publication for legal information
  • Once the advert is placed then a company’s bank is likely to freeze the company’s bank account
  • Once a company’s bank account is frozen the most likely way to allow a payment to be made will through a process known as a validation order, which requires an application to court
  • If a winding-up petition has not been presented, then a company is free to reach agreement with those it owes money to or to consider other rescue or closure options
  • If a winding up petition has been sent in to court against a company, then that company must try to agree payment with the person who is trying to force the company to close
  • If agreement for repayment can’t be achieved, then the court is likely to agree that the company should be liquidated
  • It’s quite common for a person that is trying to wind-up a company compulsorily will consider allowing the company to liquidate through a voluntary route
  • Such a voluntary liquidation will need to take place quickly and before the company is wound up through the courts

Insider Tips:

There is a cost to a person who wishes to force a company into compulsory liquidation. If the person who has presented a winding-up against a company is likely to want to have their costs paid for before they will consider allowing a voluntary liquidation

  • One of the few choices available to HMRC to collect a debt is to force a company into liquidation through the courts
  • They will make it clear to a company that the winding-up process will begin if payment is not made. This is the best time to consider rescue and closure options
  • Once HMRC has asked the court to liquidate a company – known as presenting a petition to court, then HMRC will have incurred a cost to pay the court
  • Some of HMRC’s costs will be refunded by the court if a company does not go into compulsory liquidation
  • HMRC will consider a request for a company to go into voluntary liquidation even after a petition has been received by the court
  • HMRC will require that their legal costs are refunded
  • Voluntary liquidation may not be the only solution available for the company. All company rescue options should be considered
  • Speed of movement by a company is crucial before the winding up petition is advertised, and the company bank accounts are frozen

Insider Tips:

It’s not uncommon that the reasons that a company fell behind with payments to HMRC have been resolved. Old debts may be able to be repaid from future profits of a company. There are choices to handle this situation.

  • One huge advantage of working in the UK is the government Redundancy Payments Service
  • The Redundancy Payment Service can make payments to employees of insolvent companies to make up losses of employees who have not been paid because of the insolvency of their employer
  • Insolvency generally means that the employer has entered a formal insolvency process such as Creditors’ Voluntary Liquidation
  • Calculating payments due can be complicated and is specific to an individual’s circumstances; so, we’ll summarise the position
  • Possible claims include:
    • Wages
    • Holiday pay
    • Pay to replace the warning period of redundancy, that should have been given – known as notice pay
    • Redundancy (requires two years employment for that employer)
  • Any payments made by the Redundancy Payment Service will be capped at the statutory maximum levels
  • Statutory levels may be lower than the amount that an employee is due under their employment contract
  • The statutory maximum payment per week, at the time of writing, is £508 per week for anyone made redundant from the 6th April 2018
  • Claim limits are fully detailed on the government website, here’s a link.
  • An Insolvency Practitioner will help employees of insolvent companies to make any claims
  • In certain circumstances, for example where correct procedure was not followed in giving correct notice by an employer, former employees may have a claim for a protective award
  • A protective award must be upheld by the Employment Tribunal Service
  • A successful protective award claim can then be applied for payment by the Redundancy Payment Service
  • We recommend discussing any possible protective award claim with ACAS the Advisory, Conciliation and Arbitration Service

Insider Tips:

Many company directors who are shareholders have moved to pay a part of their salary by way of a dividend. Only salary payments will count towards any claim against the government scheme.

  • Claims for unpaid amounts 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 insolvent company liquidation
  • Claims could be across four areas of payments not made by a company:
    • Wages
    • Holiday pay
    • Pay to replace the warning period of redundancy, that should have been given – known as notice pay
    • Redundancy (requires two years employment for that employer)
  • If an employee is also a shareholder, then it’s possible that some of their payments for working in a company have been dividends and not PAYE salary
  • Claims by an employee will only be made for income paid as PAYE salary
  • Redundancy is only available for employees that have worked for a company for more than two years
  • It’s quite possible that a claim for redundancy could be used to pay for the costs of voluntary liquidation. A formal insolvency is usually needed before a claim can be made
  • Payments from the government usually take around six weeks and possibly longer for payments for a notice pay claim
  • To use redundancy to pay for or to top company money is quite possible
  • An agreement will need to be put in place to guarantee that once payments have been received from the Redundancy Payment Service that they will be paid over the company liquidator

Insider Tips:

Always be clear on what you may be asked to sign by a liquidator. Be clear that what you are agreeing to pay is clear and agreed. An open-ended agreement with no financial cap could be very costly for anyone that signs up to one.

If you have any questions at all, please get in touch. We’d be delighted to help.

Licensed Insolvency Practitioners

Not Sure that Liquidating is the Right Choice?

Review all the options for your company – please click here to understand more.

Got some more questions; please feel free to email or call. Not ready for that why not try our  FAQs?

You could try the .GOV site if you’d like to be sure that our guidance is 100% accurate?