Liquidation of a company – process and advice
Before you make a decision about which liquidation process is right for your company you must determine whether your company is solvent or insolvent. There are two tests that are a good indicator of a company being insolvent:
- The Balance Sheet Test – If the company liabilities are greater than the value of company assets
- The Cash Flow Test – If the company is struggling to make payments as and when they fall due
Liquidation of a company if it is insolvent is usually done via a Creditors’ Voluntary Liquidation (CVL)
What is a Creditors’ Voluntary Liquidation?
It is a formal process used to wind up a company that has become insolvent. A CVL is a director led process which sees the directors taking control of their insolvent company by placing it into Creditors’ Voluntary Liquidation. The purpose of a CVL is for the appointed Liquidator (must be an Insolvency Practitioner) to sell any remaining company assets and, where possible, distribute the proceeds of the sale to company creditors. The liquidation process can also be used as a means to allow the directors the opportunity to purchase the assets and goodwill of the business with a view to starting a new company.
Who can use a CVL?
Any insolvent company is eligible for this process.
Key advantages of a CVL for the liquidation of companies:
- A director led process meaning that you will have the ability to choose the Insolvency Practitioner that you would like to be appointed as Liquidator. In a Compulsory Liquidation the Official Receiver is appointed by the creditors or the court
- The appointed Liquidator will have a duty to achieve the best results for company creditors and will be able to guide you on how best to do this
- The appointed Liquidator will have to act in accordance with the rules set out by the Insolvency Act and Rules 1986
- Further legal action against the company is unlikely once notice has been given that the company will enter a CVL as it will be a waste of money for the creditor
- Company employees will be able to claim unpaid wages, notice pay, holiday pay and redundancy pay from the government as part of the liquidation process
- You will be given the opportunity to purchase the company assets and/or goodwill for use in a new company
- At the end of the process Companies House will start the process of removing the company from the register
- The appointed Liquidator will deal with all company communication on your behalf which removes creditor pressure
The liquidation process
Step 1: Take advice on all of the options available to you for the liquidation of a company. We offer a free initial meeting or free telephone advice
Step 2: Instruct your chosen Insolvency Practitioner to commence the Creditors’ Voluntary Liquidation process. At this point, the Insolvency Practitioner will become the point of contact for your creditors and will deal with all company communication going forward. The Insolvency Practitioner will then prepare the paperwork from that point forward – including steps 3 to 6 below.
Step 3: Hold a meeting of directors to resolve to place the company into Liquidation.
Step 4: Arrange a meeting of shareholders and a meeting of creditors.
Step 5: Give notice to shareholders and creditors of the meetings in the liquidation process.
Step 6: The proposed Liquidator will assist in the preparation of statutory paperwork including a Statement of the Company’s affairs.
Step 7: Attending the meeting of shareholders and the meeting of creditors. A vote will be held and will determine whether the company be formally placed into Creditors’ Voluntary Liquidation
Step 8: As part of the liquidation process, the appointed Liquidator of the company will notify Companies House that the company is now in Creditors’ Voluntary Liquidation
Step 9: Once appointed by the members and creditors the Liquidator has three main duties:
- To realise the company’s assets
- To agree the claims of the company’s creditors
- To investigate the company’s affairs and the director’s conduct
How can we help? At Liquidation.co.uk we have helped thousands of companies wind up their affairs with the liquidation of a company using the Creditors’ Voluntary Liquidation process. We offer a professional service at a very competitive price and we are able to advise you through the liquidation process by Zoom call or telephone or meet at a time and location that is convenient to you.
Liquidating a solvent company via a Members’ Voluntary Liquidation (MVL)
What is an MVL?
An MVL is used when the shareholders wish to close down a solvent company (ie one that can pay its creditors in full and assets exceed liabilities). This process is often used in scenarios such as directors wishing to retire or the company, simply, no longer having a purpose.
Who can use a Members’ Voluntary Liquidation?
Any solvent company is eligible for this process
Why use an MVL? – the key advantages
- Tax benefits – since the introduction of the Extra-Statutory Concessions Order 2012 any distribution made to shareholders in the closure of a solvent company which is greater than £25,000 will be treated as income for tax purposes UNLESS an Members’ Voluntary Liquidation is used. If an MVL is used then these distributions should be treated as capital receipts and will receive a lower rate of tax (you must obtain tax advice from your accountant).
- An MVL should also be eligible for the use of Business Asset Disposal Relief (formally Entrepreneurs’ Relief) which is a personal tax relief and can bring the tax rate applied to shareholder distributions down to as low as 10%
- A Members’ Voluntary Liquidation can be used as part of a solvent restructuring through a S.110 agreement
- In a solvent liquidation, the directors conduct will not be investigated
The Members’ Voluntary Liquidation – the liquidation process
Step 1: Take advice on all of the company liquidation options available to you. We offer a free initial meeting or free telephone advice. You will also need to take advice from your tax advisor
Step 2: Instruct your chosen Liquidator (Insolvency Practitioner) to commence the Members’ Voluntary Liquidation process
Step 3: All outstanding H M Revenue & Customs returns to be filed
Step 4: Hold a Board Meeting
Step 5: Prepare a Declaration of Solvency
Step 6: Provide notice to shareholders of the General Meeting
Step 7: Hold the General Meeting at which the shareholders resolve to place the company into Liquidation and formally appoint the Liquidator
Step 8: Notification of the appointment of Liquidators will be given to Companies House and advertised in the London gazette
Step 9: We will request that the funds in the company bank account be transferred to a designated case account
Step 10: The cash will be distributed to company shareholders upon receipt of the funds from the bank
Step 11: We will request confirmation from H M Revenue & Customs that there are no outstanding issues
Step 12: We will request that Companies House begin the process to remove the company from the register
How can we help with the liquidation of companies that are solvent?
At Liquidation.co.uk we have helped thousands of solvent companies go through the liquidation of a company using the Members’ Voluntary Liquidation process. We offer a professional service at a very competitive price and we are able to advise you by Zoom or telephone or meet at a time and location that is convenient to you.
1. What is the liquidation of a company?
Liquidation is the legal process by which a company stops trading and ceases to exist. Once liquidation has been completed, the business will be removed from the register at Companies House. Employees are made redundant and any assets are used to pay off outstanding company debts and fees.
2. Why would I need to wind up (liquidate) a company?
- If the business within a company is no longer able to continue
- The business has been sold to another company
- The directors and shareholders of a business are retiring
- A contractor that supplied services through a company is taking a full-time job
- The business has financial difficulties that led to it not being able to pay who it owes money to – its liabilities are greater than its assets.
Winding up is not always the only choice for a limited company closure. We’d be keen to understand a company’s position to lay out the choices before the liquidation process is decided upon.
3. What is the role of a licensed insolvency practitioner (liquidator) in the liquidation of a company that cannot pay what it owes?
The liquidator will have a variety of roles which include:
- Review ongoing disputes or contracts and look to determine the best course of action.
- Become responsible for paying all creditors as much a possible by selling off any assets. Costs include the fees of liquidation, any third-party costs such a solicitors and asset valuers.
- Inform the authorities and any creditors about what is going on and completing any paperwork.
- Inform creditors about the extent of settlement of accounts and keep them involved in decisions where this is appropriate.
- Carry out a review & discuss with the directors what went wrong with the business.
- Finally, once the liquidation process has gone through, the business is removed from the register at Companies’ House
4. What is voluntary company liquidation?
A voluntary liquidation may be required if your company is either insolvent (cannot pay the money it owes) or solvent (can pay the money it owes).
If your company is solvent but has come to the end of its trading life, a solvent liquidation via a Members’ Voluntary Liquidation provides a tax efficient way to close the company.
If your company is insolvent and has no choice but to cease trading, an insolvent liquidation via a Creditors’ Voluntary Liquidation will formally close the company whilst dealing with the creditors of the company.
5. How will company liquidation affect me as a director?
Having a limited liability company means that there is little risk to you as a director in the event of the company failing, as long as you have acted properly and in time. By seeking advice early on you will be minimising the risk to you personally.
6. Who should I seek advice from about a voluntary company liquidation?
A Liquidator must be a licensed insolvency practitioner who is licensed to act by a professional regulatory body. Only a licensed practitioner may act as Liquidator in the liquidation of a company, either solvent or insolvent. At Liquidation.co.uk we have very experienced licensed insolvency practitioners, each having over twenty years’ personal experience. Contact us today for a free initial consultation.
7. Can I restart my company after a voluntary liquidation?
Liquidation and then re-start after an insolvent liquidation is absolutely achievable using a Creditors’ Voluntary Liquidation. You will be given the opportunity to purchase the assets of the liquidated company and take them forward into a new company.
After a solvent liquidation using a Members’ Voluntary Liquidation a business could continue but is usually best considered with tax advice.
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