In the lifecycle of your company, there might come a time when it’s necessary to close it down. One common way of doing this is using the process of liquidation. Liquidation can be done through different channels, depending on your company’s circumstances. In this article, we’ll look at some of the reasons why you would voluntarily liquidate a company – whether it’s solvent or insolvent.
Why would you voluntarily liquidate a company #1: Insolvency
Liquidation is a serious decision that should not be taken lightly. But sometimes it’s the best option for a struggling company that finds itself in, or approaching, insolvency.
In fact, one of the most common reasons for a company to liquidate is insolvency. Insolvency occurs when a company is unable to pay its debts as they fall due, or when its liabilities exceed its assets.
If your company is insolvent, as a director you have a legal duty to act quickly to minimise losses and protect the interests of your creditors. In the case of insolvent liquidation, a Creditors’ Voluntary Arrangement is used to ensure that your company’s assets are sold off and the proceeds are distributed among your creditors in a fair and orderly manner.
Why would you voluntarily liquidate a company #2: Restructuring
Another reason why a company might choose to liquidate is to restructure its business. This could involve selling off parts of the business that are not performing well, consolidating operations, or even merging with another company. In these situations, liquidation can provide a clean slate for the company to start afresh, without the burden of past debts.
Why would you voluntarily liquidate a company #3: Retirement
Some business owners may choose to liquidate their solvent company as part of their retirement plan. A Members’ Voluntary Liquidation is the quick, easy way of closing a solvent business. It will allow you to liquidate any assets you have and distribute the cash returns in a tax efficient way.
Why would you voluntarily liquidate a company #4: Legal requirements
A company may be required to liquidate if its creditors have entered a winding-up petition with the courts. Should this proceed to a winding-up order being issued, known as Compulsory Liquidation, the company will be forcefully closed and its assets liquidated.
If you find yourself in this situation, and you seek help from a licensed insolvency practitioner in time, Compulsory Liquidation can often be stopped. A Creditors’ Voluntary Liquidation can then be instigated by the company directors instead.
How can we help with the voluntary liquidation of a company?
Liquidation is a serious decision that should be carefully considered, especially if your company is facing financial difficulties. It’s important to seek professional advice and guidance throughout the liquidation process to ensure that all legal requirements are met, and the interests of all parties involved are protected. Ultimately, if liquidation is the best option for your struggling company, it can provide a way to minimise losses and provide a fresh start for the future.