Company Going Into Liquidation – All Options Explained

Updated: 14th April 2021

If your company is going into liquidation, the process will involve realising all business assets and holdings in order to repay creditors. There are two types of liquidation – voluntary and compulsory, and we look at both in more detail below.

Voluntary Liquidation

You might have opted for voluntary liquidation in a range of circumstances. During times of financial distress liquidation is often an option when creditor pressure has become too much to deal with. In the case of a solvent company, liquidation may be sought if want to retire, or close the business for any other reason.

Whatever the reason, the closure of your business through a voluntary liquidation procedure will need to be administered by a licensed Insolvency Practitioner.

Two voluntary liquidation options are available – Creditors’ Voluntary Liquidation (CVL) and Members’ Voluntary Liquidation (MVL).

Creditors’ Voluntary Liquidation

A good option when:

  • Your creditors are relentless in their efforts to recoup monies owed, and you want to prevent the compulsory winding-up of your company
  • Your company has no chance of recovery, and is deemed not to be viable in the long-term
  • You want to adhere to your responsibilities as a director of an insolvent company and place the interests of your creditors first.

A short breakdown of the process:

  • A meeting of shareholders is held, in which 75% (by share value) must agree to a CVL
  • Appointment of a licensed Insolvency Practitioner to liquidate the company
  • Holding a creditors’ meeting to present the Statement of Affairs that explains your company’s financial standing
  • Placing an advert in The Gazette.

Are there any disadvantages for you as a director?

  • The fee for a CVL may require a personal contribution from directors if company assets are insufficient to meet this cost
  • The advert placed in The Gazette makes it a public process
  • You may face investigation by the Insolvency Service if anything untoward is discovered by the Insolvency Practitioner.

Members’ Voluntary Liquidation

A good option when:

  • You want to retire and there is nobody else to take over your solvent company
  • You are able to officially declare that your company can repay its debts within a 12-month period
  • You simply do not want to be a director any longer, or be involved in running a business
  • You are looking for a tax-efficient way to close your business down.

A short breakdown of the process:

  • All company assets are valued, and a Declaration of Solvency prepared
  • You and any other directors sign the Declaration
  • A shareholders’ meeting is called to pass the resolution for voluntary winding-up
  • An advert is placed in The Gazette
  • Appointment of a licensed Insolvency Practitioner to undertake the process
  • The resolution is sent to Companies House.

Are there any disadvantages?

  • If company assets are not valued correctly and do not include contingent liabilities, there is a chance that on advertising the MVL, new creditors make a claim which sends the company into an insolvent position
  • Directors lose some control over company assets with the appointed Insolvency Practitioner taking on responsibility for their sale.

Compulsory Liquidation

If your company is facing compulsory liquidation, it means that one of your creditors has taken legal action against you. It could be that they have issued a Statutory Demand for Payment for a debt of £750 or more, which has remained unpaid.

Once a winding-up order has been issued by the court, your company will close down and all assets liquidated to provide payment to as many creditors as possible. One of the few advantages of compulsory liquidation is that the creditor making the petition pays for the process.

Cessation of other creditor pressures may also come as a relief if you have been on the verge of insolvency for some time. During this liquidation process, you are, however, obliged to comply with the requests of the liquidator in terms of providing all information requested.

Insolvency Service investigations into director conduct

Failure or reluctance to provide the requested information may have serious consequences. All director conduct is investigated during a liquidation procedure (whether voluntary or compulsory), and a report sent to the Secretary of State at the end of the process.

This forms the basis of a decision as to whether further investigations are necessary. In reality, this could lead to accusations of wrongful trading or unfit conduct as a director, and affect your eligibility for directorship in the future. In serious cases, directors may face a prison sentence.

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