What is liquidation?
A liquidation is the process of formally closing a limited company.
It is a solution based on UK Insolvency Law that applies to companies where the ongoing trade of its business is no longer possible or has naturally come to the end.
In a liquidation we as independent licensed insolvency practitioners are appointed to act as liquidators of a company.
Control and responsibility of the company’s affairs is passed from the directors to us as liquidators and it is our job to recover and sell company assets to pay those who are owed money (known as ‘creditors’) after meeting the costs of the liquidation. Any surplus left over is then paid over to the owners the company (its shareholders).
Liquidation is a process that can also be applied to Limited Liability Partnerships (LLPs).
Why would you place a company into liquidation?
There are two situations where the liquidation of a company may be the right solution:
When a company’s business is unable to trade, and the company doesn’t have enough money to pay all of its debts as they fall due
Being in business carries risk and a company may find itself in a situation where an event or combination of events leaves it in serious financial difficulty, leaving it unable to pay its debts as they fall due. This is known as being ‘insolvent’.
In the situation we support company directors on how to stop trading in a structured way, help communicate and support all those affected and coordinate the formalities of placing the company into Creditors’ Voluntary Liquidation (CVL).
If your company is unable to pay it’s debts and is insolvent, for more information on CVL click here.
When a company’s trade has naturally come to the end, but is able to pay all of those who are owed money leaving a balance to return to the Company’s owners
There are many reasons why a company’s trade may come to an end. Some examples are listed below:
- completion of a project which a company was specifically created for
- sale of a company’s business
- retirement of a company’s owners
- where a self-employed contractor no longer needs their company as they have taken employment
- The simplification of a group of companies
If the company is able to pay all of its debts, it is known as being ‘solvent’. The liquidation of a solvent company is called a Members’ Voluntary Liquidation (MVL).
In this situation we support company directors and their accountants in managing the structured wind-down of trade, coordinate the formalities of placing the company into Members’ Voluntary Liquidation, ensure that all debts are paid and thereafter return any surplus cash/assets to the company’s owners.
The payment of surplus assets/cash to the company owners is treated as a capital distribution for tax purposes.
This can be a more tax efficient tax efficient for owners, especially if they qualify for Entrepreneurs’ Relief.
Creditors’ Voluntary Liquidation
Creditors’ Voluntary Liquidation (CVL) is a solution for companies (and LLPs) that are in financial difficulty and are unable to pay their debts. In addition, despite the best efforts of the company directors or the application of other turnaround solutions that such as administration or a CVA, it is clear that there is no chance of a recovery in the company’s financial position.
We as licensed insolvency practitioners support company directors in how best to stop trading in a structured way. We will communicate and support all those affected and also coordinate the formalities of placing the company into Creditors’ Voluntary Liquidation (CVL).
Once the company is in liquidation, it is our job as appointed liquidators to recover and sell company assets to pay those who are owed money (known as ‘creditors’). We are also required to carry out a general review of the actions and behaviour of the company directors in the period leading to liquidation to ensure that they were reasonable.
Key stages of a Creditors’ Voluntary Liquidation
- Free initial advice meeting with one of our licensed insolvency practitioners
- We facilitate a board meeting of the company directors to confirm their conclusion that the company cannot continue trading and steps should be taken to place it into CVL
- We support directors in the practical aspects of ceasing to trade and communicating those affected including creditors, HMRC, and employees
- We produce a report on behalf of the company’s directors, which includes a history of events and any actions taken by directors to attempt to avoid failure, together with a statement of assets and liabilities.
- We circulate the directors’ report to shareholders and creditors as part of a decision procedure to place the company into liquidation and appoint a liquidator.
- Once in liquidation, we as liquidators recover and sell the company’s assets and distribute the proceeds to creditors in respect of the money they are owed.
- Liquidators complete a standard review of the actions of the directors leading up to liquidation to reassure creditors that the steps taken were reasonable
- Once the above is completed, the liquidator issues a final report to creditors and shareholders confirming the conclusion of the liquidation. Thereafter the company is struck off at Companies House.