How to Liquidate a company

If your company has come to the end of its useful life, you will most likely have questions regarding the best course of action available. Perhaps your company is unable to operate efficiently due to disputes between its directors or shareholders, or perhaps it is facing the threat of legal action from creditors. Whatever the circumstance, you may be wondering whether placing the company in liquidation would be the best outcome for all interested parties.

What is corporate liquidation?

Company or corporate liquidation is a formal process by which the affairs of either an insolvent or solvent company can be brought to a legal conclusion, or “wound-up”.

When placed into liquidation, company’s assets are liquidated, in order that the creditors can be paid, and any surplus returned to the shareholders. Where sufficient assets are available, the costs of the liquidation will be paid from the proceeds of those assets.

If the potential value of the assets is unlikely to be significant, it should be possible for a director to negotiate a fixed fee with a licenced insolvency practitioner. This will allow them to meet the costs of the work required to wind up their company – potentially over a period of time.

Why do companies enter liquidation?

There are many reasons why companies enter liquidation. These include:

the loss of a niche market
difficulties with the location/new competition in the area
rises in property prices or rent costs
increases in employment overheads
insufficient working capital
difficulties with internal processes & procedures
unforeseen changes in legislation
Cash flow crisis / inadequate financial management
Lack of funds to keep the business viable
Clients not paying invoices on time
Lack of expertise/knowledge

If any of these become apparent, the company will need to contact a licenced Insolvency Practitioner such as Chamberlain & Co to seek an explanation of the situation and be advised on the most appropriate course of action.

We assist directors to understand the nature of their company’s difficulties; plan a reorganisation or exit strategy and, where appropriate, draft and pass the formal resolutions necessary to place the company into liquidation.

Once placed in Liquidation, any assets from the company are used to pay off the debts owed to creditors, and any money left over goes to the Company’s shareholders.

Which liquidation option is right?

The three types of liquidation are:

Creditors Voluntary Liquidation

A Creditors Voluntary Liquidation (CVL) involves the directors of a company holding a board meeting. The meeting resolves that the company cannot continue by reason of its liabilities and should be placed into liquidation, with a licenced insolvency practitioner being appointed. Meetings of the company’s shareholders and creditors will then be convened to consider the necessary resolutions to wind up the company and appoint a liquidator.

A CVL is a suitable procedure for companies which:

are no longer considered viable
are continuing to make losses
cannot pay creditors

A CVL can be used after a consultation period to determine whether the business can continue or it is possible to secure a better outcome for creditors through other options.

Members Voluntary Liquidation

A Members Voluntary Liquidation (MVL) is only available to deal with solvent companies. It requires the directors to swear a declaration of solvency which states the company will pay all its debts in full, and the costs and expenses of the liquidation, within a period of 12 months.

An MVL is mainly a tool to assist Shareholders who, at the end of a company’s life, want to withdraw surplus funds from the company while minimising the personal tax liabilities which will attach to individual shareholders on the funds they receive. For more information, click here.

Compulsory Liquidation

Compulsory Liquidation (CL) is where a winding up order is made by the court. Such an order will in the first instance result in the company’s affairs being dealt with by the Official Receiver, who is a civil servant. Dependent upon the complexity of the company’s affairs, and upon the wishes of creditors, the Official Receiver may subsequently take action to appoint a licenced insolvency practitioner as liquidator.

A petition to the court for a CL is usually the process utilised by creditors whose intention is to wind up a company. It allows a liquidator to:

realise the company’s assets
investigate the affairs of the company and its transactions
establish if there are any grounds to bring claims against the directors and/or their associates
recover monies or assets which have been removed or transferred away from the company

Where a compulsory winding up order is threatened a director may wish to take advice as to whether their company as an alternative can be placed into Creditors Voluntary Liquidation.

In the event that a petition for the winding up of a company is lodged at court and advertised, it is likely that the company’s bank will freeze its account, and the company’s officers may need a validation order to gain access to the company bank account. Chamberlain & Co can provide professional advice to assist with the process of obtaining a validation order.

How long does it take to Liquidate a company?

The time required to complete the liquidation process varies on a case by case basis. It can depend on, for example:

complexity of the business
size and number of the company’s assets and liabilities
whether investigation work is required to establish claims against the directors/other parties
Pursuit of valid claims.

Help to liquidate a company when you need it

Many companies face external pressure; never be ashamed to ask for help. Chamberlain & Co offer a free initial telephone call for advice regarding corporate insolvency procedures to help minimise your stress. We can we contacted on 0113 868 1203 or advice@chamberlain-co.co.uk