Liquidation is essentially:-
The above are essentially the same thing and the final stage of the process involves dissolving the company or business in question.
There are three different ways to Liquidate or close down a company:
When an insolvent company that cannot pay off its debts chooses to be Liquidated to resolve this.
As this form of Liquidation is voluntary, more options are available to the business and the process is director-led.
It is generally thought of as a better option than Compulsory Liquidation as it is easier to control and less costly.
When a court orders an insolvent business or company to wind up / close down.
It generally comes about after a creditor has taken legal action against the business through a Winding Up Petition.
This form of Liquidation means directors lose control of the process, with almost all action having to be approved by either the court or the petitioning creditor.
The conduct of the directors will be thoroughly investigated and it is regarded as the least favourable type of Liquidation.
When a company is solvent but chooses to wind up and dissolve.
Reasons for this could include the retirement of directors, a merger or conflicts between directors and shareholders to name but a few.
MVL is a tax-efficient way to extract company money from the bank and, when properly managed, it can be a quick and smooth process.
Liquidators lead the process of winding up a business.
Liquidators are licensed insolvency practitioners, such as accountants or solicitors, who are trained in the field of insolvency.
The Liquidator will either take control of the company or assist as much as possible during the Liquidation process.
Their tasks include organising and preparing for meetings with creditors, assessing director conduct and distributing assets.
The business’ Liquidators are appointed by creditors, shareholders, directors or the court – depending on the type of Liquidation the company is going through.
Directors and shareholders generally appoint provisional Liquidators who must be approved by company creditors to confirm their role.
What is the Liquidation process?
The first point of the process will be appointing a Liquidator, who takes charge of handling the company’s Liquidation process.
They gather information on company accounts and records, creditor debts and any other liabilities – such as tax owed to HMRC, the firm’s assets and company cash flow.
The Liquidator will organise the information and assist in the writing of all necessary official documents.
These could include the assessment and presentation of a Statement of Affairs or the signing of a Declaration of Solvency (MVL only).
Creditor meetings then need to be held. Creditors must be given notice of this at least seven days in advance and shareholders two weeks prior.
The pending Liquidator will often lead the meetings, which are usually smooth and stress-free. Directors must attend and often act as chairmen.
Creditors will vote to confirm Liquidating the business is the best option for the company and the Liquidator’s appointment.
Seven days before the creditor meeting, the company’s Liquidation is advertised in the London Gazette.
This is legally mandatory for all companies going through the process and is in the interest of creditors. It enables them to direct and submit their claims.
The firm’s assets will then be sold off in order to pay back liabilities.
Items are either to be auctioned, bought by a third party or bought back by directors themselves – so long as it is deemed to be in the best interest of the creditors.
The cost of Liquidation will be paid off after assets are sold. Creditor claims will then be settled.
Since payment for creditors’ liabilities comes from the selling off of company assets, it is important to try to sell them for the highest possible value.
The Liquidation process will ease creditor pressure and stop the company from trading.
This will reduce the risk of directors becoming involved in wrongful trading – a crime that would see them held personally responsible for their actions.
Depending on the type of business Liquidation, employees may receive redundancy payments from the Government.
Liquidation is a controlled and professional process, giving order to a company that needs to wind up.
If you are thinking of closing down a company and going through Liquidation, the process needs to be advertised in the London Gazette.
This allows all creditors to have a fair chance of being alerted and submitting their claims in a legal and stress-free fashion.
Directors of the business get a clean break once the process is complete.
They can buy back company assets if certain criteria are met.
For example, assets might be advertised to the public. However, if directors’ bids are higher than those of any creditors, the directors may be able to legally buy back those assets.
It is important directors are honest with staff and all have a clear understanding of their firm’s financial situation.
The Liquidator will need detailed information about this, so it is best to have organised records and accounts at the ready.
If you feel as though Liquidation is the best option for your business, the first thing to do is to get in touch with Hudson Weir.
Our consultants offer free no-obligation chats on the phone and we can give you clear and accurate advice on your options.
If you are thinking of closing down and dissolving your business or company, we can tell you whether Liquidation is the right move and, if so, which type of Liquidation would suit your circumstances best.
Our experts can also help with other business rescue options such as entering your company into Administration or coming to a Company Voluntary Arrangement if these are more appropriate.
Whatever you need, we are here to help.
Hudson Weir are an established firm of Insolvency Practitioners who specialise in business recovery and corporate financial solutions. Hudson Weir provides industry leading, nationwide services for its clients with the intention of easing financial pressures and providing recovery strategies for struggling businesses.More about us