Liquidation is essentially:-
The above are essentially the same thing and the final stage of the process is to dissolve a company or business.
There are three different ways to liquidate or close down a company:
In a CVL, an insolvent company chooses to be liquidated in order to resolve its financial difficulties.
As this form of liquidation is voluntary, more options are available to the business, and the process is director-led.
A CVL is generally thought of as a better option than compulsory liquidation as it is easier to control and less costly.
In a compulsory liquidation, 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 – almost all action has 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.
This is 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.
An 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 duties include organising and preparing for meetings with creditors, assessing director conduct and distributing assets.
The company’s 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.
How to dissolve a company: 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 chairs.
Creditors will vote to decide whether liquidating the business is the best option for the company, and on the liquidator’s appointment.
Seven days before the creditor meeting, the company’s liquidation is advertised in the London Gazette.
This is a legal requirement for all companies going through the process and is in the interest of creditors, as 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 auctioned, bought by a third party or bought back by directors themselves – as long as this 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 UK government.
Liquidation is a controlled and professional process, giving order to companies that need to wind up.
If you’re thinking of closing down a company and going through liquidation, the process needs to be advertised in the London Gazette.
This alerts all creditors and gives them a fair chance to submit 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 that 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, and you want to dissolve a company, the first thing to do is get in touch with Hudson Weir.
Our London based consultants offer free no-obligation chats on the phone, and we can give you clear and accurate advice on your options.
A director can start the process of winding up a limited company if the company can no longer pay its debts and is insolvent. Equally, if the shareholders agree, this may also lead to closing the limited company.
The first step if you are faced with closing down a limited company is to appoint a qualified liquidator.
If you’re not sure of the next steps for dissolving a limited company, we offer a free one-hour consultation with all enquiries.
If you’re thinking of dissolving your business, 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 administration or a company voluntary arrangement, if these are more appropriate.
If you’re a director and your company has gone into liquidation, you may subsequently face bankruptcy proceedings. If this has happened to you, please contact us. We have a proven track record of helping companies in London and throughout the UK.
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
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