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What is the Company liquidation process?

It’s fair to say that liquidation can be a stressful time for company directors. Here at Business Helpline we can help discuss the liquidation process with you and discuss all your options as all cases are different.

Before we cover the liquidation process it’s important to realise there are several types of liquidation which all have different processes.

-Creditors Voluntary Liquidation

-Members Voluntary Liquidation

-Compulsory liquidation

Compulsory Liquidation is where creditors petition the courts to wind up a company. Generally, because they feel the company can’t pay its debts and is insolvent. HMRC tends to be the main creditor that starts this process off, especially when taxes are owed.

Members Voluntary Liquidation doesn’t involve the courts. This is used when a company is solvent and able to pay its outstanding debts.

Creditors Voluntary Liquidation is initiated by the directors of a company. This type of liquidation is used when the company can’t pay its outstanding creditors and is therefore insolvent. This process is begun before a compulsory liquidation is petitioned and so doesn’t involve the courts.

The Voluntary liquidation process

Now we understand the different type of liquidations we can run through how the process works in practice in the case of a voluntary liquidation. This is a very exact process and must be carried out exactly as set out in the Insolvency Act (1986). A licenced Insolvency Practitioner (IP) should be appointed to administer the procedure.

If you need help with this process, we have a licenced IP at Business Helpline so get in touch on our free helpline.

Once an IP has been appointed the process works in this order for a MVL

-A declaration of Solvency is sent to Companies House.

-Then a winding up resolution is made.

-Creditors are informed and an advertisement is put into the London Gazette.

-Funds are distributed and sale of assets occurs.

-The company is then removed from the register at Companies House.

For a CVL the process is similar but as the company is insolvent in order to wind-up the company there must be an extra-ordinary general meeting held on 14 days’ notice. Here 75% of the shareholders must vote in favour of the resolution before it can be passed.

The compulsory liquidation process

-The process differs with a compulsory liquidation and begins with a winding up petition or WUP to the courts to start the process. The creditor must be owed at least £750 and have waited for a period of 21 days for the debt to be repaid. This winding up petition is most commonly instigated by HMRC. The WUP is then presented to the company and after 7 days this is advertised in the London Gazette. Normally company bank accounts will be frozen at this point.

-After another 7 days the judge is presented with the WUP who will decide what happens next. If it’s agreed the company should be liquidated, then a Winding Up Order will be issued, and company trade will be stopped.

-At this point a liquidator will be appointed and will take over full control of the company. The director now has no further involvement but may have to assist the liquidator in providing necessary information.

-Following the appointment of the liquidator the company’s assets will be sold off. The proceeds along with any cash held in company bank accounts will then be used to pay off outstanding debts where possible.

-The company is now removed from the Companies House register and is officially shut down. Outstanding debts are written off and the company ceases to exist.

Liquidation Process Conclusion

In conclusion, the liquidation process is a complex procedure that can have serious consequences for a company and its stakeholders. However, it can also provide a way out for businesses facing financial difficulties. It’s important for business owners to understand the steps involved in liquidation, the options available to them and the possible consequences of going through the process.

It’s also important to seek the advice of a professional and experienced liquidator who can guide you through the process and help you make the best decisions for your business. By gaining a comprehensive understanding of the liquidation process, business owners can navigate the challenges and make informed decisions for their company.

If your company is struggling with debt and you feel you need to close your company. Or if you need some confidential, professional advice call our team of experts on 0800 088 2142

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Andy Slinger

Andy is Head of Marketing for Business Helpline with a wealth of experience Marketing in the financial sector. He has a passion for helping business owners struggling with debts.