Company Liquidation is when a company's assets are turned into cash. In the case of an insolvent company the proceeds are used to pay back any creditors. If the company is not insolvent then the proceeds are distributed to members and shareholders.
There are three kinds of company liquidation in the UK
- Compulsory Liquidation
- Members Voluntary Liquidation
- Creditors Voluntary Liquidation
Please read our guide to the main types of liquidation here
The Creditors Voluntary Liquidation process is the most common and is generally straightforward:
- Directors start the procedure by realising and telling shareholders the company is no longer viable, cannot meet creditor payments or has threat of legal action upon it - they are insolvent and must stop trading.
- Shareholders ask (online, by phone or in person) a licensed insolvency practitioner to call a creditors meeting ASAP - usually within 2-3 weeks.
- A formal creditors meeting notice is sent to all creditors by the nominated liquidator (see here for examples of creditor meeting notices).
- A meeting of creditors occurs; in person or digitally online. No longer are physical meetings mandatory, unless it is requested by 10 individual creditors, 10% in total number of creditors or 10% by value of creditors. The IP will lead the meeting and direct the process.
- The liquidation will be approved by what is termed deemed consent unless is met with objection from at least 10% of creditors (in value or number). If there is an objection then a vote will need to be held.
So, this is why it's called Creditors Voluntary Liquidation. It's very common, quick and a very powerful way to close a business and deal with things properly. You can get on with a new business or job, the company is closed, leases cancelled and all the staff made redundant.
What does a liquidator do?
- Run the liquidation
- Fill out all forms
- Call and arrange meetings
- Investigate the conduct of directors before the liquidation happened
- Collects assets and turns them into cash
- Works out debts and pays creditors from any assets remaining (known as paying a dividend to creditors. Often the dividend is very little or zero because assets tend to be sold for small amounts of money by liquidators, as there are very few buyers).
What do we do as directors?
Once the company is "in liquidation" the directors have to fill out a detailed questionnaire for the liquidator. They MUST provide all of the company's books and records to the liquidator (it is a criminal offence to not comply with the liquidators information requests). After, the creditors meeting must be attended.
Being a director paid through PAYE and a salary, you may be able to claim redundancy pay, holiday pay and unpaid wages - however there are exceptions to this. Please call us on 08009700539 to talk through your options.
Can I become a director of another company if my company is liquidated?
Yes! Don't worry, you can be a director of another company. However, you must be sure to not trade with a name similar to the previously liquidated company, as this breaches s216 Insolvency Act 1986.
But always act properly, don't take chances or think you are smarter than the law - unfortunately, lots of people think they are and end up in personal financial trouble. So, call us now, and ask all the questions you want for free... 08009700539.
Summary: ACT NOW... while you still can!
If the business is facing financial difficulties, has no future and very little cash, debtors or small asset values, get it into liquidation BEFORE it runs out of cash and assets to pay for the liquidation. This is a common mistake made by directors, thinking something will turn up...but NO! they fail to act soon enough and so their business ends up with no assets, facing winding up petitions .This is more risky for the directors than voluntary liquidation. See more information on the compulsory liquidation process, of which you want to avoid!!
If you would like to find out more as well as get answers to legal and insolvency issues, request our FREE 40-page guide for worried directors.